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CP 201
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Finance
Date
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12
OBJECTIVE
QUESTIONS
2008
-
Dec
[1]
{C}
(a)
In
each
of
the
cases
grven
below
one
out
of
four
is
‘correct.
‘workings/reasons
briefly
(=1
mark)
The
Beta
co-efficient
of
equity
stock
of
ECOBOARD
LTD.is1.6.
The
—
iy
(i)
Indicate
the
correct
answer
(1
mark)
and
give
'your
‘risk-free
rate
of
return:is
12%
and
the
requrred
rate
of
return
is
18%
on
o
the
market
portfollo
If
the
dividend
expected
during
the
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
the
CAPM)
A.%18.38
‘
-
.
.
:
B.
£15.60
C.
312,50
-
D.
NoneofA
B,C.
:
‘
In
September
30,2008,
a
six-month
Put
on
VlNTEX
LTD.
s
stock
with
an
exercise
price
of
¥
75
sold
for
¥
6.82.
The
stock
price
was
¥
70.00.
'The
risk-free
rate
was
6%
pe-
annum.
How
much
would
you
be
willing
to
pay
for
a
CALL
on’
Vintex
Ltd.’s
stock
with
same
maturlty
and
exercrse
pnce”
[Given.
PVlF
(6%,%year)
O
9709]
A
%1372
B.
¥
8.50
~C.%4.00
.
D.¥3.20
A
'
B
-
MISS
ARTITHI
can
earn
a
return
of
20
per
cent
by
lnvestlng
in
equrty
N
shares
on
her
own.
Now
she
.is
consrdenng
a
recently
announced
“Equity
based
mutual
fund
schemein
which
gnltlal
expenses
and
annual
©
recurring
expenses
are
5
percent
and
1.5
per
cent
respectively.
How
~much
should
the
mutual
fund
earn
to
provrde
Miss
Artithi,
d
return
of
~20
percent’7
14.409
-
A0
w\
Soomvier
CAA
Fine)
Gr.
W
Papet
-
10
GG
Syheousy
|\
A.
18.43%
|
B.
22.55%
C.
21.50%
D.
Insufficient
data
MR.
ROHIT
is
willing
to
purchase
a
5
years
Z
1000
par
value
PSU
"bond
having
a
coupon
rate
of
9%.
His
required
rate
of
return
is
10%
‘How
much
Mr.
Rohit
should
pay
to
purchase
the
bond
n‘
it
matures
at
par?:
[Given:
PVIFA
(10%,
5
years)
=
3.791
and
PVIF
(10%,
5
years)‘
=0.621]
A.
%
965.49
'
B.
2962.19
(.
85047
)
(iv)
.
.D.
80530
Answer
(2x4
=
8
marks)
(B)Z
18.36
,
:
-
Expected
rate
of
return:
(By
applying
CAPM)
Re
=Rt*Bt(Rm_Rt),
=12%
+
1.6(18%
-
12%)
=12%
+
9.6%
=
21.6%
-
Price
of
stock:
(wrth
the
use
of
dividend
qrowth
mode!
formula)
‘Ry=D/Ps+g
.
0.216
=
2.50/(P,
-
0.08)
f
or,
P,
=
2.50/(0.216
-
0.08)
=2.50/0.136
=%
18.38
(C)
%
4.00;
Based
on
put
call
parity
theorem.
"
C-P=S-PV(EP)or,C=P+S
-
RPV(EP).
Thus,
C(call)
=6.82+
70
-
75
x
0.9709
=76.82
-
72.82
=3
4.00
Thus,
Price
of
Six
month
call
=
7
4
00
(B)
22.55%
R,
=[1/1
-
Initial
Expenses
(%)
R+
Recurring
Expanses
(%)
Where
R,
=
Mutual
fund
earnings
’
R,
=
Personal
earnings
of
Miss
Artithi.
|
.
[Chapter
=
12]
Objective
Questions
|
&
[
14.411
|
=[(1/1.
-
0.05)
x
20%]
+
1.5%
-
=0.2105
+
0.015
=
22.
55%
(B)¥962.10.
If
the
Bond
matures
at
par
Bn'=<¥
1,000.
Each
interest
=¥
90
(1,000
x
0.09).
Kd
=
10%
..
Bo=
?90x3791
+1000><0621
—%96219
-
55
Jace
o
write
mnonant
ooy
©
2008
-
Dec
[1]
{C}
(b)
Choose
the
most
appropriate
one
from
the
stated
options
and
write
it
down.
(Only
indicate
A,
B,
C,
D
as
you
think
correct)
().
An
option
of
allocating
shares
in
excess
of
the
shares
included
in
the
-
public
issue
is
calied.
~A.
Call
option.
.
B.
Compound
option
C.
Green
shoe
option
~
D.
Follow
on
offer
_
(i)
The
legislations
governing
the
securities
market
are
'
A.
The
SEBI
Act,
1992
and
the
CompaniesAct,
2013
-
B.
The
Securities
Contracts
(Regulatlon)
Act,
1956
C.
Depositories
Act,
1996
D.
All
of
the
above
(iii)
.A.
The
Chairman
of
IRDA
B.
Government
of
India
-
C."The
ROC
D.
RBI
In
put-cali
parity,
the
pay
offs
of.
buylng
stock
can
be
rephcated
by
A.
Buying
a
call
and
buymg
a
put
option
B.
Buying
a
call
and
writing
a
put
option
C.
Writing
a
call
and
buying
a
put
option
D.
Writing
a
call
and
writing'a
put
option
(iv)
mas
Lt
()\r
&1
o
L
e
S
1
The
members
of
IRDA,
other
than
Chalrman
of
IRDA
are
appornted
by
l
14.41'2-‘;n1
IScanner;'s:MA
Final
Gr.
1l
Paper
-
14
(2016
Syilabus)
s
(v
(viii
(ix
)
)
)
-
A.
Systematic
rigk
of
the
portfolio
As
per
SEBI
s
guidelines:
a
mutual
fund
should
be
establlshed
asa
|
~of
~
C.
Strong
form
of
efficient
market
hypothesrs
-
D.
Incompetence
of
the
director
A.
Investors
have
homogenous
beliefs
-
‘Security
Market
Line
(SML)
shows
the
relatronshlp
between
retum
on
the
stock-
and
"
A.
Return
on
market
portfolio
B.
Beta
of
the
stock
_
C.
Risk-Free
rate
of
return
D.
Variance
of
the
stock
returns
S
Sharpe’s
measure
of
the
portfolio
performanze
is
based
on.
B.
Unsystematic
risk
of
the
portfolio
C.
Total
risk
of
the
portfolio
D.
Market
risk
of
the
portfolio
A.
‘Public
limited
Company
B.
Trust
C.
Private
Limited
Company
D.
None
of
the
above
‘
‘
:
'
If
the
director
of
a
company
who
has
access
to
rnsude
mformatron
is
unable
to
use
this
rnformatlon
to
make:
supernormal
profit,
itis
a
srg
A.
Weak
form
of
effrcrent
market
hypothesrs
_
B.
Semi-strong
form
of
efficient
market
hypothesis
The
following
are
the
common
assumptions
to
both
APT
and
CAPM
B.
The
markets
are
perfect
-
C.
Investors
are
risk-averse
uuhty
maxrmrzers
D.
All
of
(A),
(B)
and
(C)
above
(1%9
=
9
marks)
"
[Chapter
=
12]
Objective
Questions
|
m
[
14.413
|
-
()
(i)
DIACTH
IR
write
impdrtant
points
for
revi
".on»
4
-»
..2009
June
[1]
{C}
(a)
In
each
of
the
cases
given'
below
one
out
of
four
is
“correct.
Indicate
the
correct
answer
(_
1
mark)
and
g|ve
your
workings/
reasons
briefly
(=1
mark)
:
'
|
-ASHEEKA
LTD
has.an
excess
case
of
¥
8,
00
000
whrch
it
wants
to
invest
in
short-
term
marketable
securltles
Expenses
relating
to
.
‘investment
will
be
?
20,000.
If
the
securities
invested
will
have
an
annual
yield
of
9%,
what
would
be
the
periad
of
lnvestment
so
as
to
‘earn
a
pre-tax
|
mcome
of
5%7?
(Ignore
time
value)
(a)
6.5
months
'
"
(b)
9.75
months
-
"
(c)
10
months
"
(d)
None:of
(A),
(B),
(C)
The
stock
of
SUVALAXMI
LTD.
(FV
¥
10)
quotes
%
520
on
NSE
and
‘the
3
months
futures
price
quotes
at¥
532.
The
borrowing
rate
is
given
as
15%
p.a,
What
would
be
the
theoretical
price
of
3
month
Suvalaxmi
Futures
if
the
expected
annual
dwrdend
yteld
rs
25%
p
a.
payable‘
before
expiry
2
(a)
¥
540.00
-
(b)
¥
539.00
{c)¥537.00
(d)
lnsufflmentdata
MR.
KUMAR
is
a
fund
manager
of
an
equity
fund
which
is
expected
to
provide
risk
premlum
of
10%
and
standard
deviation
of
returns
of
-
16%.
MISS
AKRITA,
a
client
of
Mr.
Kumar
choose
to
lnvest
¥
70,000
‘in
equity
fund
and
¥
30,
000
in
T-Bills.
If
T-
BI“S
are
tradrng
at7%p.a.,
~
the
expected
return
and
standard
deV|at|on
of
return
on
the
portfollo
|
of
Miss
Akrita
will
be
-
(iy.).
o
C(d)11.916%
Answer
()
~(b)
(o)
)
|
F14;41fl
m
[Scanner
CMA
Final
Gr.
Il
Paper
-
14
(2016
Syllabus)
|
Q)
A%
204
A%
-
0)
14%
and
11.20%
(c)
14.5%
and
11.26%
.
{d)
None
of
(A},
(B),
and
(C)
The
NAV
of
each
unit
of
a
closed-end
fund
at
the
beginning
of
the
year
was
¥
15.
By
the
year
end,
its
NAV
equals
¥
15.40.
At
the
beginning
.
of
the
year,
each
unit
was
selling
at
a
3%
Premium
to
NAV.
By
the
end
.
of
the
year,
each
unit
is
selling
at
a
5%
discount
to
NAV.
The
fund
paid
year
end
distribution
of
Income
and
Capital
gains
of
¥
2.40
on
-
each
unit.
The
rate
toreturnto
thelnvestor
in
the
fund
durlng
the
year
.
i3:
(a
)
9.861%
(bz
10.226%
11.512%
SOFTEXLTD.
has
both
European
calland
put
options
traded
on
NSE
:
Both
options
have
an
expiration
date
6
months
and
exercise
price
of
~
%.30.
The
call
and
put
are
currently
seliing
for
¥
10
and
¥
4
respectively.
If
the
risk
free
rate
of
interest
is
6%
p.a.,
what
would
be
.
the
stock
prlce
ot
Softex
Ltd
?
[leen
PVIF
(6%,
0.5
yrs)=
019709]'
-
(@)¥35.13.
(b)
?
40.87
3
45,
50
lncomplete
Informatlon
(d
(2
x
5
=10
marks)
(C)
10
month
-
Pre-tax:
Income
required
as
mvestment
of
¥
8,00,
000
=%
8,00,000
x
0.05
=T
40,000
-
Let
the
period
of
investment
be:
«P
/(8,00,000
x
0.09
x
P/12)
-
20,000
=
40,
OOO
or,0.06
P
=%¥60,000=>P
=60,000+0.06
=10
:
=10
months.
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[
-
[Chapter
=
12]
Objective
Questions
|
m
|
14.415
|
(i)
{C)T537.00.
'
©
"
Theorstical
Price
of
3
month
Suvalaxmi
Futures:
Spot
price
+
Cost
of
Carry
-
Dividend.
=520
+
520
x
0.15
x
0.25
-
2.50
{25%
of
FV
¥
10)
=520
+
19.50
-
2.50
=
¥
537.
.
.
(lll)
(B)
14%
and
11.20%
_Expected
return
on
Equity
fund
=7.00
+10.00
=
17%
-
Expected
return
on
Portfolio
of
Miss
Akrita:
‘
0.70x
17
+0.30x
7
=14%
.
Expected
Standard
deviation
of
the
return
on
Port
folio
-
=0.70x0.16
+
0.30
x
0
=11.20%
(iv)
(B)10.226%
'
-
The
price
of
unit
at
the
beginning
of
the
year
S
15x1.03=%15.45
The
price
of
unit
at
the
end
of
the
year:
15.40
x
0.95
=
14.63
.
The
price
of.the
fund
fell
by:
(14.63
-
15.45)
=
-
0.82
Rate
of
return
=
(2.40
-
0.
82)
+15.45
=10.
226%
“(v)
(A)%35.13
-
According
to
Call-Put
parzty
Cy=Py+
S,
—PV(E)
Where
C=10,P
=4
.10
=4+
S,
-
30
x0.9709
PV(E)
=
PV
of
Exercise
Price
©
»80=10-4+29.127
IR
:
-
=35.127
:
1e
?3513
e
‘
/
[}
e
et
R
|
2009
-
June
[1]
{C}
(b)
Choose
the
most
appropriate
one
from
ihe
stated
-
-
options
and
write
it
down.
