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Derivatives analysis and valuation Illustration 4 on real options
AFM
answered on 11-May-25 12:05
It is given that the current yield on treasury bonds i.e. Rf for 15 years duration is 7.8%. So in the black scholes model while deriving d1 why do we need to again multiply by time t is the rate is already for 15 years. And if we have to what is this expected cost of delays that we are subtracting from Rf.
latest answer
Int rate is always per annum Explained dividend based Black scholes model in class Pls go through that
Valli Kotapati
CA Final
★ 5
1
251
Perpetual cash flow
AFM
answered on 11-May-25 10:33
Sir, can you explain the difference between perpetual and terminal cash flow?. What do they mean by perpetual cash flow at the end of year 5? and why is it so high from the cash flow of year 5?
latest answer
Perpetual means that it will continue forever terminal means last When we value a share, since a company can exist forever, we value all perpetual CF at the end of explicit period and arrive at a value called terminal value Perpetual cashflows may be growing or not growing Terminal CF means cash flow for last period. It can be an a single value like say salvage value of machinery once a project is complete or it can be PV of all Perpetual cashflows
Nitin Raj
CA Final
★ 270
1
272
Normal Distribution
AFM
answered on 10-May-25 09:05
What do they mean by Area of the left or right (one tail)?
latest answer
Normal curve
Ruthvik Reddy Adala
CA Final
★ 5K+
1
302
Swap Ratio
AFM
answered on 10-May-25 08:59
Instead of using above part 4. Can i use the formula Post mergers EPS= ((PAT XYZ)+ (PAT ABC))/XYZ's Shares +Shares issued to ABC? let us assume x is the propotion that issued by XYZ for every one share held in ABC... so,4lakhs multiply with x = 4,00,000x Which is not less than Present EPS of XYZ that is 40 So, ((10,00,000*40)+(4,00,000*28))/(10,00,000 shares +4,00,000x)>=40 x=0.7 I hope it is the swap ratio if question asks maximum exchange ratio.
latest answer
Yes
Alekya Bandaru
CA Final
★ 2K+
1
322
Portfolio Replicating Strategy
AFM
answered on 10-May-25 08:58
Can you please elaborate on how we arrived at the PV of option using the Portfolio Replicating Strategy?
latest answer
Portfolio replication
Ruthvik Reddy Adala
CA Final
★ 5K+
1
392
PV of Payoff
AFM
answered on 09-May-25 06:35
The present value of the expected option payoff is not computed since no relevant was provided?
latest answer
Yes
Ruthvik Reddy Adala
CA Final
★ 5K+
1
281
Order of Classes
AFM
answered on 07-May-25 16:56
Sir, what is order in which i should listen classes? As I open the classes it is directing to Introduction class which is my last watched class. Or the chap. 1 to chap. 19 is itself the order?
latest answer
Before you go to chapter 1 please go through the introduction chapter. I have explained in that the order of watching chapters Pls follow it
Murali Thripuraboina
CA Final
★ 3K+
1
352
Why bonus units and div reinvested units was not added to the closing units
AFM
answered on 06-May-25 14:59
why we are not including the bonus issued units and dividend reinvested units in the closing value on the date of bonus issue and div reinvestment date. e.g 31.03.2020 closing units was 30,000, Bonus issue of1:5 shares issued on 31.12.2018 which is 5000 units. So, closing units as on 31.12.2018 has to be 30,000(25,000+5,000) instead why we are excluding the bonus unit of 5,000 and taking only 25,000(closing units before bonus issue) as closing unit as on 31.12.2018 . Generally, in bonus issue date the bonus units were added to opening units as on the date to derive the closing units.
latest answer
Because bonus and dv reinvestment happens at closing NAV So best way to look at is X units are of y value each - total value is xy 2x units 0.5 value - total value xy You have to ensure that post bonus and div reinvestment total value of portfolio does not change
Shinisha Rose R
CA Final
★ 5K+
1
279
Incremental CF
AFM
answered on 06-May-25 09:20
Sir, can you explain why are we computing PV for incremental CF and not PV for CF of the proposed project. Is it that because of the proposed project, the company is losing CF from exports. So the project will include the loss of CF from exports.
latest answer
Yes
Nitin Raj
CA Final
★ 270
1
289
Sales rate
AFM
answered on 05-May-25 21:08
Sir, the question says that "Annual sales is expected to be 10,000 units at the rate of CN¥ 500 per unit and it is expected to rise at the rate of inflation". How can i identify that CN¥ 500 is for year 0 and not for year 1.
latest answer
Gd question We have assumed fixed exp & SP as yr zero - as per icai SM Exam Q will have greater clarity in my opinion
Nitin Raj
CA Final
★ 270
1
336