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MQP– JUNE 2024:SET - 1
I. Choose the correct alternative.
(i) The IRR of a project is 10%. If the annual cash flow after tax is ¹ 1,30,000 and project duration is 4 years,
whatis the initial investment in the project?
(a) 4,10,000 (b) 4,12,100 (c) 3,90,000 (d) 4,05,000
(ii) Which of the following is/are not true regarding the risk adjusted investment appraisal techniques?
i. In the certainty equivalent method, if there is high degree of correlation between the cashflows for the entire
project life the certainty equivalent coefficient is taken as one for all the years.
ii. In sensitivity analysis, the impact of the changes in one or more variables on the criterion of merit isstudied.
iii. Simulation does not produce an optimal solution but the user of the technique has to generate all possible
combinations of conditions and constraints to choose the optimal solution.
(a) Only (ii) above. (b) Only (iii) above. (c) Both (i) and (ii) above (d) Both (i) and (iii) above
(iii) Given, expected value of profit without perfect information = 1,600 and expected value of perfect
information = 300, then expected value of profit with perfect information will be ____.
(a) 1,300 (b) 1,900 (c) 950 (d) None of the above
(iv) The type of lease that includes a third party, a lender, is called as which of the following?
(a) Sale and lease back (b) Leveraged Lease (c) Direct leasing arrangement (d) Operating lease
(v) The current price is 100, the required rate of return is 20% and the dividend paid 3.00 on a share of 10 face
value. What is the expected growth rate?
(a) 15% (b) 16% (c) 18% (d) 17%
(vi) In the bull market
(a) The stock prices are increasing (b) Each peak is higher than the previous peak
(c) Each bottom is higher than the previous bottom (d) Both (b) and (c)
(vii) Mr. X expects 20% return from his investment. The dividend fromthe stock is ‘‘2.0 and the present price is
‘‘50. What should be the future price of the stock?
(a) ‘‘56.39 (b) ‘‘58.00 (c) ‘‘60.00 (d) ‘‘62.30
(viii) Yield to maturity is same as
(a) NPV (b) IRR (c) Geometric mean (d) Both (b) and (c)
(ix) If opening units 1,25,000 Units subscribe 2,00,000, Units redeem 50,000 then Closing units?
(a) 3,25,000 units (b) 2,75,000 units (c) 3,75,000 units (d) 2,50,000 units
(x) A portfolio comprises two securities and the expected return on them is 12% and 16% respectively. Determine
return of portfolio if first security constitutes 40% of total portfolio.
(a) 12.4% (b) 13.4% (c) 14.4% (d) 15.4%
(xi) An investor buys 100 shares of a sugar mill at ‘‘210 per share and at the same time writes a September 250
call at a premium of ‘‘20 per share. If the expiration date price is ‘‘280, calculate the net gain/loss.
(a) ‘‘20 (b) ‘‘40 (c) ‘‘60 (d) None of the above
(xii) With respect to capital market theory, the average beta of all assets in the market is:
(a) Less than 1.0. (b) Equal to 1.0 (c) Greater than 1.0. (d) None
(xiii) The United States Dollar is selling in India at ‘‘45.20. If the interest rate for a 6-months borrowing in India
is 10% and the corresponding rate in USA is 4%, what would be the rate of forward premium/(discount)?
(a) 5.93 % (b) 5.88 % (c) (5.17%) (d) (5.52%)
(xiv) Plain vanilla interest rate swaps involved
(a) Fixed to fixed rate swap (b) Fixed to floating rate swap (c) Floating to floating rate swap (d) Currency swap
(xv) The portfolio’s risk premium is 12% and the standard deviation of market and the portfolio are 4 and 3,
respectively. The fund’s beta value is 1.5. The Treynor index is
(a) 3.0 (b) 8.0 (c) 4.0 (d) 12
Answer: (i) b (ii) c (iii) b (iv) b (v) d (vi) d (vii) b (viii) d (ix) b (x) c (xi) c (xii) b (xiii) b (xiv) b (xv) b
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SUGGESTED ANSWER DEC 2023 NEW SYLLABUS

