Introduction
Question Two of the March 2025 ICAG Financial Management paper was “the worst answered question in the paper.” The pass rate was 12%, down from 34%, and only 68 candidates passed it compared with 223 in the previous sitting. This article rebuilds the question from the marking scheme so you can see each calculation and the trap behind it.
What the Report Actually Said
The Chief Examiner wrote that “understanding the right formulas to use and how to compute was a major challenge to most candidates.” In the general comments the same point appears: “Even with the formula tables provided in the exams some candidates still struggled to identify which formulas are applicable to the question they are answering.” The overall pass rate for the paper was a stable 41%, so this was one question, not a weak sitting.
The Scenario in Brief
A university needs GH¢50 million for a hostel. Option one is a 28% syndicated loan compounded quarterly, with a two-year moratorium during which interest accumulates, followed by ten years of equal quarterly instalments. Option two is 50,200 bonds of GH¢1,000, 26% coupon paid semi-annually, redeemed in 15 years at a 10% premium, backed by a sinking fund with deposits at the beginning of each half-year from year 3 to year 15, earning 20% a year. The project NPV is assessed at 30%.
The Governing Principle
Every time-value question has two numbers to fix before any formula: the rate per period and the number of periods. Then decide the timing: end of period (ordinary annuity) or beginning (annuity due).
The Four Calculations
| Part | Key signal in the wording | Working | Answer |
|---|---|---|---|
| (a)(i) Balance after moratorium | “Interest will accumulate” | 50,000,000 × 1.07^8 | GH¢85,909,309 |
| (a)(ii) Quarterly instalment | “End of each quarter”, 10 years | 85,909,309 ÷ 13.33170884 | GH¢6,443,983.29 |
| (b)(i) Redemption value | “Redeemed at a premium of 10%” | 50,200 × 1,100 | GH¢55,220,000 |
| (b)(ii) Sinking-fund deposit | “Beginning of every six months”, years 3 to 15 | 55,220,000 ÷ 120.0999419 (26 deposits, 10%, annuity due) | GH¢459,783.74 |
Part (c): NPV
The scheme builds after-tax cash flows of −20.00 in year 1, −30.00 in year 2, +20.00 in years 3 and 4, and +130.00 in year 5 (20.00 operating cash plus a terminal value of 110, from 20 × 1.10 ÷ (0.30 − 0.10)). At 30% the present values are −15.38, −17.75, 9.10, 7.00 and 35.01, giving an NPV of GH¢17.98 million, so the project is accepted. Note that the 30% rate belongs to part (c) only.
EXAM TIP: Before using any formula, write three lines on your page: rate per period, number of periods, and timing (beginning or end). Most of the lost marks on this question start with one of those three being wrong.
Conclusion
Even with a formula table in the exam hall, the examiner says candidates could not tell which formula applied. Train the reading step, not only the arithmetic. Practise five questions where the only thing that changes is the timing word.
Ready to Go Deeper?
This topic is covered in full inside the Profs Accountancy Solutions course. Get the full self-paced course here.
Join the free newsletter for weekly study tips and exam breakdowns, and ask about the Profs hardcopy textbook and digital edition.