(Only
indicate
A,
B,
C,
D
as
you
think
correct):
(i)
A
process
of
investment
by
a
sponsor
or
a
syndicate
-
of
‘
investors/sponsors
directly
in
a
company
is
referred
as.-
(a)
Bought
out
deal
:
(b)
Buy
Back
of
shares
(c)
"Irredeemable
preference
shares
~
(d)
Deferred
shares.’
|
14.416
|
m
|
Scanner
CMA
Final
Gr.
Il
Paper
-
14(2016
Syllabus)
|
(i)
A
broker
has
bought
10000
ABC
shares
at
¥
200
and
sold
8000
.shares
at
¥
190
on
the
same
day.
The
margin
he
has
to
pay-
lS
-
~(a)
Gross
exposwe
margin
(b)
Special
margin
=
(c)
Mark
to
market
margin
(d)
Concentration
ratio
margin.
According
to
SEBI
guidelines
'(a)
All
the
new
issues
should
be
in
the
deposfitory
mode
(b)
All
the
"A*
group
shares
shouid
be
traded
through
NSDL
(c)
Alithe
"B"
group
shares
should
be
traded
through
NSDL
:
(d)
All
the
above
are
true.
-
‘
'
(iv)
The
members
of
SEBI
are
appomted
by
(@)
Chairman
of
SEBI
(b)
The
chairman
of
the
Stock
exchanges
"
(c)
Central
Government
(d)
Reserve
Bank
of
India
|
(v)
*
Aninvestor
owning
a
stock
wants
to
retain
the
upssde
potential
of
the
-
stock.
At
the
same
time
he
wants
to
hmlt
his
loss
if
the
stock
pnce
falls
:
What
should
he
do
?
(a)
Buy
a
put
option
(b)
Buy
a
call
option
-
JRN
(c)
Buy
a
call
option
and
buy
a
put
optlon
B
(d)
Sell
a
call
option
afd buy
a
put
option.
(iif)
(1
x
5
=5
marks)
oot
;_”3:“4;.;“,,;
i
Sy
FOr
TR
e
e
e
e
e
e
[Chapter
=
12]
Objective
Questions
l
[
]
|
14.417
J
2009
-
June
[1]
{C}
(c)
Fillup
the
blanks
with.
approprrate
answers:
(i)
Inthe
case
of
a
new
ULIP,
IRDA
has
permitted
partial
with
drawal
by
a
client
only
attet
=
years.
'
(m)
Every
recogmsed
stock
Exchange
is
required
to
turnrsh
to
~
with
a.copy
of
the
Annual
report
with
prescribed
partrculate
as
perthe
requirements
of
the
Securmes
Contracts'
(Regulation)
Act,
1956.
(v)
SBTS
stands
for___
.
Answer:
:
'
(i)
Three
Pohcy
(i)
SEBI
IR
(v
).
Screen
Based
Tradrng
System.
.o
‘
‘
-
xm,)m!m“'
)’)
Wity
¥
o
m\/mmn
____-_
*
1‘;51-?-".{7{-71’
)/i;
-
2009
-
Dec
[1]
{C}
(a)
Fill
up
the
blanks
with
the
appropriate
answers:
(i)
For
LMN.
Ltd.,
the
market
standard
deviation
is
0.03,
standard
-
deviation
of
an
asset
is
0.027
and
the
cotrelation
coefficient
of
the
.
portfolio
with
market
is
0.8.
The
market
sensitivity
index
is
.
-
(i)
Contlnurng()above
rfthe
expected
marketreturnis
12%
and
the
risk-
.
applyrng
Capital
Asset
Pricing
Mode}
is
%.
(iv)
.
_isregarded
as
the
father
of
modern
portfolio
theory
e
risk.
in
capital
market
analysrs
T
»
(vi)
Inthe
case
of.
optrons
only
the
rs
obligated'to
perform
the
-
contract.
.
‘
promoter’s
contribution,
shall
be
locked
i
in
for
a
period
of
_
"
{b)
State
with
reasons,
whetherthefollowmg
statements
are
True
or
False
(Mere
conclusion
will
not
be
sufficient):
(i).
In
the
capital.
issuance
through-the
book
burldmg
process
the
"
merchant
banker
acting
as
book
runnerdetermlnes
the
subscnptron
prrce
|
14.418
|
m
[écannerCMA
Final
Gr.
Il
Paper
-
14(2016
Sytlabus)
|
(1
mark’
each).-
free
rate
of
return
is
8%,
the
expected
rate
of
return
of
a
portfolio
)
The
external
factor.
that
affects
the.
mdustry
as
a
whole
is
termed
as
-
~(vii)
The
entire
pre
-issue
share
caprtal
other
than that
Iocked
in
as
(vm)
Premium
settlement
is
adopted
by
stock
exchanges
for
the
products
and
-
~
{1x7
=
7'marks)
(n)
Gross
exposure
limits
-
of
members
of
stock
exchange
are
computed
in
absolute
terms,
ignoring
positive
and
negat\ve
signs
(purchase
values
and
sale
values).
(i)
Junk
bonds
are
corporate
bonds,
considered
as
unfit
for
investment
~
purposes
and
so
branded,
by
the
investing
fraternity.
(iv)
Repo
and
reverse
repo
trade
are
also
termed
as
collaterahzed
'
lending
and
borrowing
mechanism.
_
:
(v)
An
e-mail
is
not
an
acceptable
form
of
approved
evidence
towards
'
'
recerpt
of
communication
from
a
person.
-
(vi)
‘Efficient
Market
Hypothesis
implies
that
a
new
lnformatron
reVealed
~
about
a
firm
wrll
effect
the
share
prrce
rapidly
and
rationally.,
(a)
-
(i)
0.72
(i)
-
10.88
(iv)
Harry
Markowitz
‘(v)
Systematic
(vi)
Seller/writer
)
One
year
:
-
(viiij
options
contract
on
rndex
and
mdrvrdual
securltles
Answer
,
P
(b)
(i)
False:Inthe
book
building
process'
thernvestors
make
the
bids,
‘at’
-
or
‘above’
the
floor
price.
The
price:
opted
by
the
majority
of
the
-
"
bidders
shall
be
decided
as
the
subscription
price.
(i)
True:
Members
of
stock
exchanges
are
subject
to
gross
exposure
b
limits.
Gross
exposure
for
a
member,
across
all
securities
in
rothng
settléments,
is
computed
as
absolute
(buy
value
and
sell
value),
i.e.
ignoring
+ve
and
-ve
signs,
acress
all
open
settlements.
Open
-
settlements
would
be
all
those
settlements
for
which
trading
has-
commenced
and
for
which
settlement
pay-in
is
not
yet
compteted
(i)
False:
Junk
bonds
are
corporate
bonds
with
fow
ratings
given
by
.
major
credit
rating
agencies
and-not
the
investors.
High
-rated
bonds
are
called
investment
grade
bonds,
low
rate
bonds
are,
calted'
speculative
-
grade
or
junk-bonds.
(2x6-12marks)
-
[Chapter
=
12]
Objecfiv'e‘Questions
o
|
14.419
,
_
_
I
(i
v)
True:
Repos
and
reserve
repos
are'oommonly
used
in
the
money
-
markets
as
instruments
of
short-term
liquidity
management
and
can
also
be
termed
as
a
collateralized
lending
and
borrowing.
-
mechanism.
Banks
-and
Financial
Institutions
usually
enter
into
reserve
repo
transaction
to
manage
therr
reserve
requrrements
or
to
manage
liquidity.
_
False:
e-mail
is
a
valid
form
of
carrying
out
communication
in.
India.
,
-
This
implies
that
.e-mails
can
be
duly
produced
and
approved
in
a
‘court
of
law,
thus
can
be
a
regarded
as
substantial
document
to
“carry
out
legal
proceedings.
An
e-mail
received
from
a
person
can
be
produced
in
a
Court
of
law
as
evidénce
of
communlcatron
received
from
such
person.
(Vj)
‘True:
The
efficient
market
hypothesis
(EMH)
implies
that
new
‘_,i
2010
-
June
[1}{C}
(a)
In
each
of
the
cases
given
below
one
out
of
four
is
~
correct,
workings/reasons
briefly
(=
information
is
revealed
about
a
firm
it
will
be
incorporated
into
the
-
share
price
rapidly
and
rationally,
with
respectto
the
direction
of
the
:
share
prrce
movement
and
the
size
of
that
movement.
SECY
RS
)‘\
gt
”‘.‘
:
i
‘[
’(
f;{-,f‘?}'iii“if-
o
s
i
i
<t
b
Indicate
the
correct
“answer
(=1
1
mark)
:
The
co-efficient
of
correlation
between
returns
of
SPARK
LTD.
and
-
mark)
“and
~
give
your
SENSEX.is
1.10.
The
expected
returns
on
the
stock
of
Spark
and
Sensex
are
18%
and
14.37%
respectively.
The
return
on
182
day
T-
-Bill
is
6.31%.
What
would
be
the
standard
deviation
of
the
returns
of
Spark
if
the
standard
devratron
of
Sensex
sreturn
is
17%?
A
20.12%
B.
22.41%
C.
26.46%
_
‘D.
Insufficient
data
|
14.420
|
m
|
Scanner
CMA
Final
Gr.
Il
Paper-14(2016
Syllabus)
|
(i)
(i)
(iv)
(V)
SAFARI
LTD
has
an
excess
cash
of
¥
6,
OO
000
which
it
wants
in
short
-
term
marketab!e
securities.
The
securities
invested
willhave
anannual
-
yield
of
8%.
If
the
expenses
relatrng
to’
investment
in
securities
is
20,000,
what
would
be
the
minimum
period
forthe
company
to
break
even
its
investment.
expenditure?
Ignore
time
value
of
money.
'
A.
9.50
months
:
s
B.
5.00
months
C..
3.75
months
D:
Insufficient
data
_
MS
BRIST!
can
earn
aretun-
of
18%
by
rnvestrng
in
equrty
shares
on
her
own.
Now
she
is
consrderrng
a
recently
announced
Equity.
based
g
-
Mutual
Fund,
scheme
in
which
initial
expenses
are
1%
and
annual
recurring
expenses
are
2%.
How
much
should
the
Mutual
F’und
earn
to
provrde
Ms
Bristi.;'
a
return
of
18%7?
-
A.
18.18%-
B.
20.18%
-
C.
22.18%
D.
22.78%
:
The
Spot
is
currently
seltrng
at
T
270.
The
call
optron
to
buy
the
stock
0
at
T
265
costs
¥
12.:What
will
be
the
Trme
Value
of
the
optron’?
A
T13
"
r
L
‘
:
B..¥5
.
N
o
S
C.
217
"
A
o
'
D.-®7
,
‘
o
s
T
The
Spot
value
of
Nrfty
is
4430
An
mvestor
boughta
one
month
Nifty
|
for
4410
call
option
for
a
premrum
of
?
12
The
optron
is:.
'
~A.
Inthe
money
B.
Atthe
money
C.
Out
of
the
money
-
-D.
Insufficient
data
(2
x
5
=10
marks)
(b)
Choose
the
most
apgropriate
one
from
the
stated
options
and
write
‘it
‘dewn.
(Only
indicate
A,
B,
C,
D
as
you.
think-correct):
(i)
There
will
be
no
conflict
in
ranking
between
Sharpes
ratro
and
Treynor
S
ratro
rt
the
portfolio-
has:
:
I
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[Chapter
wh
2]
Objectlve
Questlons
l
m
1
14
421
]
A.
Zero
unsystemattc
r\sk
'
~B.
Zero
systematic-
risk
C.
Zero
total
risk
-
-
D.
Equal
amount
of.
systemattc
risk
and
unsystematic
nsk
the
company,
even
after
trying
for
an
extendcd
period
of
time.
This
means
that
the
market
is
exhibiting:
:
-
A.
Weak
form:
of
market
efficiency.
.
B.
Seml-strong
form
of
market
efficiency:
-
C.
Super
strong
form
of
market
eff|0|ency
-
D..
Inefficient
market
I
;
(v}
IRDA
Act
was
passed
in
the
year
.
.
@
A.
1987
'
B.
1993
.
C.
1999
_
o
Loy
|
D.
2003
.
-
7
Ly
§(c)
Fillup
the
blank's
with
appropriate
answers:
|
-
(l)
A
~
does
not
have
information
on
price
of
securities
offered
and
number
Ky
x'3"=
3
marks)
-
(i)y
____-
_are
those
Institutional
Invasiors
generally
percewed
to
~inthe
Capltal
market.
‘
(ili)
The
risk
attributable
to
factors
unlque
toa
secunty
is
.
(iv)
-
Penalty
|mposed
ona
stock
exchange
for
marg|n
violation,
for
the
first
instance
is
(
)
In
the
context
of
pubhc
nssue
the
expansTon
of
Rlis
____
.