1.Choose the correct option from the four alternatives given:
(i)A project of ROBN Ltd. has a Net Present Value (base case NPV) of X 1,50,000. This project has one financial
side effect; it expands the firm’s borrowing power by ` 5,00,000. The project lasts indefinitely so it is treated as
supporting perpetual debt. If the borrowing rate is 10 per cent and the net tax-shield is 35 per cent, the
Adjusted Net Present Value (ANPV) of the project will be
(A) 3,25,000 (B) 3,10,000 (C) 2,88,000 (D)None of the above
(ii)ABON Ltd.’s earning per share is X 15 and growth rate of earning is 5%. The earnings growth rate is expected
to stay at this level in the near future. If its payout ratio is 50% and costs of capital is 15%, what will be the
market price of the share after three years `(Calculation upto two decimal places)
(A) ` 95-50 (B)`91-16 (C) ` 90-20 (D) None of the above
(iii)The expected return from a portfolio is 16% and its variance of return (Risk Squard) is 285%. If the investor’s
tolerance is 60; the Risk penalty will be
(A) 5-80% (B) 4-95% (C) 4-90% (D) 4-75%
(iv)The following particulars relate to a mutual fund scheme:
Sector Investment in shares Index on Purchase date Index on Valuation
(at cost) ? lakh date
IT and ITES 28 1,750 2,950
Infrastructure 15 1,375 2,475
The outstanding number of units is 1.25 lakhs. What will be the Net Asset Value (NAV) per unit?
(A) 59-36 (B) 55-30 (C) 54-31 (D) 53-29
(v)If the director of COMTECH Ltd. who has access to inside information is unable to use this information to
make Supernormal Profits, it is a sign of
(A) weak form of Efficient Market hypothesis. (B) semi-strong form of Efficient Market hypothesis.
(C) strong form of Efficient Market hypothesis. (D) incompetence of the Director.
(vi) EYAN Ltd. (EL) has a Beta of 0.80 with BSE 300. Each BSE 300 Futures contract is worth 100 units. BINUA
Anticipates a bearish market for the next three months and has gone short on Shares of 25000 Shares of EL in
the Spot Market. EL shares are traded at ? 100. 3 months’ Future BSE 300 is quoted at 15500. What are the
numbers of BSE 300 Futures contract to be taken by BINUA if she wants to hedge price risk to the extent of
125%?
(A) 300 (B) 250 (C) 240 (D) 200
(vii)Buying and Selling a call and a put option with same strike prices and same expiry date is called
(A)Straddle (B) Box spread (C) Strip (D)Butterfly spread
(viii)When the trade open on 01.03.2023 the stock price of Rolex Ltd., is `250. It rises to `260. The March 2023,
call option on Rolex Ltd. started at 25. It moved to `29. The Delta of call option of Rolex Ltd. would be.
(A) 0-50 (B) 0-40 (C) 0-35 (D) Insufficient information
(ix)The Slope of the Security Marke Line (SML) denotes
(A) The Risk Premium required (B) Beta of the Security
(C) Market Volatality (D) The influence of the unsystematic
(x)Which of the following is/are the benefit(s) of Unified Payment Interface (UPI) to the merchants?
(A) Round the clock availability (B) Single click authentication
(C) Safer, secured and innovative (D) In-App Payments (IAP)
(xi)In Porter’s structural analysis, which of the following is not considered as an entry barrier?
(A) Product differentiation (B) Switching costs (C) Capital requirements (D) Low value addition
(xii)Which one of the following is not a Digital Asset?
(A)Digital Printing (B)Website (C)Stable Coin (D)Fintech
(xiii)The 90-day interest rate is 1.85% in USA and 1.35% in the UK and the current spot exchange rate is $ 1.6/
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1£. The 90-day forward rate is
(A) $0.62808 (B) $ 1.592145 (C) $ 1.607893 (D) $ 1.342132
(xiv) ZONS Ltd. Shares are traded in the Stock Market. The Standard Deviations of ZONS’S Shares and the
Market are 6% and 4% respectively. If the Correlation Co-efficient for the shares with the market is 0.8, what
will be Beta Co-efficient of the Company’s Shares based on the CAPM?
(A)0.90 (B)1.00 (C)1.20 (D)1.50
(xv)RTZ Ltd. wishes to earn real rate of 10% from its project. When the inflation recorded is 7%, what is the
normal rate the company would earn?
(A) 16.60% (B) 17.70% (C) 18.20% (D) None of the above
Answer:(i) (A);(ii) (B);(iii) (D);(iv) (A);(v) (C);(vi) (B);(vii) (A);(viii) (B);(ix) (A);(x) (D);(xi) (D);(xii) (D);(xiii)
(C);(xiv) (C);(xv) (B)

SUGGESTED ANSWER JUNE 2023 NEW SYLLABUS

1.Choose the correct alternative.
(i)ZOTSON Pic. has been evaluating investment in a project which will require ` 39 lakh capital expenditure on
a new machinery. The company expects the capital investment to provide annual cash flows of `6 lakh per year
after taxes indefinitely. The discount rate, which it applies to invest decisions of this nature, is 14 per cent net.
What will be the Base Case NPV for ZOTSON Plc.’s project? (Calculation upto two decimal points.
(A)` 4-00 lakh (B)`13-86 lakh (C)` 3-56 lakh (D)` 3-25 lakh
(ii)SBT company is considering four projects P, Q, R and T with the following information:
Project A Project B Project C Project D
Expected NPV (`) 1,20,000 1,60,000 1,40,000 1,80,000
Standard Deviation (`) 8,000 20,000 24,000 28,000
Identify the Least Risky Project if coefficient of variation is used:
(A)Project P (B)Project Q (C)Project R (D)Project T
(iii)Which of the following is/are not the component of digital infrastructure and why?
(A)APIs and Integrations (B)Cloud Services (C)Stablecoins (D)Internet
(iv)MR. PATOB, a Portfolio Manager managing a Portfolio (Beta 1-50) whose current market value of `12 crore.
It is expected that the markets are likely to correct downwards and hedging needs to be adopted using NIFTY
Index futures. Currently Index futures are quoted at 8000 with each contract underlies 100 units. Mr. PATOB
hedges 100% of his Portfolios. What is the number of NIFTY Index contracts to be sold?
(A)180 contracts (B)200 contracts (C)225 contracts (D)None of the above
(v)MR. GORG is a forex dealer in India. Rates of Rupee and Euro in the International Market are US $ 0-012572
and US $ 1-117294 respectively. What will be his direct quote of e (Euro) to his customers? (Calculation upto 3
decimal points.)
(A)`85-925 (B)` 88-872 (C) ` 89-125 (D)` 90-312
(vi)Plain Vanilla interest rate swaps involved
(A)Fixed to Fixed rate Swap (B)Fixed to Floating rate Swap
(C)Floating to Floating rate Swap (D)Currency Swap
(vii)An option’s theoretical value increases by 1.75 if the interest rate is decreased by 1%. Then 1.75 is
(A)the Rho of a call option. (B)the Rho of a put option.
(C)the Theta of a call option. (D) the Theta of put option.
(viii) The intercept of the security market line (SML) on the Y-axis is
(A)the risk free return. (B)the positive risk premium.
(C)the Beta of the security. (D)the expected return when P = 1.
(ix)MS BRISTI is considering an investment in a Mutual Fund with a 2% load. As another alternative, she can
also invest in a Bank Deposit paying 8% interest. Her investment planning period is 4 years. Examine, what
should be the annual rate of return on Mutual Fund so that she prefers the investment in the Fund to the
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investment in Bank Deposit.
(A)8-15% (B)8-55% (C)8-82% (D)None of the above
(x)Which one of the following is not a part of Market Risk and why?
(A)Equity Risk (B)Inflation Risk (C) Downgrade Risk (D)None of the above
Answer:(i) (B) (ii) (A) (iii) (C) (iv) (C ) (v) (B) (vi) (B) (vii) (B) (viii) (A) (ix) (B) (x) (C)

