hey, whoever completed this exam already, can u guys help me out with something? #109 - why is there no reason, in the answer explanation, as to why A was chosen #105- help with this calculation. totally lost #38 - does anyone else notice a mis use of the international fisher relation?
Q105 Depreciaton for yr 2 is .45 * 400.000 = 180,000 (MACRS Schedule) So operating cash flow is (S-C-D) = 150,000 - 180,000 = -30,000 Apply taxes of 40% makes taxes = -12,000 makes it -30,000 - (-12,000) = -18,000 thus because of taxes operating cash flow changed from -30,000 to -18,000 , an increase of 12,000, choose option D Q109 Since we are long the stock and we wish to hedge, we need to short the options. this eliminates C and D. We need to choose between A and B option A is 1month call option with delata = 0.54 option B is 1month call option with delata = 0.58 now using formulae on page 259, book 5, no of options needed to hedge = no of shares hedged/delta of call option thus no of options will be 5000/.54 or 5000/.58 5000/0.54 = 9259 options thus we choose option A Q38 We know that US risk free rate nominal is 7% and US inflation rate is 3% Using the exact form of Fischer relation = (1+nominal rate) = (1+real rate)(1+Inflation) which gives us the real rate to be 1.0388% Since Japanese annual inflation is 0%, the Japanese nominal rate is 1.0388% and Eurozone inflation is 5%, the nominal rate in the Eurozone is 1.0388 * 1.05 = 1.0908. Thus the forecasts provided are correct, choose option A
sorry about the typo - change delata to delta!!
wait 109. why did u choose A and not B? 38 - isnt fisher: (1+id)/(1+if) = (1+ rd)/(1+rf) d- domestic f - foreign this is what im getting from schweser
109 I chose A coz the 2 month call delta was 0.58 and 5000/.058 give us 8620.68 options, which is not the answer given in B and why is Q38 not Fischer? (1+real rate)(1+Inflation rate) = (1+nominal rate) can be thought of as a one country Fischer relation right? And I am not a dude by the way!!!
opps sorry meant 3 month option delta, not 2 month
about delta: if my holding period of the stock is 3 months, do i have to choose a 3 month option or can i hedge with a 1 month option (and then roll over,i guess)? this is in reference to the option question above.Q 109
^ that’s pretty much what I thought too… this derivatives stuff gets me totally nervous!! dont when when I am right, and if I am right, as to why I am right!!