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1 F9 Untangling F9 terminology LC event 23 November 2015 Link to document: ACCA resources to support specific exams can be accessed via the exam resources finder here: We strongly recommend that all ACCA students use out Approved Content Provider materials (study text and question banks) you can access their websites from here: I do have problems in understanding the sensitivity analysis. Could you give me an explanation on that? Could you please explain the difference between the various debt instruments? Bonds, Debentures, Loan notes... I've taken this paper 4 times, each time getting 48/49%... so I need all the help I can get to gain that extra mark to pass... losing hope Any tips on preparing for MCQs? I think my biggest problem here is the MCQs, in most cases I don t understand them especially the financial markets good thing we have good the notes on that topic. Why should an examiner cover that topic with more questions is just beyond me Could we look at the Modigliani and Miller? I m struggling with the definition of the difference between the traditional view of capital structure and the Modigliani and Miller no taxation view? Modigliani and miller theory of world free tax etc. The relationship between WACC and M & M (with tax and with no tax, and traditional theory). When will it fall? Thanks on the M&M definition, under the traditional view what is it that can make the WACC increase, is it the cost of equity alone increasing? Views of M&M on dividend policy brief elaboration That's quite a large topic. Can you let us know what gives you most difficulty? Bonds, loan notes and debentures are essentially the same thing. The term used in the F9 exam will be loan notes With a mark at 48 / 49% - it will be exam technique - this means you must practice exam standard questions - managing your time, making sure you answer the question set!! There's a great article on MCQs - we will post the link in a moment... Here's a useful article on answering MCQs: Under the traditional view there is an optimal capital structure where the mix of debt and equity gives the lowest WACC, M&M no tax says that capital structure makes no difference to the WACC M&M with tax states that a company should use as much debt as possible to achieve the optimal capital structure Beyond a certain point having "too much" debt increases the financial risk and increases the return required by shareholders (the cost of equity) M&M view on dividend policy is that whether you pay a dividend or reinvest earnings it makes no difference to shareholder wealth

2 Elaboration on money market hedge please I don t get the definition if international fisher effect and the expectation Theory I only understand that expectation theory us where the Fo is equals to future spot rate And for international fisher effect is where relative interest rate between 2 country must be equal to relative inflation rate I paid to have one of my papers reviewed and the feedback was I passed all the questions which make up the 60% but failed on the MCQ... I struggle with MCQ, as options can be so similar and feels like they try to catch you out. If I had a chance to explain answers I would at least pick up method marks.. This will be my second attempt for F9. MCQs are seriously painful I'm confused about business valuations using net assets as there are 3 methods to use. Should you use a combination of all 3 depending on the question or just stick to one? I have practiced the MCQs of first intuition QB. Do I need to do anything more with respect to MCQs? oh no, this is what our company provide us. It's too late now I guess. Can you suggest what can I do now? Does it mean only BPP, Kaplan and Becker are approved Give us some tips on how to attempt the paper? e.g answer the MCQs at the end? Brief on venture capital I also have problems in understanding the Gordon growth model and the Money market hedging is an alternative to using the forward market. You need to focus on whether the company will in future have a foreign currency receipt (in which case they'll take out a loan now in the foreign currency) or making a foreign currency payment (in which case they need to invest now in the foreign currency) You're correct in saying that the Fisher effect shows how relative interest rates are equivalent to relative inflation rates. Multiplying the current spot rate by (1 + ia)/(1+ib) gives a prediction of the exchange rate which can be used to determine what forward rate to quote. Susanna - MCQs are tricky and you have to go slowly as there are 'distractors'... the best thing you can do is practise practise practise!! Make sure you work through all the questions in the approved content provider question banks They might be painful but they are essential in testing the full breadth of the syllabus - you just need to make sure you do lots of practise and then take your time in the exam so you don't trip up! You should be told which method to use in the exam FI are not approved content - we recommend you always use our approved content provider materials - BPP, Kaplan or Becker If you cannot get hold of the other books - maybe look at the specimen exam and most recent past exam son the website That is correct Everyone works differently, personally I would say try the MCQs first but you have to be careful not to get too caught up in MCQs - it s all about time management - best way to find out the best way for you is to practise full exams TO TIME!! Venture capital is external investors who are looking to invest in normally new, risky companies. They believe that the companies may eventually offer them high returns. The Gordon growth model uses the formula g=rb to get the growth rate, for