SET 1 MODEL QUESTION PAPER TERM – JUNE 2023PAPER

(i) An investor buys a call option contract for a premium of ` 150. The exercise price is ` 15 and the current
market price of the share is ` 12. If the share price after three months reaches ` 20, what is the profit made by
the option holder on exercising the option? Contract is for 100 shares. Ignore the transaction charges.
a. `300 b. `350 c. `400 d. `450

(ii) The declining market is called bear market because of the ______________. Provide a justification.
a. Long hibernation period of bears b. Traditional usage c. Fur coat of the bears d. Attacking manner of bears

(iii) An investor has three alternatives of varying investment values. The data available for each of these
alternatives are given below:
Alternative Expected Return (%) Standard Deviation of Retur
I 23 8.00
II 20 9.50
III 18 5.00
Which alternative would be the best if coefficient of variation is used?
a. Alternative I b. Alternative II c. Alternative III d. None of the above

(iv) The strike price and the current stock price of a European put option are ` 1,000 and ` 925 respectively.
What is its theoretical minimum price after 6 months, if the risk-free rate of interest is 5% p.a.?
a. `50.3053 b. `50.2056 c. `51.2125 d. `52.4125

(v) If ROA is 0.20 and leverage factor is 1.5, the ROE of the company is a. 0.25 b. 0.30 c. 0.45 d. 0.50

(vi)According to the stock market psychology a. Investors forget the past b. History repeats itself
c. More faith is placed in predictions of the future d. Both (A) and (B)

(vii) The concept of securitisation is associated with ___________. Provide justification for your selection.
a. Capital market b. Money market c. Debt market d. Foreign exchange market

(viii) ____________ is/are a private arrangement between lending banks and a borrower. Provide justification
for your selection. a. Club loan b. Multiple component facility c. Syndicated Euro credit d. All of the above

(ix) Which of the following is not an assumption of perfect capital market? Why?
a. No transaction cost b. No taxes c. Information is available to all d. None of the above

(x) Hedging through ‘currency of invoicing’ results in ______________. Why?

a. The exporter covering forex exposure b. The importer covering forex exposure
c. Both exporter and importer covering forex exposure d. Either exporter or importer covering forex exposure

Solution:
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(i) (b) When share price reaches to ` 20 per share, the profit will be = (20 - 15) x 100 - 150 = ` 350. So, the correct
option is (b).
(ii) (d) The bear market phenomenon is thought to get its name from the way in which a bear attacks its prey—
swiping its paws downward. This is why markets with declining stock prices are called bear markets. So, the
correct option is (d).
(iii) (c) The Co-efficient of Variation is the ratio of standard deviation to mean.
Alternative Expected Return (%) Standard Deviation of Return (%) Co-efficient of Variation
(I) 23 8 0.35
(II) 20 9.5 0.48
(III) 18 5 0.28
Alternative III is the best as its co-efficient of variation is the lowest. So, the correct option is (c)
(iv) (a) Theoretical minimum price = [Present Value of Strike Price - Current Stock Price] = [1,000 x e-rt) - 925
= [1,000 / e0.05 × 0.5] - 925 = [1,000 / e0.025] - 925 = [1000/1.02532] - 925 = 975.3053 - 925 = 50.3053
So, the correct option is (a)
(v) (b) ROE = ROA x Leverage factor = 0.20 x 1.5 = 0.30. So, the correct option is (b)
(vi) (b) Financial history is replete with boom-bust cycles and repetition of these cycles makes one believe that
history repeats itself. So, the correct option is (b)
(vii) (c) Securitization is an act of conversion of loans into debt instruments The process of taking an illiquid
group of assets or an individual asset through financial engineering and changing it into a security is called
securitization. So, the correct option is (c)
(viii) (a) The club loan is a private arrangement between lending banks and a borrower. Conventionally, the entry
into Euromarkets for a funding deal is well-publicized. When the loan amounts are small and parties familiar with
each other, lending banks form a club and advance a loan. So, the correct option is (a)
(ix) (d) A perfect capital market assumes information availability to all market participants, absence of transaction
cost and taxes. So, the correct option is (d)
(x) (d) A very simple way of eliminating the transaction exposure is to invoice all receivables and payables in the
domestic currency. However, only one of the parties involved can hedge itself in this manner. It will still leave the
other party exposed as it will be dealing in a foreign currency. So, the correct option is (d)

SET 2 MODEL QUESTION PAPERTERM – JUNE 2023

(i)In Porter’s structural analysis, which of the following is not considered as an entry barrier? Why?
a.Product differentiation b.Switching costs c.Capital requirements d.Low value addition

(ii)Which of the following is not a apart of financial risk? Why?

a.Operational risk b.Market risk c.Credit risk d.Liquidity risk

(iii)Which of the following is not a type of Euro Notes? Why?

a.Commercial Papers b.Note Issuance Facility c.Medium Term Notes d.Short Term Notes

(iv)The type of lease that includes a third party, a lender, is called ______________. Why?
a.Sale and leaseback b.Leverage lease c.Direct lease arrangement d.Operating lease

