F3 Exam Dumps - Financial Strategy

Comprehensive and Detailed Step-by-Step Explanation (Based on CIMA F3: Financial Strategy Principles)

In CIMA F3, the characteristics of fixed–income securities such as bonds are covered extensively under Financial Instruments, Cost of Capital, and Debt Finance. A key concept taught is that some bond features are contractually fixed for the entire life of the bond, whereas others fluctuate according to market dynamics.

A fixed-rate bond is one where the coupon rate remains the same throughout the bond’s life. According to F3 learning materials, the coupon rate is established at issuance and does not change, regardless of interest rate movements in the market. Therefore, the coupon rate is fixed (A is correct).

The nominal value (also called par value or face value) is another element explicitly stated in debt contracts. The nominal value is the base amount upon which coupon interest is calculated, and it does not fluctuate over the life of the bond. It is only repaid at maturity. Thus, nominal value remains unchanged (D is correct).

Furthermore, the amount payable on maturity is predetermined in the bond indenture and is equal to the nominal (par) value unless the bond is a special type like a convertible or index-linked bond. Standard fixed-rate corporate bonds repay par value at maturity, so this amount does not change. Therefore, the redemption amount remains constant (E is correct).

In contrast, the yield varies with changes in market interest rates and investor demand. Higher market rates reduce bond prices and increase yields, and vice versa. Therefore, yield is not constant. Likewise, market value also fluctuates due to interest rate changes, risk perceptions, and market expectations. Hence, both (B) and (C) are incorrect.

Current value of Z = 590m.

Price for targets: A 25m, B 62m, C 67m, D 60m.

Synergy (or value added) = Combined value – (Z value + Target price):

A: 620 – (590 + 25) = 5m

B: 655 – (590 + 62) = 3m

C: 666 – (590 + 67) = 9m

D: 652 – (590 + 60) = 2m

Largest gain is with C.

Use CAPM:

10%=1%+β(7%−1%)⇒0.10=0.01+0.06β⇒β=0.09/0.06=1.510\% = 1\% + \beta(7\% - 1\%) \Rightarrow 0.10 = 0.01 + 0.06\beta \Rightarrow \beta = 0.09/0.06 = 1.510%=1%+β(7%−1%)⇒0.10=0.01+0.06β⇒β=0.09/0.06=1.5.

Beta > 1 ⇒ higher risk than the market.

Answer: A. It has greater risk than the average market risk.

A – Shareholders who want cash can sell into the repurchase.

B – Fewer shares in issue → higher EPS for remaining shareholders.

C – Reduces surplus cash that might attract predators.

Semi-strong form efficiency means all publicly available information is already in the share price; only new information about future cash flows or risk will change shareholder wealth.

A positive-NPV project creates new value → share price should rise on announcement.

The other options (unchanged dividend, revaluation, impairment) either convey no new value creation, or even bad news (impairment).

Answer: A. Announcing that a project will be undertaken generating a positive net present value.