QUESTION 1

Choose the correct answer from the given four alternatives:

I  M Buys A Call Option Contract For A Premium Of Rs. 200. The Exercise Price Is Rs. 25 And The
Current Market Price Of The Share Is Rs. 22. If The Share Price After Three Months Reaches Rs.
30, What Is The Profit Made By M On Exercising The Option? A Contract Is For 100 Shares. Ignore
Transaction Charges.

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Rs. 300 Correct Answer

Ii  You Are A Forex Dealer In India. Rates Of Rupee And Pound In The International Market Are US
$0.01386952 And US $1.3181401 Respectively. What Will Be Your Direct Quote Of £ (Pound) To
Your Customer.

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Rs.95.0386 Correct Answer

Iii  ‘Bank Rate’ Published By The Reserve Bank Refers To -

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The rate at which RBI is willing to buy or rediscount bills of exchange or other
Correct Answer
commercial paper.

Iv  An Investor Has Invested In A Mutual Fund When The NAV Was Rs. 15.50 Per Unit. After 90
Days The NAV Was Rs. 14.45 Per Unit. During The Period The Investor Got A Cash Dividend Of
Rs. 1.35 Per Unit And Capital Gain Distribution Of Re. 0.20. The Annualized Return Based On 360
Days Year Count Will Be

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12.92% Correct Answer

V  Initial Investment Of A Project Is Rs. 25 Lakh. Expected Annual Cash Flows Are Rs. 6.5 Lakh For
10 Years. Cost Of Capital Is 15%. The Annuity Factor For 15% For 10 Years Is 5.019. The
Profitability Index Of The Project Will Be

Not Attempt!!!!

1.305 Correct Answer

Vi  Rate Of Inflation = 5.1%, Β = 0.85, Risk Premium = 2.295%, Market Return = 12%. The Real
Rate Of Return Will Be

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4.2% Correct Answer

Vii  In A Constant Dividend Model, The Following Estimates The Difference Between The Required
Rate Of Return And The Growth Rate:

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Dividend yield ratio Correct Answer

Viii  Presently, A Company’s Share Price Is Rs. 120. After 6 Months, The Price Will Be Either Rs.
150 With A Probability Of 0.8 Or Rs. 110 With A Probability Of 0.2. A Call Option Exists With An
Exercise Price Of Rs. 130. What Will Be The Expected Value Of Call Option At Maturity Date?

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Rs. 16 Correct Answer

Ix  A Stock Is Currently Selling At Rs. 270. The Call Option To Buy The Stock At Rs. 265 Costs Rs.
12. What Is The Time Value Of The Option?

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Rs. 7 Correct Answer

X  A Ltd., An Export Customer Requested His Banker B To Purchase A Bill For USD 80,000.
Calculate The Rate To Be Quoted To A Ltd. If B Wants A Margin Of 0.08%, Given That The
Interbank Rate Is Rs./$ 71.50/10.

Not Attempt!!!!

Rs. 71.0431 Correct Answer

QUESTION 2 (a)
A company wishes to acquire an asset costing Rs. 1,00,000. The company has an offer from a bank
to lend @ 18%. The principal amount is repayable in equal 5 year end instalments. A leasing
company has also submitted a proposal to the company to acquire the asset on lease at year end
rentals of Rs. 280 per Rs. 1,000 of the asset value for 5 years. The asset’s life is estimated at 5
years with residual value of Rs.10,000 and the cost net of residual value is depreciated equally each
year over its life. Assume that this is the only asset of its class so that at the end of the 5 year there
will be a capital gain or loss with 20% tax effect when the asset is sold. The tax rate of the company
is 50%. Present annual cash flows and arrive at the discounted cash flows for each year showing
salvage value separately. Use PV factors as provided. Round off calculations to the nearest rupee.
Assume cash flows on interest and taxes also at year ends.