(v)DOL measures the relationship between

a.EPS and EAT b.EPS and P/E c.EPS and EBIT d.EPS and Sales

(vi)A six-month forward contract on a stock that does not pay dividend is available at `340. The risk-free
interest rate is 12% p.a. continuously compounded. Calculate the forward price.
a.` 359.051 b.` 361.012 c.` 363.217 d.` 364.119
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(vii)A project with an initial investment of `50 lakh and life of 10 years generates Cash Flow After Tax (CFAT) of
`10 lakh per annum. Calculate Payback Reciprocal. a.15% b.18% c.20% d.22%

(viii)The return on market portfolio is 14%. The last dividend of share A was `2 and the dividend and earnings
have a constant growth rate of 5% p.a. The beta of the share is 2 and the intrinsic value of the share is `12.35.
Find the risk-free return. a.5% b.6% c.7% d.8%

(ix)It was observed that in a certain month, 6 out of 10 leading indicators have moved up as compared to 4
indicators in the previous month. The diffusion index for the month was a.20% b.40% c.60% d.80%

(x)An Indian Company is planning to invest in the US. The annual rates of inflation are 8% in India and 3% in
USA. If the spot rate is currently ` 78.50/$, what spot rate can you expect after 5 years, assuming the inflation
rates will remain the same over 5 years? a.` 88.89 b.` 94.95 c.` 99.50 d. `86.10

Solution:
(i)(d) Low value addition does not create any barrier for the new entrants rather it provides the space for them in
the market. So, the correct option is (d).
(ii)(a) Operational risk is a part of business risk and hence not a part of financial risk. So, the correct option is (a).
(iii)(d) Euro notes are of three types – Commercial Papers, Note Issuance Facilities and Medium Term Notes. So,
the correct option is (d)
(iv)(b) Leveraged lease refers to a lease agreement wherein the lessor acquires an asset partially financed by the
financial institutions and lease out the same to the lessee for the agreed lease payments. So, the correct option
is (b)
(v)(d) DCL = % change in EPS/% change in sales. So, the correct option is (d)
(vi)(b) The Forward Price (F) = 340 x e6/12 x 0.12 = 340 x 1.0618 = `361.012. So, the correct option is (b).
(vii)(c) Payback Reciprocal = ` 10 lakh ÷ `50 lakh = 1/5 or 20%. So, the correct option is (c).
(viii)(b) Intrinsic value of a share = D1/(Ke – g) = 2.1/ (Ke – 0.05) = 12.35 or, Ke = 0.05 + 2.1/12.35 = 22%. E(R) = Rf
+  (Rm - Rf) = Rf (1 - ) + Rm; 22% = Rf (-1) + 2 x 14%, or, Rf = 6%. So, the correct option is (b).
(ix)(c) The diffusion index = 6/10 = 60%. So, the correct option is (c).
(x)(c) F = S x [(1 + rA)n/ (1+ rB)n]; or, F(`/$) = 78.50 x [1 + 0.08)5 / (1+ 0.03)5] = 78.50 x 1.267455 = `99.50. So, the
correct option is (c).

SET - 1 MODEL ANSWER TERM – DECEMBER 2023

(i) Which of the following techniques is the most suitable, when NPV and IRR lead to inconsistent ranking due
to life disparity between two or more projects?
a. Modified Net Present Value. b. Modified Internal Rate of Return.
c. Uniform Annual Equivalent Cost/Benefit. d. Discounted Payback Period.
(ii) The Profitability Index of a project is 1.28 and its cost of investment is ? 2,50,000. The NPV of the“project is
___________.
a. ? 75,000 b. ?80,000 c. ? 70,000 d. ? 65,000“
(iii) The following information is available with respect to Project X:
NPV Estimate (?) 30,000 60,000 1,20,000 1,50,000
Probability 0.1 0.4 0.4 0.1
The expected NPV will be _____________
a. ? 1,00,000 b. ?75,000 c. ?90,000 d. ?1,20,000“
(iv) The major advantage of leasing is that it _________.
a. provides flexible financing b. provides lower payments
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c. avoids risks of obsolescence. d. All of the above“
(v) It was observed that in a certain month, 6 out of 10 leading indicators and moved up as compared“to 4
indicators in the previous month. The diffusion index for the months was:
a. 20% b. 40% c. 60% d. 80%
(vi) Bond volatility is inversely related to:
a. Term to maturity b. Yield to maturity c. Coupon rate d. Both (b) and (c)“
(vii) Mr. X expects 20% return from his investment. The dividend from the stock is ?2.0 and the“present price
is ?50. What should be the future price of the stock?
a. ? 56.39 b. ? 58.00 c. ? 60.00 d. ? 62.30“
(viii) According to the constant growth model, the next year’s dividend is ?2.00, required rate of return is“15%
and the growth rate is 10%, the market price would be:
a. ? 50 b. ?45 c. ? 40 d. ? 48
(ix) Which among the following increases the NAV of a mutual fund scheme?
a.Value of investments b.Receivables
c.Accrued income d.All of (a), (b) and (c)
(x) A portfolio comprises two securities and the expected return on them is 12% and 16%
respectively.“Determine return of portfolio if first security constitutes 40% of total portfolio.
a. 12.4% b. 13.4% c. 14.4% d. 15.4%
(xi) Plain vanilla interest rate swaps involved:
a. Fixed to fixed rate swap b. Fixed to floating rate swap
c. Floating to floating rate swap d. Currency swap
(xii) An investor writes a three-month put on the stock of an oil company at an exercise price of ?275 per share
at a premium of ?34. If the expiration date price is ?280, calculate the gain/loss of put writer.
a. ?5 b. (?) ?5 c. ?34 d. None of the above
(xiii) The 6-month forward rate for US dollar against Rupee is quoted as ?49.50 as opposed to a spot“price of
?48.85. The forward premium on US dollar is:
a. 1.50 % b. 3.08 % c. 3.05 % d. None of the above.
(xiv) The sterling is trading at $1.6400 today. Inflation U.K. is 3.8% and that in U.S.A. is 2.9%. What“would be
the spot rate ($/£) after 2 years?
a. $1.6117 b. $1.615 c. $1.625 d. None of the above
(xv) Sharpe’s measure of the portfolio performance is based on:
a. Systematic risk of the portfolio b. Unsystematic risk of the portfolio
c. Total risk of the portfolio d. Market risk of the portfolio
Solutuion:(i) c (ii) c (iii) c (iv) d (v) c (vi) d (vii) b (viii) c (ix) d (x) c (xi) b (xii) c (xiii) b (xiv) a (xv) c

