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Bond valuation
AFM
answered on 18-Mar-24 21:48
What is this 1/2 in the given formula?? Sir does the convexity formula have this 1/2 in it??
latest answer
icai uses 1/2 in C* formula i.e ( C * = (V+ + V - - 2V0)/ ( 2 V0 x delta y power 2 ) denominator has 2 i.e 1/2 is multiplied at C* level itself i suggest you follow icai rest of the world ( including CFA and several other renowned authors) follow what is given in p590 - i shall change the Book P590 - thanks for pointing it out
nazriya nasar
CA Final
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1
392
Basis points
AFM
answered on 18-Mar-24 19:53
How much is 50 basis points in %?
latest answer
0.5% 100 basis points (bps) is 1%
nazriya nasar
CA Final
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1
357
Nominal cashflow computation
AFM
answered on 18-Mar-24 21:44
In this question(qn no 1), we know that the depreciation is constant (₹10,000) across all 4 years. The real cashflow without inflation is ₹15,000. Subsequently, when computing the nominal cashflows for years 1 to 4, the factor of 1.1 (10%) is directly applied on this real cashflow. Is this the correct way as it applies the inflation rate on depreciation too? Shouldn't the nominal cashflow of the subsequent year be calculated as below? Nominal cashflow after tax = [(Revenue x 1+i) - (Cost x 1+i)] x (1 -Tax rate) + (Depreciation x Tax rate) = [(30,000 x 1.1) - (10,000 x 1.10)] x (1 - 0.5) + (10,000 x 0.5) = (33,000 - 11,000) x 0.5 + 5,000 = 16,000
latest answer
in what i have solved in class i did Method A nominal cashflows 15000 x 1.1 ( 1.12) 1.12 = 1.1 x 1.0182 So technically it is 15000 / 1.0182 Method 2 real cash flows = 15000 / 1.0182 hence diff does not exist In your working both real and nominal cash flows are computed differently and hence diff
Srinivasan R
CA Final
★ 0
4
559
FRA rates
AFM
answered on 18-Mar-24 21:55
if a 6 x 12 FRA having the rates of 6.5% - 6.75%, that means if a person wants to borrow under FRA it will be @6.75% and if he want to deposit under the deposit under FRA it will be 6.5%., irrespective of the period of deposit (i.e., 06 or 12 months tenure) Is my understanding correct? or am i missing something here? Please clarify..
latest answer
Acha okay, thanks sir
Chandu vadla
CA Final
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5
421
Conclusion
AFM
answered on 17-Mar-24 20:19
Can't we say it's better to replace in year 0 as NPV is positive
latest answer
Right sir 😂
Hrishikesh Pradhan
Qualified CA
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2
422
Securities Valuation - Equities
AFM
answered on 17-Mar-24 14:22
Hello Sir, In this problem, Capital Expenditure is directly given, but it doesnt add up with the opening and closing values? Could it be assets disposed off? And if so, should we add it to FCFF as per the formula given?
latest answer
Ohh missed it! 😅, thank you so much sir
Susee Arunachalam
Qualified CA
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2
349
Sensitivity in the cost of capital
AFM
answered on 18-Mar-24 21:38
Hello Sir, In the question where the sensitivity of the cost of capital is given as 60%, they have not mentioned that if the cost of capital varies by this sensitivity percentage, the NPV becomes zero.
latest answer
Yes
Suresh Avinash
CA Final
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3
494
Securities Valuation
AFM
answered on 17-Mar-24 14:21
Hello sir, In this problem, they have also asked to find whether Company's D/P Ratio is optimal using Walter's formula. Can you please share the answer for the same as I am not able to find it in the ICAI Material also.
latest answer
Thank you so much sir
Susee Arunachalam
Qualified CA
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2
413
Best case vs worst case
AFM
answered on 16-Mar-24 06:10
In determining the best cases and the worst cases, should we consider the CFS+Scrap value in total
latest answer
Ideally npv because scrap is 1 year number and flows are over a period. But if it is apparent on face that cf and scrap. BOth are low then that is worst case
Suresh Avinash
CA Final
★ 3K+
1
409
Nominal Cashflows
AFM
answered on 16-Mar-24 11:23
Hello Sir, In this problem, when we are multiplying Real CF with the the inflation rate to find out the nominal CF are we not indirectly multiplying depreciation with the inflation rate. For example, if we find out the inflated value individually (for revenue and costs) keeping dep as constant, the cashflow for year-1 would ideally be 16000
latest answer
Because in Real method, You are doing 15000 / 1.0182 in nominal method you are doing 15000 x 1.1 / ( 1.1. x 1.0182)
Suresh Avinash
CA Final
★ 3K+
3
727