S
(1x5
5
marks)
nswer:
_
C
)y
(B)
22.41
'
0.18
=RF
+
(R,
-
R)B
=0.
0631
+
0(0
1437
0.
0631)
Or,
B
=
0.1169/0.0806
=
1.45
Again
B
=
(0,P,/0,)
’Or
g,
=
Bo
/P,m
(1
45
x
0.
17)/1
1
—-02241
i.e.
22:41%.
-
(t_i)'
MS.
ANKITA,
an
ermployee
of
MERLIN
LTD
was
not.
able
to
earn
'
profit
from
the
information
she
had
about
the
likely
profit
figure
for
-
contains
all
information
of
the
Company
contents
‘but-
-
ofsecurmes
(quantum)offeredthrougt.such
documentto
the
pubhc
'
possess
expertlse
and
the
flnanc;lal
muscle
to
evaluate
and
mvest-
\'
14.422
J_-
[Scanner
CMA
Final
Gr.
ill
Paper
-
14
(2016
Syllabus)
]
(i)
(B
5months
-
"
Investment
=
¥
6,00,000
-Let
minimum
period
to
break
even
its
investiment
expendlture
P
Hence,
6,00,000
x
0.08
x
P/12
-
20.000=0
~
Or,
4000P
=20,000;
i.e.
P
=
20,
000/4
000
=
5
months
(iii).
(B)
20.18%
_
R2
=[1/(1
-
0.01)
x
Rt;
+
recurrlng
expenses°/o
~
Where,
R2
=
Mutual
fund
earnings
:
R1
=
Personal
earning
of
Ms
Bristi
R2
=1/0.99
x
0.18
+
0.02
=
02018|e
20.18%
(iv)
(D)
=7
.
(266
+12)
-
270=7
(V).
(A)
In
the
money:
-Sport
vaiue
>
Exercise/Strike
value
=
>
In
the
Money
%4,430
>
%
4,410.
Answer;
:
(b)
(i)
(A)
Zero
unsystematic
risk
.
(i)
(C)
.
Super
strong
form
of
market
efflmency
-
(v)-(C)
1999
‘
Answer:
-
.
(c)
()
Redherring
prospectus.
)
Qualified
Institutions
Buyers
“(iii)
Unsystematic
risk
(iv)
0.07%
per
day
(V)
Rights
issue
=
Spacs
fo
wite
important
pe
)*
e
'tor
ravision
N\
2010
-
Dec
[11
{C}
(a)
In
each
of
the
cases
given
below
one
out
of
four
i
is
correct.
Indicate
the
correct
answer
(=
1
mark)
and
give
your
worklngs/
reasons
briefly:
:
(1
mark)
—
(ii)
(i)
-
The
following
securities
are
available
in
the
market
for
investment:
Security
"
Return
(%)
|
Standard
Deviation
(%)
Gift-
edged
security
6
_
0
Equity
of
ROLT
LTD.
20
20
if
MR.
VARDHAN
is
plannrng
to
invest
¥
5,300,000
to
construct
a
~
portfolio
with
standard
deviation
of
18%,
the
return
on
siich
portfolio
-
will
be:
A.
72,000
B.
¥93,000
C.
T
95,000
,
'D.
None
of
the
above
free
interest
was
5%
per
annum.
How
much
would
you
be
willing
to
-pay
for
a
six-month
put
on
Melanin
Ltd's
stock
with
same maturaty
and
-
~exercise
prrce?
‘
-
[Given:
e"
=
%%+%
=
0.9753]
AR
T741
'
~
B.%952
,
.
-
C.
71026
.
D.
Insufficient
information
of
0.75.
He
estimates
the
expected
market
return
to
be
0.12
while
T-
Bills
yield
0.09.
What
rateshould
he
expect
and
require
on
the
stock
according
to
the
SML
(Security
Market
Llne)
A.
0.11
-
B.
012
C.
0.13
‘D.
None
of
the
above
"
(2%x3=
marks)
(b)
Choose
the
most
approprrate
answer
from
the
stateo
options
and
write
it
down.
(Only
indicate
A,
B,
C
or
D
as
you
think
correct)
[Chapter
=
12]
Objective
QuestionsW
]
f14.423
J
_
In
September,
2010;
a
six-
month
call
on
MELANIN
LTD
s
stock
wrth-
an
exercise
price
of
Z
30
sold
for
¥
6.
The
stock
price
was
¥
25,
the
risk
MR.
KHUBERAN
wants
to
purchase
a
stock
that
has
a
beta
coeffrcrent‘v
[
12,424
|m
|
Scanner
CMA
Final
Gr.
1l
Paper
14
(2016
Syllabus)
(0
-
B.
Positive
abnormal
returns
can
be
expected
fromlow
P/E
stocks
(i
|
D.
None
of
the
above
(i)
~
to
the
public
for
the
first
time
such
issues
are
called
A,
Initial
public
offering
|
'C.
Green
shoe
option
D.
None
of
the
above
:
|
-
Book
burldrng
process
is
"different.
from
frxed
pnce
process
for
|
in
the
futures
market
and
her
collateral
is
exactly
at
the
required
~margin.
If
the
closing
futures
pnce
is
below
the
openmg
pnce
what”
A,
Price
at
which
securities
will
be
offered/allotted
is
not
known
in;
B.
Demand
for
the
securities
offered
can
be
known
everyday
Which
of
the
followrng
would
be
true
evrdence
against.
the
semi
strong
form
of
market
efficient
theory’7
_
_
A.
Trend
analysis
is
worthless
in
determining
stock
prices
C.
Mutual
fund
managers
do
not
persistently
make
superior
return
D.
Investor
cannot
make
superior
profits
by’
changrng
his
portfolio:
-
according
to
change
in
interest
returns.
At
the
beginning
of
a
trading
day,
MS
SCNIA
is
in
a
short
posmon
]
will
happen
at
the
end
of
the
day
?
|
A.
She
will
be
subject
to
a
margin
call
-
:
B.
Her
losses
will
be
carried
forward
to
tne
next
day
C.
Her
account
will
be
marked
to
market
and
garns
will
b
transferred
in
the
account
When
an
existing
listed
company
elther
makes
a
fresh
rssue
of
securities
1o
the
public
or
makes
an
offer
for
the
sale
of
securities
§
B.
Follow
on
public
offering
-
raising
‘share
capital
from
the
public.
Which
of
the
followmg..:
statements
is/are
frue
about
book
-building
process?
-
advance
to
investors.
Only
an
indicative
price
is
known
C.
Payment
is
made
at
the
time
of.
subscrlptron
D.
Both
A
and
B
above
(1
x4=4
marks)’f
n
(i)
@0
Answer
[Chapter
-
12]
Obyectlve
Questlons
}
\
14.425
|
(c)
Frll
in
the
blanks
wrth
appropnate
answers
Beating
the
market
by
analyzing
data
obtained
from
maga2|nes
"
reports
and
newspapers
means
that
the
markets
are
in
_
form.
(i)
The
PSU
(Public
sector
undertakmg)
bonds
are
securities
as
-
defined
under-___
Act.”
(iiiy
In
case’
of
a
new
ULlP
IRDA
has
permltted
parflal
wflhdrawal
by
a
~
client.only
after
__
years.
(iv)
The
fringe
marketis
____
(a
d|sorganszed
Jalso
an
orgamzed
but
informal)
money
.
market,
deemed
to
include
everythmg
that
is
-outside
the
scope
of
the
money
market.
(v)
The
condmons
that
must
be
satisfied
before
an.entity
is
Ilcensed
to
carry
out
the
activities
of
a
collective
investment
management‘
‘
company
are
Adequate
Management
Structure
and
The
expansion
of
OTCEl
is
For
liquid
securities
the
VAR
marglns
are
based
on
the
of
the
security.
'
By
virtue
of
their
structures,
mutual
fund
schemes
are
classmed
as
|
'open
-ended,
cost-
ended
_____schemes.
.
(1
x8=8
marks)-
B:
¥
93,000
Variarice
of
Portfolio:
0,2
=
W
Of
or
+2W,
1Wt°t
Prf,
since
Std
deviation
of
gilt-edged
Securmes
is
0
and
rts
correlatton
with
equity
is
also
0
thé
above
formula
will
reduce
to-
OZW?202
Therefore,
O,
|
=W
Or
Or:
18%
=
20%
W,
L
hence,
W,
=
018/020
09andW-109
0.1
Return
of
Portfoho.(va)
-
WRf+WRr=0.1x6%
+0.9%x20%
=
18.6%
Return
(in
Rupees)
=
0.186
x
5,00,
0004
¥
93,000
-
|
14.426
|
m
|
Scanner
CMA
Final
Gr.
Il
Paper
-
14
(2016
Syllabus)
|
(ily
C:¥10.26
.
'
From
Put
-
Call
parity
theorem,
We
Know.
P
=
C
+
PV
of
Exercise
Price
-
S
(Where
P
=
Price
of
Six
month
put)‘
.
'—6
30>«09753
25
'
-
=35.26-25=%10.26
(iv)
A:0.11
-
E(R)=0.09+
075
(0.12
-
009)
¥0.1125
Answer:
~
'
(b)(i)
B
(i)
C
(i)
B
(iv)
D
Answer:
(c)
(i)-
Semi-strong
inefficiency
"
(ii)
Securities
Contracts
Regulatlon
SCR
)
Three
)
Disorganized
v)"
Financial
Requwement/Fmanmal
Structure
i)
Over
The
Counter
Exchange
of
India
)
Volatility
')_
Interval
*
WAOE
IG
write,
m‘x"OH”n
DOIHTS
for
rev'slon
2011
-
June
[1]
{C}
(a)
In
each
of
the
cases
given
below,
one
out
of
four
is
correct.
Indicate
the
correct
answer
(=
1
mark)-and
glve
worklngs/reasons
:
bneflv
in
support
of
your
answer
(=1
mark):.
'
(
i)
-Historically,
when
the
market
return
changed
by
10%,
the
return
onthe.
stock
of
ARIHANT
LTD.,
changed
by
16%.
If
the
variance
of
market
.
return
is
257.81,
what
would
be
the
systematic
risk
for
Anhant
Ltd.?
(a)
320%
«
:
v
(b)
480%
:
.
:
N
(c)
660%
C
-
.
(d)
Insufficient
information
o
3
’
(2
marks)
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[Chapter
=
12]
Objective
'Questions]
[
|
L1.4.427
|
|
(i)
The
characteristics
of
two
securities
A
and
B
are
as
fOII_oWs:
"
Pariiculars
Security
A
Security
B
Expected
Return(%)
12
13
.
Standard
deviation
of
return
(%)
21
29
Beta
(B)
1.10
1.20
‘The
correction
co-efficient
between
the
returns
on
Securmes
Aand
B
is
0.94.
.
-
of
a
portfolio
consisting:
of
two
securities
|n
equal
proportlon
will
be
-
(a)
460%
(b)
529%
()
606.5%
-
(d)
None
of
the
above
(2
marks)
-
(iv)
Mr.
SAURAV
GANGULY
can
earn
a
return.
of
20%
by
investing
in
equity
shares
on
his
own.
Now
he
is
contemplating
recently
-
announced
new
equity-oriented mutual
fund
scheme
in
which
initial
_expenses
and,
annual
recurring
expenses
are
5
percent
and
1.5
percent
respectrvely
How
much
should
the
mutual
fund
earn
to
~
provide
Mr.
SAURAV
GANGULY
areturn
of
20%
?
(a)
26.5%
(b))
21.55%
(c)
22.55%.
,
(d)
None
of
the
above
"
2
marks)
.
(v)
The
beta
co-efficient
of
equity
stock
of
ARISTO
LTD.
is
1
6.
The
risk
fre@
rate of
return
is
12%
and
the
required
rate
of
return
is
15%
on
the
market
portfolio.
If
the
dividend_expected
during
the
'coming
year
is
-
¥
2.50
and
the
growth
rate
of
dividend
and
earnings
is
8%,
at
what
price
the
stock
of
ARISTO
LTD.
can
be
sold
(based
on
CAPM)
?
(@)%
12.50
(b)
16.80
(c)
¥
28.41
(d)
InSufficient
information.
_(b)
Choose
the
most
appropriate
answer
from.the
stated
options
and
writé]
=
If
variance
of
returns
on
the
market
lndex
is
400%,
the
systematic
risk-
(2
marks)
-
L14.4281
m
|
Scanner
CMA
Final
Gr.
HI
Paper
-
14
(2016
Syllabus)
-
|
“it
down
(only
indicate
A,
B,
C
or
D
as
you
think
correct):
-
(i)
Which-of
the
following
statements
is
TRUE
regarding
mutual
funds?g
(a)
The
shares
of
close-ended
funds
are
redeemable
at
their
NAV
§
(b)
Open-ended
funds-can
sell
unlimited
number
of
units
(c)
The
fund
units
are
sold
to
the
public
at
the
NAV
-
(d)
Real
estate
fund
is
an
open-ended
fund
(1
mark)
(u)
If
an
investor
believes
that
probability
of
the
price
of
a-
stock
moving
up
is
higher
than
the
probability
of
price
plummeting,
he
should
)
Buy
an
in
the
money
put.and
sell
an
in
the
money
cali
|
)
Buy
an
in
the
money
call
and
sell
an
out
of
the:
money
put
)
Buy
an
in:
the
money
call
and
buy
an
out
of
the
money
put
‘
)
Sell
an
in
the
money
calI
and
buy
an
out
of
the
money
put
(a
(b
(c
(d
‘
:
-
{1
mark)
(iii)
Even
though
SEBI
has
been
glven
Wlde
power
under
the
SEB!