SUGGESTED ANSWER DEC 2023 OLD SYLLABUS

1.Choose the corrcct option from the four alternatives given:
(i) MS. RATR1,a prospective investor has collccted the following information pertaining to two securities A and
B.
Particulars Security A Security B
Expected Return % 15 18
Standard Deviation of return % 18 22
Beta 0.90 1.40
Variance of returns on the Market Index is 225(%)2. The correlation co-efficient between the returns on securities
A and B is 0.75. The systematic Risk of a portfolio consisting of these two securities in equal proportions is
(A)24.63(%)2 (B)125.78(%)2 (C)297.56(%)2 (D)None of (A),(B) and (C)
(ii)The current market price of an equity share of THOMAS LTD., is `500. Within a period of 3 months, the
maximum and minimum price of it is expected to bc ` 600 and `300 respectively. What should be the value of
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a 3 months call option under “Risk Neutral” method at the strike rate of `550 if the risk free rate of interest to
8% p.a.? [ Given e0.02 = 1.0202]
(A) `23.34 (B) `34.31 (C) `43.21 (D) None of the above
(iii)MS. MOIJ invested `50,000 in a mutual fund scheme - SX on 01.04.2022. The capital gain and dividend for
the year `3 per unit which were reinvested at the year end (31.03.2023) NAV of `25. Mou had total units of
2,800 as on 31.03.2023. What was the NAV as on 01.04.2022?
(A) `10 (B) `15 (C) `20 (D) None of the above
(iv)MR. BLJA is a forex dealer in India. Rates of Rupee and Euro in the International Market rate arc US $
0.0124688 and US $ 1.092694 respectively. What will be his direct quote of (€) euro to his customer?
(A) `88.91 (B)` 88.32 (C) `87.63 (D) `80.90
(v)NOBON Lid., has been evaluating investment in a project which will require `40 lakh capital expenditure on
a new machinery. The Company experts the capital investment to provide annual Cash flows of `9 lakh per
year after taxes indefinitely. The business risk of the investment decision requires a 15 per cent discount rate.
The base case NPV for NOBON Ltd’s project will be
(A) `25 lakh (B) `20 lakh (C)`18.50 lakh (D)None of the above
(vi)The Slock of ANOS Ltd. (FV `10) quotes `500 on NSE and the 3 months future price quotes at `510. The
borrowing rate is given as 15% p.a. What would be the theoretical price of 3 months ANOS Ltd. future if the
expected annual dividend yield is 25% p.a. payable before expiry?
(A) `540.50 (B) ` 516.25 (C) `510.50 (D) Insufficient data
(vii)The Portfolio composition of Mr. SANU is given below:
(Amount in `lakh)
Equity 120
Cash/Cash equivalents 40
Total 160
The beta of the equity portion of the Portfolio is 0.85 and the currcnl NIFTY future is at 4261.5. The multiple
attached to NIFTY future is 100.If Mr. SANU purchases 23 future contracts, his Portfolio Bela will be
(A) 1.05 (B) 1.12 (C) 1.20 (D) 1 .25
(viii)Buying a call and put with the same expiry date, on the same stock with a different strike price is a
(A)Strangle (B)Straddle (C)Strap (D)Strip
(ix)P and Q are two mutually exclusive projects. P has a higher initial fixed cost and will make a profit of `
10,000 for a high sales volume and a loss of `4,000 for a low sales volume. For Q, the corresponding amounts
would be a profit of `7,000 or a profit of `2,000. The probability of high sales volume is 60%. The cxpected
value of perfect information is
(A) `9,000 (B) `6,800 (C)`12,600 (D)`10,200
(x)Which one of the following is true?
(A) Systematic risk can be minimized by investing in many scctors like banking, real estate and food products.
(B) Government securities arc free from interest rate risk.
(C) The market rewards an investor in proportion to the unsystematic risk that he is willing to take.
(D) Systematic risk is independent of the industry to which a security belongs.
Answer:(i) (C);(ii) (B);(iii) (C);(iv) (C);(v) (B);(vi) (B);(vii) (D);(viii) (A);(ix) (B);(x) (D)

