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FIN4802 Assignment 1 (DETAILED ANSWERS) 2026 - DISTINCTION GUARANTEED

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FIN4802 Assignment 1 (DETAILED ANSWERS) 2026 - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED Answers, guidelines, workings and references .. QUESTION 1 10 marks 1. Assume that Jones Corp. (a U.S. firm) expects to receive 1 million Euros in 1 year. The spot rate of the Euro is $1.20. The 1-year forward rate of the Euro is $1.21. Jones expects the spot rate of the Euro to be $1.22 in 1 year. Assume that 1-year options on Euros are available, with an exercise price of $1.23 and a premium of $0.04 per unit. Assume the following money market rates: United States Eurozone Deposit Rate 8% 5% Borrowing Rate 9% 6% (a) Determine the dollar cash flows to be received if Jones uses a money market hedge. (Assume Jones does not have any cash on hand) (5) (b) Determine the dollar cash flows to be received if Jones uses a put option hedge. (5) QUESTION 2 10 marks (a) A call option allows the holder to buy USD100 000 at an exercise exchange rate of 1.8000 (AUD/USD). If the premium paid is 0.5 Australian cents per USD, calculate the net payoff at the following spot exchange rates: i. 1.8040 AUD/USD (4) i. 1.8260 AUD/USD (4) ii. 1.7870 AUD/USD (3) Powered by CamScanner iv. Atwhat exchange rate will the holder break even? (4) (b) A put option allows the holder to sell NOK250 000 at an exercise exchange rate of 0.190 (AUD/NOK). If the premium paid is 0.4 Australian cents per NOK, calculate the net payoff at the following spot exchange rates: i. 0.200 AUD/NOK (3) li. 0.192 AUD/NOK (1) li. 0.180 AUD/NOK (3) iv. Atwhat exchange rate will the holder break even? (3) QUESTION 3 30 marks StellaR Trading LLC, a United Arab Emirates (UAE) multinational enterprise, is contemplating undertaking foreign capital expenditure in South Africa. The initial cost of the project is ZAR10 000 000. The annual cash flows over the project's five-year economic life, in ZAR, are estimated at R, R, R, R6 000 OOD, and R7 000 000, respectively. The parent firm’s cost of capital in the UAE Dirham (AED) is 9.5 percent. Long-run inflation is forecast to be 3 percent per annum in the UAE, and 7 percent in South Africa. The current spot foreign exchange rate is ZAR/AED = 3.75. Determine the NPV for the project in AED by: (a) Calculating the NPV in ZAR using the ZAR equivalent cost of capital according to the Fisher Effect and then converting to AED at the current spot rate. (10) (6b) Converting all cash flows from ZAR to AED at Purchasing Power Parity forecasted exchange rates and then calculating the NPV at the AED cost of capital. (12) (c) What is the NPV in AED if the actual pattern of ZAR/AED exchange rates is: S(0) = 3.75; S(1) = 5.7; S(2) = 6.7; S(3) = 7.2; S(4) = 7.7; and S(5) = 8.2? (8)

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LPL4802
MAY JUNE PORTFOLIO 2025
Unique #:690828

Due Date: 29 May 2025

Detailed solutions, explanations, workings
and references.

+27 81 278 3372

, QUESTION 1

Ngubane v Road Accident Fund 2022 (5) SA 231 (GJ)

Facts of the Case

Simphiwe Bongayiphi Ngubane was a pedestrian involved in a motor vehicle
accident on 27 February 2019. He initiated a claim for general damages against the
Road Accident Fund (RAF) on 11 August 2020. The RAF failed to respond or defend
the action. Before the matter reached the stage of litis contestatio (closure of
pleadings), Mr. Ngubane passed away on 25 February 2021. His estate, represented
by an executor, was substituted as the plaintiff. The application for default judgment
followed, but the presiding judge questioned whether the claim for general damages
could legally transfer to the deceased’s estate before litis contestatio had been
reached.1

Legal Question

The key legal issue was whether a claim for general damages (a personal right) can
transfer to a deceased estate if the deceased passes away before litis contestatio is
reached.2

Judgment and Ratio Decidendi

The court confirmed that according to longstanding common law, a claim for general
damages does not transfer to a deceased estate unless litis contestatio has
occurred.3 In this case, litis contestatio had not taken place, as the defendant (RAF)
had never filed a plea, and pleadings were not closed. Thus, the claim for general
damages could not legally pass to the estate.4

The court acknowledged that a majority in Nkala v Harmony Gold Mining Co Ltd had
proposed a blanket development of the common law to allow such claims to transfer,
irrespective of litis contestatio. However, Thompson AJ preferred the minority view in




1
Ngubane v RAF 2022 (5) SA 231 (GJ), para 2.
2
Ngubane, para 3.
3
Ngubane, paras 17–18.
4
Ngubane, para 20.


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