Act:
1992,
the
Central
Government
continues.
to
exercise
Wthh
of
the
E
followrng
powers
under
the
Securities
Contracts
(Regulatron)
Act.
|
(a)
Power
to
amend
bye
-laws
of
Stock
Exchange
(b)
Llcensmg
dealers
in
securities
in
certain
areas
‘
(c)
Power
to
suspend
business
of
a
recognlsed
Stock
Exchange
(
)
Power
to
call
for
perlod'cal
returns
from
Stock
Exchange
o
(I
mark)
|
(iv)
In
Capltal
MarketAnalysnsthe
external
factor
mfluencmg
the
Industry
as
a
whole
is
called
-
:
:
(a)
Industrlal
Risk
(b).
Market
Rigk
(c)
Systematic
Risk
'
>
~(d)
None
of.the
above
,
L
(1
mark)
4
(v)
In
efficient
market,
the
market
prlce
is
an
unbxased
estimate’
of
the
b
true
value
of
the
stocks
(shares).
This
implies
that
'
~
(a)
The
market
price-always
equals
the
true
value
(b)
The
market
vaiue
has
no relation
to
the
true
va!ue
[Chapter
-
12]
Obj,ective
Questions
|
I_I
14.429-
]
|
“v(l
)
Market
prlces
contain
errors,
but
these
bemg
random
can
not
be
explorted
by.investors
(d)
Markets
make
mistakes:
about
true
value
Wthh
can
be
epronted
:
by
investors
.
:
:
(1
mark)
(c)
Fill-in
the
blanks
_ln
the
followmg
sentences
by
usmg
approprlate
@
words/phrases;
(i)
InBSE
tor
most
stocks
the
rolllng
settlement
periodis
_
‘
.
B
(1
mark)
(if)
Insurance
Compames
are
regulated
by
the
___Actwhich
was
~
passed
in
the
year
1999.
'
'
(1
mark)
(ii‘i)
In
the
Context
of
Investment
risk,
lnternatlonal
Risk
includes
Country
~
Risk
and
____Risk.
:
'
(1
mark)
+
(iv)
The
orders
of
SEBI
under
the
Securmes
Laws
are
appealable
before
-
the
-
(1.
mark)
-
(v)
An
~
shows
how
a
specn‘led
portfoho
of
share
prices
are
.
movmg
in
order
to
give
an’
mdlcatlon
of
market
trends.
(1
mark)_
‘-;Answer
:
.
,
_
c:
660%
10%
increase
in
Market
return
resulted
in
16%
i
mcrease
|n
Anhant
:
Ltd.
stock.
Thus
the
Beta
(a)
for
the
Anhant
Itd:
stock
is
160
(i.
e.
16%
=
10%)
Now
Systematic
Risk
i
|s
r32
o
m
(1
.60)
(257.81)
-
-
(i
-
=660%
B:
529%
-
|
The.
Beta
of
portfollo
cons;stmg
of
two
securltles
glven
that
money
is:
allotted
equally
between
two
assets:
1.10x.0.5+1.20x0.5=1.15
The
Systematic
Risk
of
a
portfolio
=
3%
o
m?
(1.15)?
x
4oo
=529%
'
C:
22.55%
'
-
R2
=[1/1
-
Initial
Expenses
(%)
R1]
+
Recurrlng
Expenses
(%)
-
Where
R4
=
Mutual
Fund
Earnings
-
l
14.430
|m
lScanner
CMA
Final
Gr.
i
Paper
-
14(2016
Syllabus)
|
-
"
Rt
=
Personal
earning
of
SAURAV
GANGULY
»
R2=[(1/1
-
0.05)
x
20%)]
+
1.5%
‘
'
=0.2105+0.015
-
.
]
=22.55%
.
.
R
R
(v)
C:%28.41
"
'
Expected
rate
of
return:
(By
applylng
CAPM)
Re_Flt+l3(Rm
Ri)
:
'
=12%
+
1.6
(15%
-
12%)
=
12%
+
4.8%
=
16.85
~Price
of
Stock:
(With
the
use
of
dividend
growth
model
formula)
Re=D,
+
P,
+0.08
0r,.0.168
-
0.08
=
2.50
+
P,
or,
P,
=2.50
+
0.088
+¥28.41
Answer:
(k)
()
B
(iC
(@HC
(vC
(v)C
Answer;
'
'
‘
e}
()
T+2
i)
Insurance
Regulatory
and
Development
Authority
-
-
-
(iii)
Exchange
rate
.
(iv)
Securities
Appellate
Trlbunal
B
(v)
Index
:
-
8pace
10
write-importardt
points
{or
revision
2011
-
Dec
[1]
{C}
(a)
In
each
of
the
cases
given
below,
one
out
of
four
is
correct.
Indicate
the
correct
answer
and
give
worklngs/
reasons
bnefly
in
support
of
your
answer’:
()
The
Market
Price
of
Stock
of
ATCO
Lid.
is
%
102
and
its
Alpha
is
-
1.3%.
The
realized
return
on
the
Stock
is
16%
p.a.
and
the
Risk-free
rate
of
return
is
7.02%
p.a.
Market
Risk
premium
is
7%
p.a.
What
~
would
be
the
Required
rate
of
return
on
the
Stock
of
ATCO
Ltd,,
ifits
_co-variance
with
the
market
portfollo
decllnes
by
50%.
T
"
(a)
14.235%
'
(b)
13.125%
(c)
12.165%
'(
)
None
of
the
above
.
,
[Chapter
=
12]
Objective
Questions
|
m
[
14.431
|
|
14.432
]
]
fScanner
CMA
Final
Gr.
ill
Paper
14
(2016
Syllabus)
l
0
.
The
buy
and
sell
value
of
two
securities
in
stock
exchange
are
as
under:
Security
Buy
value
Sell
value
'
®)
R
L
5,00,000
2,00,000
M
3,00,000
7,00,000
_
The
Gross
Exposure
Marginis
.
(a)
¥
17,00,000
(b)
¥
7,00,000
~
(¢)
T
12,00,000
(i)
(d)
Insufficient
information
The
Stock
of
VENTEX
LTD.
(FV
X
10)
quotes
¥
920
on
NSE
and
the
3
months
futures
price
quotes
at
¥
950 and
borrowing
rate
is
given
as
8%
p.a.
If
the
expected
annual
leldend
yield
is
15%
p.a.
payable
before
expiry,
then
the
theoretical
pnce
of
3
month
Ventex
Ltd.
Futures
would
be
-
(@)
7948.80
()%
939.80
.
(c)
T936.90
(d)
¥
928.40
‘The
following
two
types
of
securltles
are
available
in
the
market
for
-
investment
:
Security
_
Return
(%)
|
Standard
Dewatlon
(%)
Gilt-edged
Secunty
-
7
|
-0
‘
Equity
25
-
30
Using
the
above
twa
securities,
if
you
are
plannlng
to
invesi¥
1
00
000
to-construct
a
portfolio
with
a
standard
deviation
of
24%,
the
return
of
such
portfolio
is
(a)
210,900
(b)
¥
15,600
=
(c)
%
21,400
.
(d)
None
of
the
above
‘MS.
VASUDAis
con3|derlng
an
investmentin
a
Mutual
Fund
witha
2%
load.
As
another
alternative,
she
can
also
invest-in
a
Bank
deposit
paying
10%
interest.
Her
investment
planning
period
is
3
years.
What
should
be
the
annual
rate
of
return
on
Mutual
Fund
so
that
she
prefers
-
the
investment
in
the
fund
to
the
investment
in
Bank
Deposit
?
-
(@)
_
(b)
11.282%
(@
{d)
None
of
the
above
(b)
Choose
the
most
approprlate
one
from
the
stated
options
and
wrlte
it
10.
743%
11.884%
o
(2
x5=
10
marks)_
down
(only
indicate
a,
b,
¢
or
d
as
you
think
correct)
:
-
(i
(i
o
(b)
If
market
price
=
(b)
|
(c)
Unsystematic
Risk
(d)
Green
shoe
option
denotes
an
option
-
\a)
of
allocating
shares
in
excess
of
the
shares
lncluded
|n
the
public
issue
(b)
of
allocating
of
shares
lower
than
the
shares
included
in
the
public
issue
'
(c)
to
buy
shares-at
a
specified
price
in
the
stock
exchange
o
(d)
none
of
the
&bove
The
conversion
of
eXIstlng
assets
lnto
marketable
securltles
is
known
as
C
(a)
Future
flows
securltlsatlon
(b)
Asset-backed
secur|t|sat|on
R
-
__—
(c)
Venture
funds
|
o
|
(d)
None
of
the
above
~(iv)
Which
of
the
follawing
statements
is
true
7
(@)
If
market
price
=
yield.
-
face
value
then
coupon
rate
>
YTM>
current.
face
value
then
coupon
rate
<
current
yield
<
YTM
'
|
(c)
If
market
prlce
>
face
value,
then
coupon
rate.>
current
yield
>
-
YTM
(d)
If
market
price
<
face
value
then
coupon
rate
=
current
yleld
=
YTM
A
portfolio
holdlrlg
90
percent
of
its
assets
in
CNX
lety
Stocks
in
proportion
to
their
market
capitalization
and
10
percent
in
Trea_sury
bills
is
more
sensitive
to
-
(&)
Index
Risk
Systematic
Risk
~
d)
Both
(a).and
(b)
of
above
"
(1-x4'#_-4marks)
‘
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o
—
ECha-pter
i
12_]
Objective
'Q_uestibns]
n
f14.433,J
il
1'4.434J
(c)
Fill
in
the
blanks
in
the
following
sentences
by
usmg
appropriate
-
;
words/phrases/numbers
-
(i)
Inter-bank
market
for
deposits
of
maturrty
beyond
-
s
covered
in
money
market
instruments.
(i)
SEBI
was
constituted
in
the
year
:
(i)
A
prospectus
is
said
to
be
a
prospectus
which
contains
all
information
as
per
prospectus
contents
but
does
not
have
information
on
price
of
securities
offered
and
number
of
securities
(quantum)
offered
through
document.
'
(i"v)
The RBI
performs
the
flnan0|al
supervtsmn
tunctron
under
the
'
gurdance
of
(v)
Buying
and.
sellmg
ca||
or
put
option
with'
same
strike
prlce
but‘
different
expiration
dates
is
called
spread
(1
x5=
5
marks)
Answer
B
'
-'(a)
()
(
)
Market
Return
'
-
Reqwred
Return
.
7
+7.02=14,02%
o
7.02+(14.02
-7.02)B=16+1.3
17.3%
(17.3
-7.02)
.
Required
Beta
(B)
'7
~1.4686
i.e.
1.47
h‘
covariance
of
stock
with
the
market
declines
by
50%,
its
beta
.
also
declines
by
50%.
Hence,
New
Beta
=
50%
of
1.47
=
0.735.
Requrred
rate
of
return
on
stock
of
ATCO
Ltd.:
7.02
+
0.735
x
7
=
12.165%
(i)
(b)
Security
Buy
Value
Sell
Value
Buy
VaIue-’SelI
Value
-
Q)
RO
Q)
L
-
5,00,000
2,00,000
3,00,000
M
©
3,00,
000
7,00,000
-
-4,00,000
-
The
Gross
Exposure
Margin:
S(1,
30
00
001
+1
-40,00,001).
=%
7,00,000
(i)
(c)
Future
Price
=
=
Spat
Price
+
Costs
of
Carrying-Dividend
—920+920x008x3/12
10
x0.15
‘—920+184O
150
%'936.90
e
Space
1o
write
important
points
for
revision
m
|
Scanner
CMA
Final
Gr.
Iil
Paper
-
14
(2016
Syllabus)
-
|
(iv)
()
op®=w,0"+
W2
20,7
+2
W,"W,°0,0,P
-
Since,
standard
deviation
of
Gilt-edged
securities
is
0
and
its
co-
relatlon
with
the
Equity
is
also
0,
the
formula
will
be
reduced
to
op?
=
w,?a,?
or
Op
=
W,0,
or
0.24
=
0.30w,
or
w,
=
0.8
Rp
=
w,R+W,R,=
0.2
x
0.07
+
0.8
x
0.25
=
0.214
-
Return’in
Rupees
=
100000
x
0.214
=3
21,400
.
(v)
(@)
(1-0.02)
x
(1
+
r)
(1.10)°
o
o
0r,0.98
x
(1
+1)*
>
.