SUGGESTED ANSWER JUNE 2023 OLD SYLLABUS

A.Choose the correct option from the four alternatives given
(i) A project of Axon Ltd. requires ? 30 lakh capital investment and expects perpetual annual cash inflow after
taxes of ? 8 lakh. The business risk of the venture requires a 20 per cent discount rate. However, as the project
is considered socially desirable it qualifies for an immediate tax-free Government grant of? 10 lakh. What will
be the Adjusted Net Present Value (ANPV) of the project?
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(A) ? 25 lakh (B) ? 20 lakh (C)? 15 lakh (D) Insufficient information
(ii) An instrument of debt having investment grade rating by a credit rating agency
(A) implies that the investment is safe and recommends that the investor can go ahead and invest in the security.
(B) implies that all statutory compliances of the issuing entity are fulfilled.
(C) implies that the investment is sound at the time of issue and the issue price is reasonable.
(D) implies an opinion of the rating agency that the instrument will pay back the capital and the stated interest
on time.
(iii)Mr. Shan a trader, is having in its portfolio shares worth ? 85 lakh at current price and cash ^15 lakh. The
beta of share portfolio is 1.6. After 3 months the price of shares dropped by 3.20%. If the trader on current
date goes for long position on ? 100 lakh Nifty Future, what is the value of Market Index after 3 months?
(A) ? 95 lakh (B) ? 96 lakh (C) T 98 lakh (D) None of the above
(iv) SMO Mutual Fund has a NAV of ? 8.60 at the beginning of the year.Meanwhile Fund distributes ? 0.80 as
dividend and ? 0.70 as capital gains. If the Fund’s return during the year is 26.16%, at the end of year NAV will
increase to.
(A) ?9.10 (B) ^9.35 (C) ?9.40 (D) None of the above
(iv) The Sharpe’s ratio and the Treynor’s ratio of Reliance Growth Fund are 0.56 and 9.80, respectively. The
correlation co-efficient between returns of the Fund and the Market-Index is 0.70. What is the standard deviation
of the market index’s return ?
(A) 12.25% (B) 11.14% (C) 10.62% (D) Insufficient parameter
(v) The current market price of an equity share of B ANCH Ltd. is ? 400 and it is expected that the stock price
after 3 months will be either T 432 or ? 360. If the Risk free rate of interest be 12% p.a., what should the value
of a ‘3 month’s’ Call Option under the ‘Risk-neutral’ method at the strike rate of 388?
[Given, e002 = 1.0202, e003 = 1.03045]
(A) 30.94 (B) ? 32.15 (C) ? 32.98 (D) None of the above
(vi) While plotting a graph with risk on X-axis and expected return on Y-axis, a line drawn with co-ordinates (o,
rf) and (P, r m) is called
(A) Security Market Line (B) Characteristic Line (C) Capital Market Line (D) CAPMLine
(viii) The project-Z of ZINT Ltd. has a mean NPV of ? 600. The Project Manager of the Company wants to
determine the probability of the NPV of the project under different ranges. If the Standard Deviation of NPV is
? 300, what is the probability of the NPV between the range of ? 375 and ? 675?
[Given: Area under Normal Curve from 0 to Z]:
Z = O to Z 0.15 0.25 0.50 0.60 0.75 1.25 1.30
Value 0.05962 0.09871 0.19146 0.22575 0.27337 0.39435 0.40320
(A) 27.34% (B) 37.21% (C) 40.13% (D) 44.04%
(ix)The following various currency quotes are available:
?/£ 104.0215 /104.5505; £/$ 0.7155/0.7195 $/100 ¥; 0.8695/0.8710
The rate at which 100 ¥ can be purchased with Rupees will be _______________________ .
(A) 67.37 (B) 66.50 (C) ? 65.52 (D) None of the above
(x) If the Reserve Bank of India (RBI) intends to reduce the supply of money to bring down inflation, it might
(A) increase the Cash Reserve Ratio (CRR). (B) decrease the Statutory Liquidity Ratio (SLR).
(C) buy Government securities in the open market. (D) lower the Bank rate.
Answer: (i)(B) (ii)(D) (iii)(C) (iv)(B) (v)(A) (vi)(A) (vii)(A) (viii)(B) (ix)(C) (x)(A)

SET 1 SYLLABUS 2016 DEC 2023

A.Choose the correct option among four alternative answer.
(i) You are a forex dealer in India. Rates of rupee and Euro in the international market are US $ 0.01962905 and
US $ 1.335603 respectively. What will be your direct quote of € (euro) to your customer?
a. 69.5900 b. 68.0420 c. 65.1010 d. 70.905
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(ii) Marison Ltd. is planning to invest in USA. The rates of inflation are 8 % in India and 3 % in USA. If spot rate
is currently ‘46.50/$, what spot rate can the company expect after 5 years?
a. 57.93/$ b. 58.94/$ c. 59.00/$ d. 59/.13/$
(iii) The Beta co-efficient of equity stock of ECOBOARD LTD. Is 1.6. The risk free rate of return is 12% and the
required rate of return is 18% on the market portfolio. If dividend expected during coming year is ‘2.50 and the
growth rate of dividend and earnings is 8%, at what price the stock of ECOBOARD ltd. Can be sold (based on
CAPM)?
a. 18.38 b. 15.60 c. 12.50 d. None of the above
(iv) The spot USD/Yen=190 Yen and one year forward rate of USD/Yen =210Yen The prime rate in US is 15%.
What should be Japanese prime rate be?
a. 20.11% b. 25.22% c. 27.11% d. 29.55%
(v) Which of the following investment avenues has the least risk associated with it?
a. Corporate fixed deposits b. Deposits in commercial banks
c. Public Provident Fund d. Non convertible zero coupon bond.
(vi) Consider the following data:
Rate of inflation=5.1%; Beta=0.85; Real rate of return=4.2%; Market return=12.6%
The risk premium for the above security will be:
a. 2.5% b. 2.65% c. 2.805% d. 2.95%
(vii) Covariance between a stock and a market index and variance of market index are 33.56 and 19.15
respectively. The Beta of stock is:
a. 1.55 b. 1.75 c. 1.85 d. 1.95
(viii) The face value of a 364 day T-Bill is ‘100. If purchase price is ‘86, then the yield on such a bill is
a. 12.5% b. 13.36% c. 16.32% d. 16.56%
(ix) A company has obtained quotes from two different manufacturers for an equipment. The details are as
follows:
Product Cost (Million) Estimated life (years); Make X 4.50 10; Make Y 6.00 15
Ignoring operation and maintenance cost, which one would be cheaper? The company’s cost of capital is 10%.
[Given: PVIFA (10%, 10 years) = 6.1446 and PVIFA (10%, 15 years) = 7.6061]
a. Make X will be cheaper b. Make Y will be cheape c. Cost will be the same d. None of the above
(x) The stock of ABC Ltd sells for ‘ 240. The present value of exercise price and value of call option are ‘217.40
and ‘39.60 respectively. What is the value of put option?
a. 16.50 b. 22.00 c. 17.00 d. 18.00
Answer: (i) (B) (ii) (B) (iii) (A) (iv) (C) (v)(C) (vi) (C) (vii) (B) (viii) (C) (ix)(A) (x) (C).

