Mission 80+

AFM/SFM Test - 6 May/June 2024

[By CA Nagendra Sah]

Must Write following details on First page of your Answer sheet.

(1) Name, (2) Mobile Number & (3) Mail ID:
Send scan copy of your answer sheet in PDF format at: [email protected] for evaluation.

Total No of Questions – 6 Maximum Marks - 50

Time Allowed – 90 Min

All Questions are Compulsory.
Working Notes should form part of the respective answer.

Question 1 MCQ
MCQ.1 Mr. Y is an importer. He needs to settle import bill for $2,50,000. As per sale/purchase agreement,
importer needs to pay immediately. If payment is made at 3m end, then exporter will charge interest
@5% p.a. under LC.
LC Opening charges is 1%. There are no other charges on LC.
Other Information:
(i) Importer may avail overdraft facilities @15% p.a.
(ii) The exchange rates in the market are as follows:
Spot rate (/$) = 71.25/71.65
3M forward rate = 72.05/72.70

(a) What will be the total outflow if the importer opted to pay the bill immediately?
2 Mark
(i) ₹ 1,85,69,531.25
(ii) ₹ 1,79,12,500.00
(iii) ₹ 1,88,84,218.75
(iv) ₹ 1,85,84,218.75

(b) What will be the total future value of LC Opening charge if the importer opted to pay the bill
after 3 months?
2 Mark
(i) ₹ 1,85,842.19
(ii) ₹ 1,84,804.69
(iii) ₹ 1,79,125.00
(iv) 1,78,125.00
(c) What will be the total outflow if the importer opted to pay the bill after 3 months?
2 Mark
(i) ₹ 1,85,81,312.50
(ii) ₹ 1,85,80,312.50
(iii)  185,88,029.69
(iv) ₹ 1,84,23,498.44

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Page 2.2

MCQ.2 The data given below relates to a convertible bond of X Ltd.:

Face value 450
Coupon rate 15%
No. of shares per bond 25
Market price of share 20
Straight value of bond 400
Market price of convertible bond 550

(a) The stock value of bond would be …………

1 Marks
(i) ₹ 500
(ii) ₹ 400
(iii) ₹ 550
(iv) ₹ 450

(b) The percentage of downside risk based on market price of convertible bond is …………
1 Marks
(i) 10%
(ii) 27.27%
(iii) 18.18%
(iv) 11.11%

(c) The conversion premium is ………….

1 Marks
(i) 10%
(ii) 27.27%
(iii) 18.18%
(iv) 11.11%

(d) The conversion parity price of the stock is …………..

1 Mark
(i) 25
(ii) 20
(iii) 22
(iv) 24

MCQ 3. Consider a bullish spread option strategy using call option on the stock of GANT Ltd., with ₹80
exercise price, priced at ₹10 and a call option with  100 exercise price, priced at ₹4. The current
market price of stock of Gant Ltd. is ₹75. If the price of the stock is ₹120 on maturity, the net profit
at expiration will be
2 Mark
A. ₹ 26
B. ₹ 14
C. ₹ 24

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 Page 2.3
D. ₹ 36

MCQ 4. A deeply out-of-the-money call will have a delta very close to…….; a deeply in-the-money call will
have a delta very close to…….
1 Mark
A. 0,1
B. 1,0
C. 1,1
D. 0,0

MCQ 5. Growth in Dividend and Earning depends upon Retention ratio and Reinvestment rate (ROE). If
Return on Capital Employed (ROCE) in higher than Cost of debt then which of the following
statement is Correct:
1 Mark
A. ROE is lower than ROCE
B. High growth
C. ROE is higher than ROCE
D. All of above

Descriptive Questions:
2. Consider a two-year American call option with a strike price of  50 on a stock the current price 8
of which is also  50. Assume that there are two time periods of one year and in first year the stock
price can move up or down by equal percentage of 20%. However in Second year Stock price can
move up by 10% and Down by 25%. The risk-free interest rate is 6%.
Using binominal option model, calculate the probability of price moving up and down.
Also draw a two-step binomial tree showing prices and payoffs at each node. Also calculated Option
delta on valuation date.

3. Mr. K has invested in three Mutual fund schemes as per details below: 8
Scheme A Scheme B Scheme C
Date of investment 05.11.2018 26.12.2018 01.02.2019
Amount of investment  8,00,000  10,00,000  6,00,000
Net Asset Value (NAV) at entry  10.50  10.00  10.00
date
Dividend received upto 31-03-2019  9,500  15,000  5,000
NAV as at 31-3-2019  10.40  10.10  9.80
You are required to calculate the effective yield on per annum basis in respect of each of the three
schemes to Mr. K upto 31-03-2019, taking the year consisting of 365 days.
Provide a brief comment on the course of action he should take for future period.
(Calculation should be upto three decimal places)

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 Page 2.4

4. You have been given the following information about Krishna Ltd. 8
Year Krishna Ltd. Market Return on
Average Share Price DPS Average Dividend Yield Govt. bonds %
() () index %
2018 497 33 4060 5 5.5
2019 523 38 4320 6.5 5.5
2020 556 43 4592 4.5 5.5
2021 589 50 4780 6 5.5
2022 622 57 4968 5.5 5.5
(i) Compute the Beta value of the company as at the end of year 2022.
(ii) What is your Observation?

5. The following data are available for three bonds A, B and C. These bonds are used by a bond 12
portfolio manager to fund an outflow scheduled in 6 years. Current yield is 9%. All bonds have
face value of Rs. 100. Each and will be redeemed at Par. Interest is payable annually.
Bond Maturity (Years) Coupon Rate
A 10 5%
B 8 10%
C 5 8%

(i) Calculate the duration of each bond.

(ii) The bond portfolio manager has been asked to keep 45% of the portfolio money in bond A.
Calculate the % amount to be invested in bond B and C that need to be purchased to immunize
the portfolio.
(iii) After the portfolio has been formulated, the interest rate change occurs, increasing the yield
to 11%.
The new duration of these bonds are: A = 7.15 years, Bond B = 6.03 years and Bond C =
4.27 years.
Is the portfolio still immunised? Why or why not?
(iv) Determine the new percentage of B and C bonds that are need to immunise the portfolio.
Bond A remaining at 45% of the portfolio.
Present values be used as follows:
PV T1 T2 T3 T4 T5 T6 T7 T8 T9 T10
PVIF (0.09, 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.4224
t)

// CA NAGENDRA SAH // WWW.NAGENDRASAH.COM