1.331
or
(Y
+71)°>(1.331
+0.98)
or,
(1
+1)°
>1.358163
‘
or
(1+r)>(1.107433)
or,
r
=
(1.107433
—1)orr—0107433|e
'
=10.743%
'
The
annual
rate
of
return
on
mutual
fund
=10.
743%
Answer:
®)
()
(&)
(iiiy
(b)
W)
(©
(v)
(b)
Answer:
(c)
(i)
14
days
(if)
(i)
Red-Herring
-
fiv)
Board
of
Financial
Supervision
(BFS)
(v)
Horizontal
Option/Calendar
Option
"
2012
-
June
[1]
{C}
(a)
In
each
of
the
cases
given
below,
one
out
of
four
is
‘correct.
Indicate
the
correct
answer
(=
1
mark)
and
give
workjngs/reasons
briefly
in
support
of
your
answer
(=
1
mark).
_
(i)
MS
BRISTI,
a
prospective
investor
has
collected
the
followmg
mformatron
pertaining
to
two
securities
A
and
B.
[Chapter
=
12]
Objective
Questions
|
m
|
14.435
|
~
Particulars
Security
A
Security
B
-
Expected
Return
%
15
'
18
Standard
deviation
of
returns
(%)
18
22
-
Beta
'0.90
1.40
*
The
correlation
co-efficient
hetween
the
returns
on
security
A
and
B
is
0.75.
It
the
variance
of
returns
on
the
market
index
is
225%,
the
systematic
risk
of
a
portfolio
consisting
of
these
two
securities
in
equal
‘proportions
will
be:
(A)
125.78%
(B)
297.56%
(C).
420.50%
(D)
None
of
the
above.
i)
Consider
a
bullish
spread
option
strategy
using
a
cail
option
on
the
stock
of
ROYAL
LTD.
with
¥
60
exercrse
price,
priced
atX
6
and
a
call
option
with
¥
75
exercise
price,
priced
at
¥
3.50.
The
current
market
-price
of
stock
of
Royal
Ltd.
is
¥
67.
If
the
price
of
the
stock
is
T
95 on
maturity,
the net
profit
at
expiration
will
be
-
(A)
1.50
(B)
£10.50
(C)
12,50
(ifi)
(D)
%
72.50
The
beta
of
stock
of
ANKIT
Ltd.
is
2.
00
andis
currently
in
eaurllbrlum
|
.The
required
retusn
on
the
stock
is'12%
and
expected
return
on
the
.
market
is
10%.
Suddenly
due
to
change
in
the
economic
conditions,
-
the
expected
return
on
the
market
increases
to
12%.
Other
things
remaining
the
same
what
would
be
new
required
return
on
the
stock?
(A)
15.0%
16.0%
20.0%
(B)
(C)
(D)
22.5%
[14.436
|
m
[Scaner
CMA
Final
Gr.
Ill
Paper
-
14
(2016
Syllabus)
|
§
(iv)
_expiry,
then
the
!
price
of
3
months
RANA
Ltd’s
future
would
be
“(A)
¥500.00
‘year
would
be
(D)
None
of
the
above.
o
(b)
‘Choose
the
most
appropnate
one
from
the
stated
options
and
write
it
down
(only
indicate'A
or
B
or
C
or
D
as
you
think
correct)
'
(i)
The
share
price
of
RANA
Ltd.
(F.V
%
10)
quotes
¥
500
in
the
NSE
and
-
the
3
months
future
price
quotes
at
¥
525.
The
borrowing
rate
is
12%
-
p.a.
If
the
expected
annual
dividend
yield
is
15%
payable
before
(B)
¥513.50
o
(C)
¥516.50
:
{D)
Insufficient
information.
'
The
NAV
of
each
unit
of
a
closed-end
fund.
at
the
begmmng
of
the
‘
year
was
¥
18,
By
the
end
of
the
year
lts
NAV
equals
7
18.50.
At
the
beginning
of
the
year
each
unit
was
selling
at
a
2%
Premium
to
NAV
and
by
the
end
of
the
year
each
unit
is
selling
at
a
4%
discount
to
NAV.
|
If
the
closed-end
fund
‘paid
year
end
dlstrlbutlon
of
income
of
2.50
on
each
unit,
the
rate
of
return
to
the
mvestor
in
the
fund
durrng
ther
(A)
10.35%
\
(B)
11.51%
I
T
(C)
11.95%
-
(2
x5=10
marks)
Residual
analysrs
is
a
test
of
;
(A)
Weak
form
of
market
efficiency
|
.
(B)
Semi-strong
form
of
market
effrcrency
(C)
Strong.form
of
market
effrcrency
(D)
Super-strong
form
of
market
effrcrenby.-_
Arbitrage
pricing
theory
model
helps
to
(A)
Reduce.risk
(B)
Eliminate
arbitrage
(C)
Identify
the
equilibrium
asset
price
(D)
None
of
the
above.
®
~
[Chapter
=
12]
Obiecttve
Q;uestions‘\l\
14.437
\
-
[14.438
|
m
[
Scanmer
CMA
Final
Gr.
Ill
Paper
-
14
(2016
Syllabus)
|
(i)
'
(m)
(@)
(i)
Which
of
the
fc_llowing
is/are.
assumption(s)
cernmon
to
botk.
Markowitz
model
and
CPM?
.
(A)
Investors
can
borrow
and
lend
at
risk
free
rate
(B)
There
are
no
market
imperfection
(C)
Investors
choose
portfolios
on
the
basrs
of
therr
expected
mean
-
‘and
variance
of
returns
~
(D)
None
of
the
above.
(rv)
Non
systematrc
(Non-
Market)
Risk
i
rs
attrrbutable
to
factors
unrque
_
fo
v
(A)
Then
Industry
(B)
A
Security
'
(C)
A
Company
(D)
Concerned
stock
exchange
.
y
An
investor
has
received
bonus
shares
from
ALBUNO
LTD
,a
lrsted
-
company,
in
the
ratio
of
1:
2.
After
the
receipt
of
bonus
shares
(A)
There
is
no
change
in
stockholding
and
it
remains
the
same
{B)
There
is
no
change
in
stockholdrng,
but
more
shares
available
for
trading
,
(C)
Stockholding
has
gone
up
withmore
shares
available
for
trading
(D)
Stockholdlng
has
gone
up.
o
.
(1
x
5
=
5
marks)
(c)
Fill
in
the
blanks
in
‘the
following
sentences
by
usrng
approprrate
-
word(s
)/phrase
(s)/number(
s)r
.
(i)
“Term
money”
is
aformof
__
_market
instrument.
-
Insurance
Regulatory
and
Development
Authonty
(IRDA)
Act
was
-
passed
in
the
year
In-an
arbitrage
portfolio,
the
change
in
the
proportions
of
different
securities
will
add
upto
(1
x
3
=3
marks)
Answer
(B)
297.
56%
The
Beta
of
the-
portfolro
consrstmg
of
two
securities
in
the
equal
proportion:
=
0.90
x
0.50
+
1
40x050_1
15
The
systematic
risk-of
a
portfolro
=B
%3
'm
We
get,
(1.15)?
x
225
|
=297.56%
(i)
(C)
%12.50
Buy
a
call
option
with
exercise
price
of
?
60
@
‘2‘
6.
00
Sell
a
call
option
with
exercise
price
of
75
@
¥
3
50
Initial
outlay
3.2.50
If
the
stock
price
on
expiration
increases
to
95
Profit
from
buying
call
option
(95
-
60)
=%
35
Loss
on
selling
call
option
(95
-
75)
=
20
Net
profit
from
option
(35
-
20)=15
Net.Pay
-off
after
consrderrng
initial
outlay:
(15
-
2.50)
=
T12.
50
(iii)
(B)
16.0%
12=R'+2
(10
-
R)
or,
R'
=
Risk
free
rate
=20-12
=
8%
Revrsed
R
(Requrred
return)
=8
+
(12-8)x
2
=
=
16%
-
(iv)
(B)
¥513.50
r=uture
Price
=
Spot
price
+
Cost
of
Carry
Drvrdend
=500
+
[500
x
(0.12
x
3)/12]
-
10
x
0.15
=500+
15-1.50
=%
513.50
'
(v)
(A)
10.35%
The
price
of
unit
at
the
beginning
of
the
year
.
18
x
1.02
=
¥
18.36.
-
The
price
of
unit
at
the
end
of
the
year
18.50
x
(1
-.04)
=%
17.76
-
:
:
The
price
of
the
fund
fell
by
(17
76
-
18.36)
=
-0.60
Rate
of
return
=
(2
50
-
0
60)
+18.36
=
10.
35%
cpacs
oowelle
Imponant
powis
(G
revision
-
,Answer
(b)
(i)
—
(B)
A
market
has
semi-strong
efficiency
if
prices
fuIIy
reflect
all
-
readily-available
public
information—past
prices,
economic
news,
earnings
-
reports,
etc.
Tests
of
semi-strong
efficiency
are
those
that
study
stock
price
-
movements
following
announcements,
such
as
stock
splits
or
earnmgs
announcements.
Your preview ends here
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[
'
[Chapter
=
12]
Objective
Guestions
I
i
14.43%
|
[14.440
]
m
[
Scaner
CA
Final
Gr.
Ill
Paper
-
14
(2016
Syllabus)
|
(i)
—
(C)
Arbitrage
pricing
theory
(APT)
is
a
general
theory
of
asset
pricing
that
holds
that
the
expected
return
of
a
financial
asset
can
be
modeied
as
a
linear-
function
of
various
macro-economic
factors
or
theoretical
market
indices,
where
‘sensitivity
to
changes
in
each
factor
is
represented
by
a
factor-specific
beta
coefficient.
"
(iii)—
(C)
Markowitz
model
considers
a
portfolio
that
gives
maxrmum
return
for
a
given
risk, or
minimum
risk
for
given
return
as
an
efficientportfolio.
T
he
CAPM
assumes
that
the
risk-return
profile
of
a
portfolio
can
be
-optimized—an
optimal
portfolio
drsptays
the
Iowest
possrble
level
of
risk
for
its
level
of
return.
"
-(iv)—
(B)
The
potential
for
gains
and
losses
in
a
portfolio
which
is
not
related
to
the
movement
of
the
market
in
generai.
-
‘
.
(v)
—
(B)
Bonus
shares
are
additional
free
shares
issued
to
the
shareholder
lby
the
company.
Profitable
Companies
in
India
issue
Bonus
Shares.
These
.
-
are
additional
share
issues
giventhe
shareholder
without
any
costto
existing
shareholders.
~Answer:
(¢)
(i)
Money
-
(i)
1999
(i)
ZERO
CoSnace
1o
write
mponan:
points
oy
revision
=
;
:
-
-+
2012
-
Dec
[1]
{C}
(a)
In
each
of
the
cases
given
below,
one
out
of
four
is
correct.
Indicate
the
correct
answer
(=
1
mark)
and
give
workings/reasons
briefly
in
support
of
your
answer
(=1
mark):
(i)
SIDBI
came
out
with
an
issue
of
Deep
discount
Bond.
Each
bond
|
‘having
a
face
value
of
¥
1,00,000
was
issued
at
a
deep
discounted
price
of
¥
5,000
with
a
maturity
period
of
25
years
from
the
date
of
allotment.
The
onrporate
tax
rate
applicable
is
20%.
If
the
Indexed
Cost
of
acquisition
is
6%,
what
\ml‘
be
the
Post-tax
Yreld
to
maturity
of
the
bond?
A
14.80%
B.
1‘1.98%
C.
10.10%
D.
None
of
(A),
(B),
{c)
(i)
The
closing
prices
Jf
the
stock
of
TORRENT
LTD
on
five
consecutive
trading
days
are
as
under:
Days
_Closmg
Prices
)
0
:
’
-
27490
1
:
275.60
2
o
26800
3
.
_
270.00
4
'
o
272.00
-
The
Relative
Strength
of
the
stock
of
Torrent
Ltd.
is
A.
1.0169
B
.
-
B.
1.0366
'
C.
1.0925
D.
None
of
the.above.
'
(i)
MS.
MOUSHIP
holds
a
portfollo
consisting.
of
two
stocks—stock
Aand’
stock
B.
Stock
A
has
a
standard
deviation
of
returns
of
0.6
and
stock
B
has
a
standard-
deviation
of
0.8.
The
correlation
co-efficient
of
the
two
stock
returns
is
0.50.
If
MS.
Mouship
holds
equal
amount
of
each
stock,
what
will
be
risk
of
the
portfolio
consisting
of
two
stocks?
A.
040
-
B.
052
C.
061
"
D.
Insufficient
information.
(iv)
ZENION
LTD.
has
an
excees
cash
of
¥
9,00,
000
which
it
wants
to
-
Jinvest
in
short-term
marketable
securities.
Expenses
relating
to
§
investment
will
be
¥
21,000.
If
the
securities
invested
will
‘have
an
:
annual
yield
of
10%,
what
would
be
the
period
of
investmentsoasto'
F
earn
a
pre-tax
inceme
of
6%?
(Ignore
time
value
of
money)
A.