SET 1 SYLLABUS 2016 JUNE 2023

(i)If the risk free rate of interest (Rf) is 10%, and expected return on market portfolio (Rm) is 15%, ascertain
expected return of the portfolio if portfolio beta is 0.30.
(a)10.5% (b)11.5% (c)12.5% (d)13.5%

(ii)There are two projects, Project A & B. From the given data please. Suggest which project will be selected?
Project A Project B
Investment 5000000 7500000
Net Cash Inflow 6250000 9150000
K = 10%
(a)Project A (b)Project B (c)A & B both (d)None of the above

(iii)Consider the following quotes:

Spot (Euro/Pound) = 1.3904 — 1.3908 Spot (Pound/NZ $) = 0.5020 — 0.5040
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What will be the possible % spread on the cross rate between Euro and NZ $?
(a)0.40 (b)0.39 (c)0.41 (d)0.43

(iv)The spot price of securities of X Ltd. is ` 160. With no dividend and no carrying cost, compute the theoretical
forward price of the securities for 1 month. You may assume a risk free interest rate of 9% p.a.
(a)` 160 (b)` 162.75 (c)` 161.20 (d)` 159.20

(v)A mutual Fund had a Net Asset Value (NAV) of ` 72 at the beginning of the year. During the year, a sum of `
6 was distributed as Dividend besides ` 4 as Capital Gain distributions. At the end of the year, NAV was ` 84.
Total return for the year is:
(a)30.56% (b)31.56% (c)40.56% (d)41.56%

(vi)Sales unit 2,000 2,800

Selling price per unit ` 10 ` 10
EPS ` 9.60 ` 38.40
What is the Degree of Combined Leverage?
(a)6.5 (b)5.6 (c)7.5 (d)5.7

(vii)The following details relate to an investment proposal of XYZ Ltd.

Investment outlay — ` 100 lakhs Lease Rentals are payable at ` 180 per ` 1,000
Term of lease — 8 years Cost of capital—12%
What is the present value of lease rentals, if lease rentals are payable at the end of the year? [Given PV factors
at 12% for years (1-8) is 4.9676.
(a)` 98,14,680 (b)` 89,41,680 (c)` 94,18,860 (d)` 96,84,190

(viii)A company has obtained quotes from two different manufacturers for an equipment. The details are as
follows: Product Cost (Million) Estimated life (years)
Make X 4.50 10
Make Y 6.00 15
Ignoring operation and maintenance cost, whiSch one would be cheaper? The company’s cost of capital is
10%. [Given: PVIFA (10%, 10 years) = 6.1446 and PVIFA (10%, 15 years) = 7.6061]
(a)Make X will be cheaper (b)Make Y will be cheaper (c)Cost will be the same (d)None of the above

(ix)The capital structure of a company is as under:

300000 Equity shares of ` 10 each 32000, 12% Preference shares of ` 100 each
General Reserve ` 15,00,000 Securities Premium Account ` 5,00,000
25000, 14% Fully Secured Debentures of ` 100 each Term Loan of ` 13,00,000
Based on these, the leverage of the company is:
(a)60.22% (b)58.33% (c)55.21% (d)62.10%