Annuity Factor 

   
4 yrs 5 yrs

2.69 3.127
3.239 3.889
2.856 3.353
2.913 3.432

PV Factors 

Rate /End 1 2 3 4 5
of Year

18% 0.847 0.718 0.609 0.516 0.437

9% 0.917 0.842 0.772 0.708 0.650
15% 0.870 0.756 0.658 0.572 0.497
14% 0.877 0.769 0.675 0.592 0.519
10% 0.9091 0.8264 0.7513 0.6830 0.6209

On the basis of the above information answer the following questions;

Choose the correct answer from the given four alternatives:

I  The Present Value (PV) Of Lease Rentals Would Be

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Rs. 54,446 Correct Answer

Ii  What Minimum Sale Value Of The Asset At The End Of The 5 Year Will The Decision To Borrow
And Own The Asset Be Preferred To Leasing?

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Rs.17,761 Correct Answer

QUESTION 2 (b)
Following information is available to a project:

Project cost Rs. 12,000 Salvage value Nil

Life of the project 4 years Cost of capital 14%
                        Cash inflows after tax:                             

                        End of year 1: Rs. 5,000

                        End of year 2: Rs. 5,000

                        End of year 3: 10% increase over year 1 inflow

                         End of year 4: 10% increase over year 1 inflow

PV Factor Table

Rate / End of Year 1 2 3 4 5

14% 0.877 0.769 0.675 0.592 0.519

On the basis of the above information answer the following questions; Choose the correct answer
from the given four alternatives:

I  The NPV Of Project Will Be-

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Rs.3199 Correct Answer

Ii  The Sensitivity Of The Project Would Be

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26.66% Correct Answer

QUESTION 3 (a)
A Mutual Fund made an issue of 10,00,000 units of Rs.10 each on 01.01.2012. No entry load was
charged. It made the following investments:

Particulars Rs.
50,000 Equity Shares of Rs. 100 each @ Rs. 160 80,00,000
7% Government Securities 8,00,000
9% Debentures (Unlisted) 5,00,000
10% Debentures (Listed) 5,00,000
Total 98,00,000
During the year, dividends of Rs. 12,00,000 were received on equity shares. Interest on all types of
debt securities was received as and when due. At the end of the year equity shares and 10%
debentures are quoted at 175% and 90% respectively. Other investments are quoted at par. On the
basis of the above information answer the following questions; Choose the correct answer from the
given four alternatives:

I  The Net Asset Value (NAV) Per Unit If The Operating Expenses Paid During The Year Amounted
To Rs.5,00,000.

Not Attempt!!!!

Rs. 11.351 Correct Answer

Ii  If The Mutual Fund Had Distributed A Dividend Of Re.0.90 Per Unit During The Year To The
Unitholders, Then The NAV Would Be

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Rs.10.45 Correct Answer

QUESTION 3 (b)
The following are the data on five mutual funds : 

Mutual Fund Return Standard Deviation Beta

A 15 7 1.25
B 18 10 0.75
C 14 5 1.40
D 12 6 0.98
E 16 9 1.50
Assuming the risk free rate is 6%. On the basis of the above information answer the following
questions; Choose the correct answer from the given four alternatives:

I  The Sharpe Ratio Of Fund B Is

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1.2 Correct Answer

Ii  The Treynor’s Ratio Of Fund D Will Be

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6.122 Correct Answer

Iii  Which Of The Fund Secured Rank 1 As Per The Sharpe Ratio?

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Fund C Correct Answer

Iv  Which Of The Fund Secured Rank 1 As Per The Treynor’s Ratio?

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Fund B Correct Answer

QUESTION 4 (a)
The distribution of return of security ‘S’ and the market portfolio ‘M’ is given below:
Probability Return %
  S M
0.30 30 - 10
0.40 20 20
0.30 0 30
 
On the basis of the above information answer the following questions;

Choose the correct answer from the given four alternatives:

I  The Expected Return Of Security ‘S’ Is

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17.00% Correct Answer

Ii  The Expected Return Of Market Portfolio ‘M’ Would Be

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14% Correct Answer

Iii  The Beta Of Security S Will Be

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-0.636 Correct Answer

QUESTION 4 (b)
The returns on stock S and market portfolio M for a period of six periods in excess of the risk
free rate of 6% are given as follows:
Period Return on stock S Return on market
 % portfolio %
1 12.0 8.0
2 15.0 12.0
3 11.0 11.0
4 2.0 -4.0
5 10.00 9.5
6 -12.0 -2.0
Additional details that may be used optionally :
Variance (%) 2
82.93 40.15
Mean (%) 6.33 5.75
Covariance (%) 2
48.27
On the basis of the above information answer the following questions;

Choose the correct answer from the given four alternatives:

I  The Equation For The Characteristic Line Of The Stock – S Will Be

Not Attempt!!!!

y = 1.202x – 0.58 Correct Answer

Ii  What Would Be The Return On Stock S If The Market Return Is 17.5%?