6.50.
months
B.
9.50
months.
.
C.
10.00
moenths
D.
Insufficient
data.
“(v)
PETRONET
LTD.
has
both
European
Call
and
put
options
traded
on
"NSE.
Both
options
have
an
expiration
date
of
6
months
and
exercise
price
of
¥
40.
The
call
and
put
are
currently
selling
forT
12
and¥
5
respectively.
If
the,risk-free
rate
of
interest
is
8%
p.a.,
what-would
be
the
stock
price
of
_F?etronet
Ltd.
[Given
PVIF
(8%,
0.5%
yrs)
=
0.9615]
A.
T55.46
R
_
B.
T45.46
.
:
C.
¥31.46
,
..
D.
Noneof(A),
(B),
(C)
|
"
[Chapter
=
12]
Objective
Questions
|
m
|
14.441
|
[14.442
|
m
[
Scanver
CMA
Final
Gr.
Ill
Paper
-
14
(2016
Syllabus)
|
*
(vi)
MR.
ADHIRAJ
is
planning.to
construct
a
minimum
risk
portfolio
by
investing
in
the
shares
of
ARIHANT
LTD.
and
SUZLON
LTD.
The
risk
~
associated
with
the
returns
of
Arihant
Ltd.
and
Suzlon
Ltd.
are
23%
and
25%
respectively.
If
the
co-
-efficient
of
.correlation
between
the
-
returns
of
shares
of
both
companies
is
“O”,
the
proportion
of
Funds
to
be
invested
in
the
shares
of
ARIHANT
LTD.:is
A.
45.84%
'B.
54.16%
,
-
C.
66.6:7%
.
D.
Insufflcnent
Information.
-
(2x6=12
marks)_'
"
(b)
Choose
the
most
appropnate
one
from
the
stated
options
and
write
it
‘down
(only
indicate
A
or B
or
C
or
D
as'you
think
correct).
‘('l)
Interest
rate
sensitivity
for
bonds
with
embedded
opticns
is
most
accurately
measured
by:
A
Convexnty
B.
Effectlve
duration
C.
Modified
duration
'
D.
Macaulay
duration.
(iii)
If-an
investor
believes
that
the
probabmty
of
the
price
of
a
stock
‘moving
up
is
higher
than
the
probabmty
of
the
price
plummeting,
-
"
he/she
should
A.
Buyan
m-the
-money
put and
sell
an
in-the-
-money
call
B.
"Buy
an
in-the-money
call
and
sell
an
in-the-money
put
C.
Buy
an
in-the-money
call
and
buy
an
out-
of
the
money
put
D.
Sell
an
out-of-the
money
call
and
buy
an
in-the-money
put
~(iv)
If
conclusions
and
opihions
of
equity
analysts
and
other
experts
-
based
on
publlcly
available
-
information
are
reflected
in
stock
-
prices,
then
stock
market
exhibits
-
|
A..
Weak
form
of
efficiency
.B.
Seml-strong
form
of
efflcxency
‘C.
Strong
form
of
efficiency
D.
None
of
the
-above
(v)
Which
among
the
foIIowmg
mcreases
the
NAV
of
a
Mutual
Fund
-
Scheme?
A..
Value
of
mvestme_nts
C.
Accrued
Income
B.
Reoelvables
"
D.
-All
of
the
above
(1
x
4
=
4
marks)
(c)
Fill
in
the
blanks
in
the
following
sentences
by
using
appropriate
-
word(s)/phrase(s)/number(s):
,
:
(i)
The
Depositories
Act
was
passed
in
the
year
(i)
An
aggressive
portfollo
consists
of
Bonds
and
Stock
in
the
ra’uo
-
of
.
"(iil)
The
fringe
market
is_
money
market
deemed
to
©include
everythmg
that
is
outs&de
the
scope
of
the
money
market.
(1
x
3
=
3
marks)
Answer:
:
:
(@
(i)
(B)11.96%
(i)
(A)1.0169
(iily
(C)
0.61
'
(iv)
(C)
10
Months
(v)
(B)X45.46
(Vi)
{B)54.16%.
Answer:
()
@)
(B)
|
'
-
(i)
(C)
(iv)
(B)
(V)
(D)
'
Answer:
()
(i)
1996
,
(i)
10:90
(iii)
a
dis-organized.
'
SBoacs
o
wathe
INpOrant
D0INEG
T
eSO
e
e
e
e
e
2013
-
June
[1]
{C}
(a)
In
each
of
the
cases
given
below,
one
out
of
four
is
correct.
Indicate
the
correct
answer
(=
1
mark)
and
give
workmgs/reasons
briefly
in
support
of
your-answer
(=
1
mark).
(i)
MR.
DEBASHIS
has
formed
a
portfolio
and
the
charactenstlcs
of
hxs
portfolio
are
given
below:
Security
-
Sontex
Ltd.
Polar
Ltd.
Treasury
Bill
Index
Fund_
-
Weight
0.07
0.25
0.25
0.43
Beta(P)
1.72
0.89
7
?
Beta
of
his
portfolio
is:
(a)
0.8229
(b)
0.7729
‘
(d)
None
of
the
above
(c)
0.4629
v
-
-
-
[Chapter
=
12]
Objective
QuestionsJ
=
[14.443
|
[
14.444J
™
|
Scanner
CMA
Final
Gr.
Ill
Paper
-
14
(2016
Syllabus)
|
(i),
(c)
28,210
The
shares
of
NABANI
LTD.
are
trading
at
¥
370.
If
put
options
with
a
strike
price
of
¥
380
are
priced
at
¥
20,
the
intrinsic
value
and
time
value
of
the
options
respectively
are:
:
(a)¥8,%8
(b)
T
10,%
10
(d)
Incomplete
information
The
Co-efficient
of
Correlation
between
returns
of
MOONSHINE
LTD.
and
SENSEX
is
0.88.
The
expected
returns
on
the
stock
of
Moonshine
Ltd.
and
Sensex
are
16%
and
13.77%
respectively.
The
return
on
182
day
T.
Bill
is
6.35%.
If
the
standard
deviation
of
the
returns
of
Moonshlne
Ltd.
is
21%,
what
would
be
the
standard
deviation
of
"
SENSEX’s
return?
-
(Vi)
(a)
15.83%
(b)
16.51%
.
(c)
22.42%
.
(d)
None
of
(a),
(b),
(¢)
Consider
the
following
data
of
SUN
INDIA
MUTUAL
FUND
(Growth
.
Plan):
-
¥
in
crore
Value
of
investments
-
2,757.00
Receivables
221.00
Other
current
Assets
643.00
Liabilities
-
390.00
Accrued
Expenses
87
OO
If
the
number
of
outstandlng
units
is
155
crore
and
sales
charge
is
-
2.20%
on
the
NAV,
the
public
oftering
price
will
be:
:
(a)
T
20.74
-
{c)
¥
21.41
(b)
¥
20.81
(d)
Insufficient
information
BSE
Index
is
currently
quoting
at
1620.
Each
lot
is
300.
MS.
ASHA,
an
investor
purchases
a
July
contract
at
1710.
She
has
been
asked
to
"
pay
8%
initial
margin.
What
is
the
amount
of
initial
margin
required
to
“be
paid
by
her?
-
(a)
¥
31800
(c)
T
44810
(b)
¥
41040
(d)
None
of
the
above
{vif)
'
(@)T137.79
(b)
Choo.,e
the
most
appropnate
one
from
the
stated
optrons
and
write
i
_;
down
(only
indicate
a,
or.b
or
¢
or
d
as
you
think
correct)
(i)
.
(tii)
(iv)
the
dividend
is
expected
to
grow
at
a
constant
rate
of
6.5%
p.a.
The
~
(b)
If
market
prrce
<
face
value,
then
Coupon
Pate
>
Current
Yreld
>E
-
options
and
writing.of
put
options
are
exactly
the
same
exercise
price?
MR.
MOHON
has
purchased
a
stock
of
MAXI
OILS:
LTD.
(MOL).
Currently
the
company
pays
dividend
of
¥
8.50-per
share.
Thereafter
stock
of
MOL
has
beta
of
1.40.
If
the
risk
free
rate
of
return
is
7.5%
p.a.
and
the
expected
market
return
is
12%
p.a.,
what
would
be
the
stock’s
expected
price
four
years
from
now?
‘
(b)
¥
159.53
.
~
(d)
None
of
the
above
(©)
2
-163.18
.
(2
x
6
=
12
marks)
The
Board
for
Financial
Supervision
(BFSt
‘was
constituted
in
|
November,
1994
as
a
Committee
of:
:
(a)
The
Ministry
of
Finance
‘
(b)
The
Central
Board
of
Directors
of
the
RBI
(c)
The
Ministry
of
Company
Affairs
(d)
Incomplete
information
Following
is
not
a
Money
Market
Instrument:
(a)
Treasury
Bill
-
(b)
Certificate
of
Deposrt
:
(c)
Equity
Shares-
(d)
Commercial
Paper
-
Which
of
the
following
statements
is/dre
true?
(a)
If
market
price
=
face
value
then
Coupon
Rate
>
YTM
>
Current
f.
Yield
YTM
i
(c)
If
market
price
>
face
value
then
Coupon
Rate
>
Current
Yleid
>
YTM
S
(d)
If
market
price
=
face
value,
then
Coupon
Rate
<
Current
Yield
<
-
YTM
:
Which
of
the
following
option
strategies
involve
the
purchase
of
call
_
(a)
Synthetics
(c)
Conversions
(b)
Spreads:
(d)
None
of
the
above
Your preview ends here
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[Chapter
12]
Objective
Questions
|
m
|
14.445
|
|
14:446
|
m
LScanner
CMA
Final
Gr.
1l
Paper
14
(2016
Syllabusy
~
|.
(viy
A
process
of
‘investment
by
a
SponSOr
or
a
Syndicate
of
Investors/Sponsors
directly
in
a
Company
is
referred
as
-
(a)
Bought
out
deal
.
(b)
Buy back
of
shares
(c)
Irredeemable
preference
shares
o
(d)
Deferred
shares
Answer:
(a)
No
Answer
Answer:
(b)
(i)
B
|
@y
c
o
S
L
(vy
C
:
o
A
(1
x
5
=
5
marks)
(v)
(vr)
-
Space
to-
write
m*portam
porn
for
re'vision
.
2016
-
June
11}
{C}
(b)
State
whether
each
of
the
followmg
rs
True
(T)
or
False
(F).
Each
question
carries
1
mark:
.(i)
Inter
Bank
Partlcrpatlon
Certificate
(IBPC) can
be
rssued
by
any-
Schedu!ed
Commercial
Bank
and
its
rnterest
rates
are
freely
-determmed
in
the
market.
:
the
markets.
,
o
At
least
60%
of
the
assets
of
an
Infrastructure
Debt
Fund
should
be
invested
in
debt
securities
or
securmzeo
debt
lnstruments
of
infrastructure
companies.
-In
a
yield
based
auction,
successful
brdders
are
these
who
have
brd
at
or
below
the
cut
off
yield,
whereas,
in
a
price
based
auction,
successiul
brdders
are
those
who
have
bid
at
or
above
the
cut-off
price.
:
:
i)
Arbitrageurs
are
interested
in
making
purchases
and
sales
in
dtfferent
‘markets
at'
dlfterent
times
to
profit
from
the
price
discrepancy
between
.
-
Answer:
(v)
A
straddle
is
a
strategy
that
is
accomplished
by
holding
an
equal
a
number
of
puts
and
calls
with
the
same
strrke
prrce
and
expiration
dates.
h
(vi)
Treasury
Bills
are
not
ellgrble
for
Repo
transactions.’
(1x
6
=
6
marks)
Answer:
(i)
True
(i)
False
(i)
False
(ivy
True
(v)
True
(vi).
False
:
——
Space
to
write
important
points
for
revision
2016
-
Dec
[1]
{C}
(b)
State
whether
each
of
the
following
statements
is
‘True’
or
‘False’.
Each
question
carries
one
mark.(You
may
write
the
Roman
numeral
and
whether
True
or
False
wrthout
copymg
the
srtuatrons
into
your
"
“answer
books.)
.
(i)
The
delta
of
a
stock
option
is
the
number
of
units
of
stock
one
should
o
,
hold
per
100
options
sold
to
create
a
risk-free
hedge.
(i)
Forward
contracts
have
more
potential
for
default
risks
than
futures.
.
(i)
Bridge
Finance
refers
to
loans
taken
by
a
company
from
its
promoters‘
until
loans
are
disbursed
by
Financial
Institutions.
.
(iv)
Operating
lease
can
be
cancelled
by
the
lessee before
the
expiry
date.
.
(v).
No
prior
approvafll
of
RBl
is
required
for
issue
of
Commercial
Paper.
(vi)
In
Indra
the
credit rating
symbol
for
moderate
safety
is
BB.
(1x6
=6
marks)
_
(i)
False
(i)
True
(i)
False
)
True
(v)
True
)
ralse.
