Page 289 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Exam style questions and answers

30 C, E

STIRS are standardised for 3 month notional deposits or loans, so the number
of contracts = (10 million/500,000) × (9 months/3 months) = 60
The company wishes to deposit funds so would set up a hedge on the futures
market by buying futures, so will need call options.

31 B, D

The IRR (C) and the cost of the initial investment (A) are independent of the risk
of the project. The higher the risk of the project, then the higher the required
rate of return. Higher risk can also be reflected in higher value cash outflows
(costs).

32 257,732

(ACS × 0.97)/0.05 = $5,000,000
ACS = ($5,000,000 × 0.05)/0.97 = $257,732

33 A

Water utility has the lowest systematic risk as indicated by having the lowest
beta.

34 C

(5/48 × 5%) + (8/48 × 8%) + (35/48 × 11%) = 9.875% or 10%

35 C

36 A

Base case NPV = –250 + (50/0.15) = 83.33

PV of financing side effects = (100 × 0.06 × 0.35) × 7.360 = 15.46

APV = 83.33 + 15.46 = + 98.79 or 99

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