Absolute Free CIMAPRO19-P03-1-ENG Exam Practice for Comprehensive Preparation 

A UK manufacturing company has simultaneously:

* purchased a put option to sell USD 1million at an exercise price of GBP1.00 = USD1.65

* sold a call option that grants the option holder the right to buy USD 1million at a price of GBP1.00 = USD1.61(this option has the same maturity date as the put).

Which of the following is a valid explanation for entering into these option positions?

Company W produces mobile phone components and has recently tendered for a substantial contract. The results of the tendering process will not become available until three months from now. If the company is successful it will require 2,000 units of a commodity which is currently traded in an open commodity market for $740 per unit. However, there has been speculation that this commodity could increase substantially in price over the next three months and so the company is considering purchasing the commodity now and storing it for three months.

The funds to buy the commodity would be borrowed at an annual interest rate of 7% and the storage cost of the product would be $5.40 per unit per month. The storage costs would be paid at the end of the three month storage period.

Which of the following represents the gain or loss (to the nearest thousand dollars) that will accrue to Company W assuming that the price of the commodity rises to $800 in three months' time?

FGT is evaluating the political risks associated with its operations around the world.

Which of the following would indicate that a particular subsidiary has a high level ofpolitical risk?

RFG is considering a major expansion that will result in a more diversified business model.

At present, RFG's market capitalisation is $240 million. This is based on a beta of 1.6. The risk free rate is 4% and the market rate of return is 9%. RFG is financed entirely by equity. The company generates an annual cash surplus of $28.8 million.

The expansion will cost $50 million and will generate future cash flows of $12 million in perpetuity. This new business will reduce RFG's beta to 1.4.

Calculate the adjusted present value of the expansion.

Which of the following is an ethical dilemma?