Space
10
write
important
points
for
revision
l
14.448
tn
|Scanner
SMA
Final
Gr.
1i
Paper
-
14
(2016
Syllabus)
[
[Chapter
=
12]
Objective
Questions
|
m
[
14.447
|
.
2017
-
June
[1]
{C}
Choose
the
Correct
‘Option
from
amongst
the
four
alternatives
given
(1
mark
is
for
the
correct
choice
and
1
mark
for
justification/workings)
:
(i)
Annual
Cost
Saving
¥
4,00,000
Useful
life
,
4dyears
Cost
of
the
Project
%
11,42,
000
.
The
Pay
back
period
would
be
~(a)
2
years.8
months
.
(b)
2years
11
months
-
(c)
3years
.
(d)
1year10
months
(i)
There
are
4
investments
‘
S
,
.
'
X
Y
-
Z
U
The
standard
deviation
is
37,947
44,497
.
42,163
41,997
Expected
net
present
value
(¥)
90,000
1,06,000
1,00,000
90,000
Which
investment
has
the
highest
risk?
(a)
X
by
Y
(c)
X
(d)
U
.
|
(iiiy
"
The
spot
rate
of
the
US
dollar
is
¥
65.00/USD
and
the
four
month
~
forward
rate
is
65.50/USD.
The
annualized
premium
is
:
(a)
4.2%
'
(b)
51%:
(c)
6.0%
(dy
6.4%
(iv)
A
stock
is
currently
sells
at
350
The
put
option
to
sell
the
stock
sells
at
T
380
with
a
premiumof
¥
20.
The
time
value
of
option
w1ll
be
(a)
¥10°
(b)y
T-10
(c)
%20
(d
%0
(v)
I(vii)
(viii)
W
(d)
2.89
e
:
;
"
Youare
given
the
following
information:
requnred
rate
of
return
on
nsk
:
-
free
security
7%;
required
rate
of
return
on
market
portfolio
-
CAPM
approach
is
interest
rate
in
the
US
The
following
is
not
a
systematlc
risk.
(
(a
(b
e
(d).
An
investorowns
a
stock
pottfolio
equally
invested
in
a
risk
free
asset"
and
two
stocks.
If
one
of
the
stocks
has
a
beta
of
0.75
and
th
portfolio
is
as
rlsky as
the
market,
the
beta
of
the
stock
in
portfolio
(a)
2.12
(b)
2.25
(c)
2.56
investment
12%;
beta
of
the
firm
1
7.
The
cost
of
equity
capital
as
p
(@)
16.3%
(b)
18.0%
(c)
T18.60%
(d)
19%
-
‘
The
following
statement
is
true
in
the
(,ontext
of
rupee-doliar
exchange
rate
with
r,
denoting
interest
rate
in
India
and
£,
denoting
(a)
Rupee
wili
be
at
forward
discount
if
r,
>,
(b)
Rupee
will
be
at
forward
premium
if
r,
>
r,
)
Rupee
will
be
forward
premium
if
r,
>
r,
)
Rupee
will
be
at
par
with
dollar
if
r,
>
r,
)
Business
Risk
)
Purchasing
Power
Risk
The
following
statement.is
true:
If
¥’
denotes
the
correlation
coefficient)
,
r=+1
implies
full
diversification
of
securmes
ina
portfoho
r=-1
lmplles
full
diversification
of
securities-in
a
portfolio
r=
0
impiies
an
ideal
situation
of
zero
risk
:
"
is
independent
of
diversification.
Nothing
can
be
mferred
based
or
r.
(c
(d
T
(@)
Market
Rlbk
(b)
Interest
Rate
Risk
(c
(d
—
N
e
'
*
]
[Chapter
L
g
12]
Objectlve
Questlons
[}
[
14.449
|
(k)
The
followmg
is
not
a
feature
of
Capltal
Market
Line:
(@)~
There
is
no
unsystematic
risk.
;
'
terms
of
risk
and reward.
(o)
Estimates
portfolio
return
based
on
market
return
(d)”
Diversification
can
minimise
the
individuai
portfolio
risk.
,
.
(2x10=20
marks)
Answer:
()
(o
(d
2
years
11
months
)
)
(U
(i)
(a)
4.
2%
(iv)
{d)%
{(v)-
(b)
2.
25
~(vi)
(a)
186.
3%
:
(viiy
(b)
Rupee
will
be
at
forward
premlum
if
ry
>r
(viii)
(c)
Business
Risk
:
(ix)
(b)r=-—
1|mplles
full
dlversn‘lcatlon
of
securitles
in
a
portfolio
x)
(d)
Dlversmcatlon
can
minimise
the
mdrvrdual
portfolio
rlsk
-
Space
o
viite
lmpoatant
p()ll
its
for
revision
2017
-
Dec
[1]
{C}
C,hoose
the
correct
optlon
from
the
four
alternatlves
.
(1.
mark
is
for
the
correct.choice
and
1.
mark
is
for
the
L
Justn‘lcatlon/worklngs
Your
may
present
only
the
Roman
numeral,
your
choice
-
and
the
reason/worklng,
without
copying
the
questlon)
()
A'projecthasa
10%
discounted-pay
back
6f
2
years
with
annual
after
given:-
_
tax
cashiinflows
commencing
from
yearend
2to
4
0f
%
400
lacs.
How
much
would
have
been
the
initial
cash
outlay
which
was
fully
made
at
the
beginning
of
year
1?7
:
(a)
%400
lacs
(b).
¥
452
lacs
-
{c)
¥633.80
lacs
-
(d)
T497.20
lacs
-
L
(Use
p
v.
factors
only
up
to
3
decimal
places
)
-
"
(b)
The
individual
portfolio
exactly
repllCates
market
portfolio
in
-
[14.450
|
m
[[Scanner
CMA
Final
Gr.
il
Paper
-
14.(2016
Syllabus)
|
(i)
-
(lil'")
A
project
is
expected
to
yield
an
after
tax
cash
inflow
at
the
end
of
.
year
2
of
¥
150
lacs-and
has
a
cost
of
capital
of
10%.
Inflation
is
expected
at
3%
p.a.
While
computing
the
NPV
of
the
prolect
th|s
-
cash
flow
will
be
taken
as
the
following:
’
:
150
1.03
(a)
B
150
(1.03)2
(b)
01
(111-33%)
'(d)
150(1-037
(1-1172
A
firm
has
an
asset
f
=
1.3,
eqU|ty
B
=
1.5.
Then,
which
of
the
followmg
istrue?
-
.
(a)
The
firm
is
unlevered.
(b)
DebtBisalso
1.3.
(c)
The
above
data
is
not
pOSSIble
"
(d)
Thefirmis
Ieveraged
and
the
debt
B
is
lower
than
the
asset
B
()
-
standard
deviation
0,
=
9;
0
=
11;
0¢
=
6;
‘For
a
portfolio
contammg
three
securities
A,
B
and
C,
correlation
coefficients
png
=
+0.4;
ppg
=
+0.75;
Py
=
20:4;
weights
w,
=
0.2;
wg
=
0.5;
we
=
0.3;
the
covariance
of
securities
A
and
B
is
(a)
3.96
(b)
24.75
"
(c)
396
(d)
247.5
A
A%
1,000
per
value
bond
bearing
a
coupon
rate
of
14%
matures
after
o
*
5
years.
The
required
rate
of
return
on
this
bond
is
10%.
The
value
of
the
bond
(to
the
nearest
rupee)
will
be:
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I
"
[Chapter
=
12]
Objective
Questions
|
B
|
14.451
|
[
14.452
|
m
[Scanver
CMA
Final
Gr.
lil
Paper
-
14
(2016
Syllabus)
|
(@)
1,125
SRR
’
:
(x)
A
call
option
at
a
strike
price
of
¥
200
is
selling
at a
premium
of
T
24.
(b)
1,152
:
:
'
v
At
what
share
price
on
matunty
will
it
break-
even
forthe
buyer
of
the
(c)
1,512
,
o
’
.
option?
-
-
(d)
862.20
-
:
o
-
(a)
T200-
(vi)
The
following
information
is
available
for
a
mutual
fund:
(b)
T176
~
Return
-
13%
-
(o).
%224
|
o
o
.
B
Risk
(S.D.
i.e.
)
16%
,
_
:
.
()
2
248
:
"
(2
x
10
=
20
marks)
Beta
(B)
_
-
0.90
Lo
B
,Answer
:
C
Risk
Free
Rate
-
10%
o
L
(i
(B)
Treynor's
Ratio
of
the
mutual
fund
is:
=~~~
e
(i)
(B)
.
(a)
3.85
.
o
_
|
iy
(D)
(b)
443
o
v
©
(c)
3.33
'
S
.
(v)
(B)
(d)
3.73
L
(i)
(C)
-
(vii)
The
90
day
interest
rate
is
1.85%
in
USA
and
1.35%
in
the
UK
and
(vii)
(A)
“the
current
spot
exchange
rate
is
$
1
6/£
The
90-day
forward
rate
is
(Vi)
(D)
(a)
$1.607893
.
S
-~
(x)
(B)
(b)
$
1.901221
_
a
(x)
(C)
(cy
$
1.342132
'
,
o
S
Bpace
1o
witde
nnoe
xu
ntnents
f<s
%
on
(d)-
$
1.652312
{viil)
-
The
intercept
of
the
Security
Market
Line
(SML)
on
the
y
axis
is
2018
June
[1]
{C}
Choose
the
correct
option
from
the
four
alternatlves
.
(@)
E(Ry)-R,
given:
(One
mark
is
for
the
correct
choice
and
one
marks
is
for
the
-
(b)
1/[E(Rm)
-
Ry
_
:
justification/workings.
You
may
present
only
the
Roman
numeral,
yourchoice.
-
(¢)
Ri-E(R,)
o
.
and
the
reason/workirig,
without
copying
the
question).
|
(9
Ri
B
'
-
(i)
AcompanyhasZ
7
crore
available
for
investment.
It
has
evaluated
its
§
©
.
(x)
Amutual
fund
wants
to
hedge
its
portfolio
of
shares
worth
10
crore
-
options
and
has
found
that
only
four
investment
projects
given
below
§
S
using
the
NIFTY
Index
Futures.
The
contract
size
is
100
times
the
have
positive
NPV.
All
these
1nvestments
are
dIVlSlb|e
and
get
index.
The
index
is
currently
quoted
at
6840.
The
Beta
of
the
portfolio
proportional
NPVs.
~
is
0.8.
The
beta
of
the
index
may
be
take"\
as
1.
What
isthe
number
.
.
B
T
.
_
of
contracts
to
be
traded?
Project
Initial
Investment-
NPV~
-
P
)
110
.
'
o
'
R
crere)
b
(?cror“e)
7
))
116
.
-
|
|
w
|
.
800
.
180
]
.
130
)
123
-
|
|
o
Lx
|
oo
|
0e0
|
120
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\(;“ap\e‘
Wy
\2\
Qb)ec\\\le
Q\\QS\\Q“S\
‘\'\
A
K\
Y
\
\\A
l\“o’\
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Q“\b\
F\“a\
G‘
e
ape‘
~-\4
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SJ\\ab“S\
\
.
:
i
.Y
|
2_.00
-
0.50-
1.25
z
|
250
11.50
1.60
_
Wth:h
'investm'er_tt
projects
should'
be
selected?
“(a)
Project
W
in
full
and
X
in
part
~
(b)
Project
Zin
full
and
W
in
part
(c)
Project
W
in
full
and
Z
in
part
(d)
Pro;ect
Z
and
Y
in
full
and
X
in
part
An
investor
is
bullish
about
X
Ltd.
which
tradeo
in
the
spot
market
at
%
1150.
He
buys
two-
call
optlon
contracts
wrth
three
months
(one
-
contract
is
100
shares
)
with
a
strrke
price
of
¥
1195
at
a
premium
of
+%
35
per
share.
Three
months
later,
the
share'is
selling
at
?
1240
Net
profit/loss
of.
the
investor
on
the
position:
W|ll
be
(a)
¥
1000
~
-
(b)
T16000
g
(i)
(c)
11000
(d)
T
2000
Duhita
Ltd.
intends'to
buy
an:
equment
Quotes
are.
obtamed
fortwo
-
.
dn‘ferent
makes
A
and
B
as
given
bélow:
-
Cost
Mllhon)
Estlmate
fife
(years)
A
45
10
B
-
.6.00
s
15
|
Ignoring
the
operatlons
and
mamtenance
costs
which
will
be
almost
the
same
for
A
and
B,
which
one
would
be
chapter?
The
company’s
-
cost
of
capital
is
10%
[Given:.
PVIFA
(10%
10.
yrs)
=
6.144‘6and‘,PVIFA
(10%,1-5.years)
=7.6061]
!
'
e
o
(a)
A
will
be
cheaper
(b)
B
willbe
cheaper
~
()
Cost
will
be
the
same
:
:
(d).
They
are
not
comparable
and
therefore
nothmg
canbé
sald
about
wh|ch
is
cheaper
(iv)
BLC
Ltd.
avalued
customerengaged
in
|mport
busmess
is
in
need
to
remit.