(x)The spot Value of Nifty is 4430. An investor bought a one-month Nifty for 4410 call option for a premium of
`12. The option is:
(a)In the money (b)At the money (c)Out of the money (d)Insufficient data.
Solution:
(i) (b) Rule for determining Expected Return on Portfolio under CAPM Under Capital Asset Pricing Model (CAPM),
Rp = Rf + ( x (Rm - Rf) Notation Particulars Value Rp Expected Return on Portfolio To be computed Rf Risk Free Rate
of Interest/Return 10%  Portfolio Beta 0.30 Rm Expected Return on Market Portfolio 15% Computation of
Expected Return on Portfolio Expected Return on Portfolio, Rp= Rf +  x (Rm - Rf) = 10% + 0.30 (15% - 10%) = 11.5%
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(ii) (b) At first, NPV and IRR of the projects are calculated and it has been found that, NPVA < NPVB, IRRA > IRRB. The
above results indicate that there is a conflict in ranking of the projects under NPV and IRR. Such conflict is mainly
due to the difference in the initial investment of the projects and it can be resolved using incremental approach
as follows. Differential Cash Outflows = 25,00,000, Differential Net Cash Inflows = 29,00,000 We know that IRR is
the discount rate at which Present Value of Cash Inflows are equal to the Present Value of Cash Outflows.
So, 25,00,000 = 29,00,000 / (1+ r)1 Or, 1 + r = 29,00,000 / 25,00,000 Or, r = 1.16 - 1 = 0.16
IRR (r) of the differential cash flows = 16%, which is greater than Cost of Capital (k). Therefore, Project with higher
non-discounted cash inflows, i.e., Project B would be selected.
(iii) (d) 0.43 The % spread on Cross rate between the Euro and NZ $. Let us find out the Cross rate first. SPOT (Euro
/ NZ $) = (0.5020 x 1.3904) : (0.5040 x 1.3908) = 0.6980 : 0.7010
So, % Spread on Euro to NZ $ = [(0/7010 – 0.6980) / 0.6980] x 100 = 0.4298 = 0.43.
(iv) (c) Theoretical forward price of security of X Ltd. [Fx] = Sx x ert = ` 160 x e0.09 x 0.0833
= ` 160 x e 0.0075 = ` 160 x 1.007528 = ` 161.20
84  72  6  4
(v) (a) = 30.56%
72
(vi) (c) ` 7.5 Degree of Combined leverage
=EPS/EPS /Sales/Sales = (38.40 - 9.60)/9.60 ÷ (28,000 - 20,000)/20,000 = 3/0.4 = ` 7.5
(vii) (b) ` 89,41,680
P. V. of lease rentals = ` 18 lakhs x PVIFA (12%, 8) = ` 18 lakhs x 4.9676 = ` 89,41,680
(viii) (a) Make X will be cheaper
Make X : Purchase cost = ` 4.50 million ; Equivalent annual cost = 4.50/6.1446 = ` 0.73235 million
Make Y : Purchase cost = ` 6.00 million ; Equivalent annual cost = 6.00/7.6061 = ` 0.78884 million
Therefore, equivalent annual cost of make X is lower than make Y, make X is suggested to purchase.
(ix) (b) 58.33%
a. Fixed Income Funds = ` (32,00,000 + 25,00,000 + 13,00,000)
b. Equity Funds = ` (30,00,000 + 15,00,000 + 5,00,000)
Leverage = a/(a + b) = ` 70,00,000/` 120,00,000 = 58.33%
(x) (a) In the money Spot Value > Exercise Price/Strike Value => In the money ` 4430 > ` 4410

SET 2 MODEL QUESTION PAPERTERM – JUNE 2023

(i)In Porter’s structural analysis, which of the following is not considered as an entry barrier? Why?
a.Product differentiation b.Switching costs c.Capital requirements d.Low value addition

(ii)Which of the following is not a apart of financial risk? Why?

a.Operational risk b.Market risk c.Credit risk d.Liquidity risk

(iii)Which of the following is not a type of Euro Notes? Why?

a.Commercial Papers b.Note Issuance Facility c.Medium Term Notes d.Short Term Notes

(iv)The type of lease that includes a third party, a lender, is called ______________. Why?
a.Sale and leaseback b.Leverage lease c.Direct lease arrangement d.Operating lease

(v)DOL measures the relationship between

a.EPS and EAT b.EPS and P/E c.EPS and EBIT d.EPS and Sales

(vi)A six-month forward contract on a stock that does not pay dividend is available at `340. The risk-free
interest rate is 12% p.a. continuously compounded. Calculate the forward price.
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a.` 359.051 b.` 361.012 c.` 363.217 d.` 364.119

(vii)A project with an initial investment of `50 lakh and life of 10 years generates Cash Flow After Tax (CFAT) of
`10 lakh per annum. Calculate Payback Reciprocal. a.15% b.18% c.20% d.22%

(viii)The return on market portfolio is 14%. The last dividend of share A was `2 and the dividend and earnings
have a constant growth rate of 5% p.a. The beta of the share is 2 and the intrinsic value of the share is `12.35.
Find the risk-free return. a.5% b.6% c.7% d.8%

(ix)It was observed that in a certain month, 6 out of 10 leading indicators have moved up as compared to 4
indicators in the previous month. The diffusion index for the month was a.20% b.40% c.60% d.80%

(x)An Indian Company is planning to invest in the US. The annual rates of inflation are 8% in India and 3% in
USA. If the spot rate is currently ` 78.50/$, what spot rate can you expect after 5 years, assuming the inflation
rates will remain the same over 5 years? a.` 88.89 b.` 94.95 c.` 99.50 d. `86.10

Solution:
(i)(d) Low value addition does not create any barrier for the new entrants rather it provides the space for them in
the market. So, the correct option is (d).
(ii)(a) Operational risk is a part of business risk and hence not a part of financial risk. So, the correct option is (a).
(iii)(d) Euro notes are of three types – Commercial Papers, Note Issuance Facilities and Medium Term Notes. So,
the correct option is (d)
(iv)(b) Leveraged lease refers to a lease agreement wherein the lessor acquires an asset partially financed by the
financial institutions and lease out the same to the lessee for the agreed lease payments. So, the correct option
is (b)
(v)(d) DCL = % change in EPS/% change in sales. So, the correct option is (d)
(vi)(b) The Forward Price (F) = 340 x e6/12 x 0.12 = 340 x 1.0618 = `361.012. So, the correct option is (b).
(vii)(c) Payback Reciprocal = ` 10 lakh ÷ `50 lakh = 1/5 or 20%. So, the correct option is (c).
(viii)(b) Intrinsic value of a share = D1/(Ke – g) = 2.1/ (Ke – 0.05) = 12.35 or, Ke = 0.05 + 2.1/12.35 = 22%. E(R) = Rf
+  (Rm - Rf) = Rf (1 - ) + Rm; 22% = Rf (-1) + 2 x 14%, or, Rf = 6%. So, the correct option is (b).
(ix)(c) The diffusion index = 6/10 = 60%. So, the correct option is (c).
(x)(c) F = S x [(1 + rA)n/ (1+ rB)n]; or, F(`/$) = 78.50 x [1 + 0.08)5 / (1+ 0.03)5] = 78.50 x 1.267455 = `99.50. So, the
correct option is (c).