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Recent content by Colin McKee

  1. C

    Assignment X2.4

    I think the key is that you are thinking that the tax liability can be reduced by reducing the amount of corporation tax that you become liable for. But the question assumes that the profit has been made, the tax is set and is due, and the only way to reduce the liability for tax is to pay it...
  2. C

    SP5 September 2024 Q2iii

    The examiner considers 1m of I-L assets to establish how much 1m I-L bonds would increase if inflation moved 1/100th percent. But the key is that the examiner then uses that result to determine we would need 45m I-L bonds to hedge the liabilities. So the 1m is scaled up. (the 1m was just to...
  3. C

    SP5 September 2024 Q2iii

    There are quite a few calculations here. Can you indicate which parts of the examiners calculations you are struggling with and I can narrow it down a bit?
  4. C

    SP5 September 2022 Q7i & ii

    OK - good news. SP5 Sept 2022, Q7 looks like a completely different question to me. You may have noted the year wrong.
  5. C

    ST5 September 2016 Q5 (iii)

    It looks at first glance like you are treating the forward rates as if they were spot rates. So for the final period you have 1.0214^-6 as if the 2.14% was a half yearly interest rate that applied from t=0 to t=6. The rates are described as forward rates. So to get the discount factor for...
  6. C

    ST5 April 2015 Q5

    Ahh I see what you are doing. The "total - stock selection = sector selection" only works on an overall basis. Not sector by sector. So you can derive the sector selection overall by deducting the stock selection overall. But to get the sector selection by sector, you need to use the...
  7. C

    Why does share buyback reduce equity?

    Your misunderstanding comes from the fact that you have assumed that the bought-back shares are held by the business. This is not the case. The shares bought back would be cancelled, and as such they would disappear from the SFP completely. So that is why equity reduces.
  8. C

    ST5 April 2015 Q5

    The two methods for calculating sector selection (above) are essentially the same, and should give the same answer. To help you, you would need to put your calculations into the thread, and I could see why you are getting different answers.
  9. C

    Chapter 12 - Valuation of Investments (1), example Q on convexity adj

    The deign of the short term interest rate future is that the index "Z" is designed to be "100 - expected short term rate in the future". So if it is trading at 95, then people must think the expected rate is 5, because 100 - 5 is 95. 5 is described as the "future rate". All interest rate...
  10. C

    Caps and Floors as pfs of bond options

    Hi, Can you tell me which part of this you dont feel 100% with. I would be in danger of repeating the same thing. Can you tell me the way you think about caps?
  11. C

    April 2021

    I dont think your interpretation is valid here. They will indeed have to buy the remaining 25% in the spot market. (In fat they will probably buy 100% of requirements on the spot market and just unwind the future.) But those spot purchases will be the same if they hedged 0% of their fuel...
  12. C

    September 2018 Q3

    Hi, We didnt do an ActEd ASET for this year, so I dont have the full calcs in front of me. I do have my own spreadsheet which I did when the exam was set, and it shows a sector selection loss of 0.25% (for both A and B). I do notice that the examiners solutions have two numbers for each calc...
  13. C

    September 2018 Q3

    I agree that was a difficult question. It asks you to work backwards to find the options required. In tutorials I sometimes say to people that you can do it by the shape - if you draw the butterfly, then start working from (say) the left hand side. It is horizontal, but then it starts to rise...
  14. C

    April 2021

    Hi, The second of the queries above is easier. The B(t) divisor is simply there to adjust the monetary value of the dividends received on a certain day to be consistent with the capital value of the index components. So if B(t) is 5m, and the market cap on the top line is 500m, then the index...
  15. C

    FAQ for Subject SA7 (updated May 2025)

    No unfortunately there is not. Two reasons: firstly we have never done an ASET because there arent that many students (and only one tutor). Secondly because many SA7 questions cannot easily be linked to a chapter of the SA7 (previously SA6) course. Many questions give a specific financial...
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