EURO
1
million
to
his
European
exporter.
The
spot
rate
of
‘¥
/US$
is
65.47/65.57
and
that
of
US$/EURO'is
$
0.8053/0,
8057.:
©
What
rate
will
a’
banker
quote
to
BLC
Ltd.
if
the
bank’s
margln
is
0.50%7?
(a)
¥53.09
(b)
¥53.067
(c)
¥53.01
(d)
¥52.99
Given
for
a
project
:
Annual
Cash
inflow
=%
80
000,
Useful
In‘e
4
years
Undiscounted
Pay-Back
period
=
2.855
years
What
is-the
cost
of
the
project?
,
'..(
)
¥1,12,084
(i)
(b)
¥2,28,400
(¢)
.9,13,600
(d)
None
of
the
above
-
e
A
project
had
an
equity
beta
of
1.4
and
is
to
be
financed
by
a
combination
of
25%
Debt
and'75%
Equny
Assume
Debt
Beta
as
zero,
'
R;=12%
and
R=18%.
Hence
the
required
rate
of
return
of
the
pro;ect
is
(@)
16.72%
o
.
(b)
18.30%
(vii)
(c)
17.45%
(d)
12.00%
.
-
_
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
3
60.
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)
T54.95
(c)
¥76.68
(d)
¥76.10
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- Access to all documents
- Unlimited textbook solutions
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[
|
[Chapter
=
12]
Ob]ectlve
Questions
|
-|
14.455
|
|
14.456
|
m
|
Scanner
CMA
Final
Gr.
lll
Paper
-
14
(2016
Syllabus)
|
“(viii)
Wthh
of
the
followmg
securities
is
most
Ilqurd’?
2018
-
Dec
[1]
{C}
Choose
the
correct
option
from
the
four
alternatives.
(a)
Money
Market
instruments
.
given:
(1
mark
is
for
the
correct
choice
and
1
mark
is
for
the
(b)
Capital
Market
instruments
,
Justrflcatlons/worksngs
You
may
present
only
the
Roman
numeral,
your
~
(c)
Gilt-edged
securities
choice
and
the
reasons/workings,
without
copying
the
questlon)
.
(d)
Index
futures
-
Co
()
M
buys
a
call
optron
contract
for
a
premium
of
¥200.
The
exercrse'
(ix)
While
plotting
&
graph
with
risk
on
X-axis
and
expected
return
on
Y-
‘price
is
¥
25
and
the
current
market
price
of
the
share
is
¥
22.
If
the
.
axis,
a
line
drawn
with
co-ordinates
(0,r)
and
(B,r.,)
is
called
(@)
Security
Market
Line
(b)
Characteristic
Line
share
price
after
three
months
reaches
¥
30,
what
is
the
profit
made
_
'by
M
on
exercising
the
option?
A
contract
is
for
100
shares.
‘Ignore
transaction
charges.
:
:
(c)
Capital
Market
Line
.
(@)
T200
|
(d)
CAPM
Line
‘
(b)
300
‘If
the
RBI
intends
to
reduce
the
supply’
of
money
as
part
of
anti-
(c)
¥100.
~
inflation
policy,
it
might
'
-~
(d).
600
(a)
Lower
the
bank
rate
-
B
o
|
o
(i)
You
are
a
forex
dealer
in
India.
Rates
of
rupee
and
pound
in
the
-~
(b)
Increase
the
Cash
Reserve
Ration
~
)
tnternatlonal
market
are
US
$
0.01386952
and
US
$
1.
3181401’
-
(¢)
Decrease
the
SLR
respectively.
What
will
be
your
dlrect
quote
of
£
(pound)
‘to
your
)
.
(d)
Buy
Government.secuntres
in
the
open
market
I
-~
customer?
:
.
(2
x10
=
20
marks)‘
(@)
¥
54.6987
“Answer:
\
|
N
(b)
T71.1408
(i
(b)
o
‘
(c)
¥95.0386
(iiy
(d)
(d)
%0.0105
-
(i)
(a)
(iii)
‘Bahk
rate’
published
by
the
Reserve
Bank
refers
to
-
(iv)
(a)
(a)
therepo
rate
transacted
by
RBI
v)
(b)
(b)
the
rate
at
which
housing
or.
other
long
term
loans
shall
be
(vi)
(b)
-
sanctioned
by
scheduled
banks
to
their
customers.
g
(vii))
(c)
(c)
the
rate
at
which
RBI
is
willing
to
buy
or
rediscount
brIIs
of,f
(viii)
(c)
,
S
exchange
or
other
commercial
paper.
x
(ix)
(a)
7
~
(d)
the
rate
which
RBI
uses
as
cut
off
for
auctlon
ot
Government.
(x)
(b)
-
.
securities.
v
,
—=--Space
to
write
Impe
Hant
SIS
10T
TOVIBION
e
e
e
e
-
:
:
(iv)
An
investor
has
invested
in
a
mutual
fund
when
the
NAV
was
?
15.50
per
unit.
After
90
days
the
NAV
was
¥
14.45
per
unit.
During
the
period
the
investor
got
a
cash
dividend
of
¥
1.35
per
unit
and
capital
gain
distribution
of
Re
0.20.
The
annuahzed
return
based
on
360
days
year
count
W|I|
be
;-
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L’
()
C(d
i)
In
a
constant
dividend,
model
the
followmg
estrmates
the
dlfference
|
;[ch}apt_er
=
12]
Objective
Questions
|
m
|
14.457
{a)
823%
(b)
12.92%
(c).
0.8075%
(d)
16.45%
-
"
Initial
mvestment
of
a
project
is
X
25
lakh.
Expected
annuat
cash
flows
are
¥
6.5
lakh
for
10
years
Cost
of
capital
is
15%.
The
annuity
factor
for
15%
for
10
years
IS
5.019.
The
profltablllty
Index
of
the
prolect
will
be
_
(a)
"1.305
(b)
3.846
026
-
{d)
0.7663
.
,
)
Rate
of
inflation
=
5.
1%,
-
B
0.
85
Rlsk
premrum
2
295%
Market
return
=
12%
The
real
rate
of
return
WI||
be!
(a)
42%
-
-
‘
L
()1170%
-
o
o
@
6%
d)
5.95%
L
-
between
the
requrred
rate
of
return
and
the
growth
rate:
(a)-
Earnings.
Retentron
ratio
(b)
Leverage
ratio
-
(c)
Dividend
Pay-out
ratio
(d)
Dividend-yield
ratio
-
will
be
either
T
150
with
a
probablllty
of
0.8
or
?
110
with
a
probability
0f0.2.
Acall
option
exists
with
an
éxercise
price
of
¥
130.
What
wnl
be
the
expected
vatue
of
call
optlon
at
maturlty
date?
Presently,
a
company
s
share
price
is
?
120
After
6
months
the
prlce
'
114458
|
m
|
Scanmer
CMA
Final
Gr.
W
Paper
-
14
(2016
Syllabus)
|
(ix)
{a)
N
@
A
stock
is
currently
selling
at
270.
The
call
option
to
buy
the
stock
at:
¥
265
costs
7-12.
What
i
is
the
Time
Value
of
the
option?
T5
by
217
-
()
*7
.
(d)
None
of
(a),
(b)
or
(c)
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
0.80%,
given
that
the
inter
bank
rate
is
3/$
71.
50/1
0.
¥71.1569
(b)
T
71.0431
(c)
%
71.5572
I
(d)
¥71.4428
(2
x
10
=
20
marks)
.
Table
Showing
Marks
of
Compulsory
Questions
-
_
Year
14.114
|15
|15
|16
|
16
|
17
|
17
|18
|
18.
a
J|D|J|D|J|D|J|D|J]|D
Objective
|
|
|66
]20|20|207120}
Totai
|
6|
6
|20]20|20]20
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Help sirr me
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If Stock I is correctly priced right now, its Beta must be ______ .
Round your answer to 2 decimal places (example: if your answer is 1.2357, you should enter 1.24). Margin of error for correct responses: +/- .02.
expected return
(implied by market price)
Beta
Stock I
12.4%
??
S&P500
11%
T-bonds
4%
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What is the reward-to-risk ratio for Stock X, in decimal form?
Round your answer to 4 decimal places (example: if your answer is .03579, you should enter .0358). Margin of error for correct responses: +/- .0005.
expected return
(implied by market price)
Beta
Stock X
9.6%
1.46
S&P500
12%
?
T-bills
4%
?
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What is the CAPM required return for Stock Z, in decimal form?
Round your answer to 4 decimal places (example: if your answer is .13579, you should enter .1358). Margin of error for correct responses: +/- .0005.
expected return
(implied by market price)
Beta
Stock Z
9.3%
1.22
MRP
6%
?
T-bonds
5%
?
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Subject:- finance
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Financial Accounting Question please solve
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Excel Online Structured Activity: Historical Return: Expected and Required Rates of Return
You have observed the following returns over time:
Year
Stock X
Stock Y
Market
2011
14
%
12
%
10
%
2012
20
7
9
2013
-13
-2
-13
2014
3
1
2
2015
19
9
12
Assume that the risk-free rate is 4% and the market risk premium is 6%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.
Open spreadsheet
What is the beta of Stock X? Do not round intermediate calculations. Round your answer to two decimal places.
fill in the blank 2
What is the beta of Stock Y? Do not round intermediate calculations. Round your answer to two decimal places.
fill in the blank 3
What is the required rate of return on Stock X? Do not round intermediate calculations. Round your answer to one decimal place.
fill in the blank 4 %
What is the required rate of return on Stock…
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K
(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as
measured by the standard deviation) and return?
Common Stock A
Probability
0.20
0.60
0.20
Common Stock B
Return
13%
17%
18%
Probability
0.10
0.40
0.40
0.10
(Click on the icon in order to copy its contents into a spreadsheet.)
Return
-7%
5%
16%
21%
www
a. Given the information in the table, the expected rate of return for stock A is 16.40 %. (Round to two decimal places.)
The standard deviation of stock A is 1.74 %. (Round to two decimal places.)
b. The expected rate of return for stock B is 9.8 %. (Round to two decimal places.)
The standard deviation for stock B is 6.12 %. (Round to two decimal places.)
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Etivity: Characteristic Line and Security Market Line
Year
1
2
34567
HISTORICAL RATES OF RETURN
Stock X
NYSE
- 26.5%
Beta =
37.2
23.8
- 7.2
6.6
20.5
30.6
- 24.0%
24.0
19.5
4.0
10.1
17.7
17.5
The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions
below.
X
Open spreadsheet
a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. Do not round intermediate calculations.
Round your answer to two decimal places.
X
b. Determine the arithmetic average rates of return for Stock X and the NYSE over the period given. Calculate the standard deviations of returns for
both Stock X and the NYSE. Do not round intermediate calculations. Round your answers to two decimal places.
Next
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Suppose you observe the following situation:
Security
Pete Corporation
Repete Company
Beta
1.70
1.39
a. Expected return on market
b. Risk-free rate
Expected
Return
.180
.153
a. Assume these securities are correctly priced. Based on the CAPM, what is the
expected return on the market? (Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. What is the risk-free rate? (Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g., 32.16.)
%
%
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Related Questions
- use attachment to answer question This question relates to Diagram 3 from the 9.4 diagrams, which shows the Security Market Line. A share has a beta of 0.75 and, based on the CAPM and the current price of the share, you believe it to be underpriced. Is this Share 1, 2, 3, or 4. Select one: a. 1 b. 2 c. 3 d. 4arrow_forwarduse attachment to answer question q2- This question relates to Diagram 2 from the 9.4 diagrams, which shows the Security Market Line. A share has a beta of 0.5 and, based on it's current price, has an expected return of 5%. Based on the CAPM, is the share overpriced, underpriced or correctly priced? Select one: a. Unable to determine without more information. b. Correctly priced c. Overpriced d. Underpricedarrow_forwardThe reward-to-risk ratio for Stock X, in decimal form, is ______. Round your answer to 3 decimal places (example: if your answer is .04567, you should enter .046). Margin of error for correct responses: +/- .002. expected return (implied by market price) Beta Stock X 9.7% 0.87 S&P500 10% ? T-bonds 3% ?arrow_forward
- Help sirr mearrow_forwardIf Stock I is correctly priced right now, its Beta must be ______ . Round your answer to 2 decimal places (example: if your answer is 1.2357, you should enter 1.24). Margin of error for correct responses: +/- .02. expected return (implied by market price) Beta Stock I 12.4% ?? S&P500 11% T-bonds 4%arrow_forwardHello tutor provide solution for this financial accounting questionarrow_forward
- Hi expert please give me answer accounting questionsarrow_forwardNeed help with this financial accounting question please give true answerarrow_forwardWhat is the reward-to-risk ratio for Stock X, in decimal form? Round your answer to 4 decimal places (example: if your answer is .03579, you should enter .0358). Margin of error for correct responses: +/- .0005. expected return (implied by market price) Beta Stock X 9.6% 1.46 S&P500 12% ? T-bills 4% ?arrow_forward
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