Not Attempt!!!!

19.243% Correct Answer

QUESTION 5 (a)
Shares of N Limited are being quoted at Rs. 600. Three months’ futures rate is Rs. 636 per share
with a lot size of 500 shares. The company does not expect to distribute any dividend in the interim
period and the risk free return is 9% p.a. continuously compounded.

                        Values

℮0.0225 1.0228
℮0.225 1.2523
℮.25 1.2840

On the basis of the above information answer the following questions;

Choose the correct answer from the given four alternatives:

I  The Theoretical Forward Price Would Be
Not Attempt!!!!

Rs. 613.68 Correct Answer

Ii  What Would Be The Gains/Losses, If The Three Months’ Future Rate Is Rs. 600 Per Share?

Not Attempt!!!!

Rs. 13.68 (Gain) Correct Answer

QUESTION 5 (b)
Sagar owns a portfolio in three stocks as detailed below:
Stock No. of shares Price (Rs./share) Beta
X 400000 400 1.3
Y 800000 300 1.2
Z 1200000 100 1.1
The index futures is traded at Rs. 10,250. Assume that the index factor is 100.
On the basis of the above information answer the following questions;
 
Choose the correct answer from the given four alternatives:

I  Weighted Beta Would Be

Not Attempt!!!!

1.21 Correct Answer

Ii  The Number Of Contracts (Rounded Off To The Nearest Integer) Of Stock Index Futures To Be
Bought Or Sold In Order To Decrease The Portfolio Β To 0.8 Would Be

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208 Correct Answer

QUESTION 6 (a)
A  company  operating  in  USA  has  on  1st   September  2018  invoiced  sales  in  $  to  an
Indian company, the payment being due on 1st  December 2018.  The invoice amount
is $  13,750.   At  spot rate on 1/9/2018 it is  equivalent to  Rs. 10,18,875.   The 3 months
forward rate is presently quoted at $ 0.01340 per rupee.  The importer wants to hedge
half his exposure by a forward contract.  For hedging transactions, he  will  enter into forward contract. 

The spot rates are as follows on 1st  December 2018.
(i)            $0.01
338
 (ii)            $0.0
1352
Present your calculation using Rs./$ upto two decimal places.  Ignore transaction cost.
On the basis of the above information answer the following questions;

Choose the correct answer from the given four alternatives:

I  If The Sport Rate Increases To 74.74 (I.E. 1/0.01338), The Pay Outs Of The Company As On 1st
December 2018 Would Be

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Rs. 10,26,919 Correct Answer

Ii  If The Exchange Rate Falls To 73.96 (I.E. 1/0.01352) On 1st December 2018, The Pay Outs Of
The Company Would Be

Not Attempt!!!!

Rs. 1021556 Correct Answer

QUESTION 6 (b)
An Indian exporter has sold handicraft items to an American business house. The exporter will be
receiving US dollar 1 lakh in 90 days. Premium for a dollar put option with a strike price of Rs. 71.00
and a 90 days settlement is Re. 1. The exporter anticipates the spot rate after 90 days to be Rs.
69.50.

On the basis of the above information answer the following questions;

Choose the correct answer from the given four alternatives:

I  If The Exporter Hedge Its Account Receivable In The Options Market, The Gain/Loss After 90
Days Would Be

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Rs.50,000 Correct Answer

Ii  If The Exporter Is Anticipating A Spot Rate To Be Rs. 71.50 Per US $ After 90 Days, The
Gain/Loss From Put Option After 90 Days Would Be

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(-) Rs. 1 per US $ Correct Answer