3 historic growth model How about expectation theory. I can t seem to understand its definition as I only remember that expectation theory is where the yield curve will slope upwards as the investors expect a higher return due to deferring their expenditure therefore requiring a higher return. I know the exam is meant to cover the whole syllabus, can you just give headlines on the topics that are mostly likely to arise and carry lots of marks in Section B Could you explain semi strong and strong markets? Can you please give some explanation about ex-div price and cum div price? What does it really mean I m finding it very hard to decipher from the questions what the examiner is looking for, in particular with the written questions, when I look up the answer I find I ve answered as they say the weaker answers were. Any suggestions on what I should be looking for in the questions to distinguish how I should answer. Sorry a bit vague question I know but if you have any general tips that would help I had a very decent exam last time but ended up at 42 Marks. Something went wrong What is spot rate and what forward rate? Just a quick question. While attempting any theory question, do I need to give conclusion as well? is it necessary in almost every question? Sometimes I mix up the expectation theory for the foreign exchange rate topic and the financing topic. Are they the same? Can you please elaborate a bit about sensitivity analysis? historic growth take the most recent and oldest dividend figures to work out the growth rate, make sure you take account of the number of years eg two years of growth take the square root, three the cube root etc Expectation theory says that the spot rate in three months time will equal the forward rate for three months quoted now ie that the spot rate will be influenced by interest rates/inflation rates, and predictions of interest rates/inflation rates will be correct I cannot tell you what topics will come up as I don't know!! We do examine all areas of the syllabus so I'm afraid you need to make sure you cover everything in your studies Semi -strong means that the share price includes all relevant publicly available information - share prices change very quickly after public announcements, strong is where all information is already included in the share price so public announcements make no difference to the share price Ex div means that the share price doesn't include the current dividend, cum dividend the share price includes the current dividend. If you're told the current dividend, you'll have to subtract it from the cum div price to find the ex div price I'm not sure what advice I can give you other than you must keep practising questions but then when you review your answer you need to try to work out what you are not doing / are doing that means you have a weaker answer - so spend lots of time reviewing and thinking, it will be time well spent! With 42% I would say that's down to exam technique - you need to practise doing questions to time maybe? Your question is covered in 'Untangling F9 terminology' please look at that again Yes, conclude if you are asked to - eg, when you are asked to 'evaluate' or 'recommend' No they aren't. Expectation theory for foreign exchange relates to expected foreign exchange rates, expectation theory for financing relates to the returns (interest) that investors are expected to want. Sensitivity analysis is a way of dealing with uncertainty in investment

4 And probability and analysis Advice on exam technique Can you simply explain foreign exchange risk? For theory questions, For example ' Explain the performance of the Company for the current year and previous year' how do we give a proper explanation to extract good marks What is the diff rent between two method of cost of debt. one is by IRR and one by formula of Kd=i(1-t)/ve. What is profitability index? Re which discount factors to use when trying to calculate the cost of redeemable debt - are there any useful links. I was doing one of the practice questions and it suggested that you need to use the cost of the debt as if it was irredeemable and add in the annualised capital profit made Can I use interest rate parity formula to calculate money market in the exam? Could you explain TERP? What are gilts? What to do night before an exam? appraisal, it involves seeing by how much one variable needs to change before the NPV of a project becomes zero. Probability analysis is a way of dealing with risk in investment appraisal, involving applying known probabilities to obtain an expected value. Be careful when using expected values as it may mean you get an expected value which is not a possible outcome There are lots of aspects to exam technique - have you checked all the F9 articles on the website? The main foreign exchange risk for F9 relates to sales or purchases in a foreign currency that are agreed now but where the receipts or payments take place in the future. Between now and the future date exchange rates may move so that the foreign currency receipt/payment is worth less/more in your currency when it's made than it is today. You should take the information given to calculate performance ratios (these will usually also be given in the question), then compare ratios between years or to industry averages to see how the company is doing Try to look at the overall picture and not just comment on each ratio The IRR method is used when there is redeemable dent, the other method is for irredeemable debt. Profitability index compares the receipts from an investment with the amount of the investment It does not matter too much which rates are used, but pick a sensible second rate depending on the answer to the first rate used, so if you use 10% and it is negative, use a lower rate for the second one The technique for money market hedging is based on interest rates but you won't need the interest rate parity formula to predict the future exchange rate directly The TERP is the theoretical share price after the rights issue has taken place calculated by a weighted average of the current share price and the rights issue price Gilts are government debt that investors can purchase to receive a guaranteed amount of interest each year. Sleep!! In all seriousness it's actually best to make sure you relax a little so

5 Any tips! While evaluating investment proposal, which cost of capital is used? Pre tax or post tax? When will pre-tax be used? I m confused whether to use pre or post tax for calculations Could you explain about factoring? Where can I get September 2015 exam papers? When to use nominal rate and when to use real rate? If they say tax relief on interest how do we work about that? you are in top shape for the exam! Maybe look through a few notes for an hour or so, but then watch a movies / read a novel / play football etc but most importantly relax! If the cash flows are post-tax (which means tax is included in the appraisal) the post-tax discount rate should be used Pre-tax rates are used when the cash flows are before tax Factoring is when another company collects the debts that you're owed. The factoring company will guarantee you'll receive a proportion of the debts but will require some of the amounts owed as its fee. With the introduction of the four exam sessions, we will continue to publish the same number of exams, two per year, and at the same times, after the December and June exam sessions. These exams will be compiled from questions selected by the examining team from the two preceding sessions. That is, they will not reflect the entire September or December exam, for example, but will contain questions most appropriate for students to practice. The question banks of published by our Approved Providers will contain these questions and suggested solutions, updated as necessary as noted above Nominal rates are used when the cash flows are nominal - meaning they have been adjusted for inflation each year To work out interest net of tax relief multiply the interest by (1 tax rate) ACCA