**19**answerable questions with

**0**answered.

Roll No……… | |

Total No. of Questions — 7 | Total No. of Printed Pages — 7 |

Time Allowed : 3 Hours | Maximum Marks : 100 |

Answers to questions are to be given only in English except in the case of candidates who have opted for Hindi Medium. If a candidate has not opted for Hindi medium, his/her answers in Hindi will not be valued. |

Question No. 1 is compulsory. |

Answer any five questions from the remaining six questions. |

Working notes should form part of the answer. |

Marks |

1. | (a) | LMN & Co. plans to issue Commercial Paper (CP) of Rs. 1,00,000 at a price of Rs. 98,000.
| 5 | (0) | ||||||||||||||||||||||||||

(b) | On 31–8–2011, the value of stock index was Rs. 2,200. The risk free rate of return has been 8% per annum. The dividend yield on this Stock Index is as under:
Assuming that interest is continuously compounded daily, find out the future price of contract deliverable on 31–12–2011. | 5 | (0) | |||||||||||||||||||||||||||

(c) | The price of a bond just before a year of maturity is $ 5,000. Its redemption value is $ 5,250 at the end of the said period. interest is $ 350 p.a. The Dollar appreciates by 2% during the said period. Calculate the rate of return. | 5 | (0) | |||||||||||||||||||||||||||

(d) | A company is long on 10 MT of copper @ Rs. 474 per kg (spot) and intends to remain so for the ensuing quarter. The standard deviation of changes of its spot and future prices are 4% and 6% respectively, having correlation coefficient of 0.75. What is its hedge ratio? What is the amount of the copper future it should short to achieve a perfect hedge? | 5 | (0) | |||||||||||||||||||||||||||

2. | (a) | A machine used on a production line must be replaced at least every four years. Costs incurred to run the machine according to its age are:
Future replacement will be with identical machine with same cost. Revenue is unaffected by the age of the machine. Ignoring inflation and tax, determine the optimum replacement cycle. PV factors of the cost of capital of 15% for the respective four years are 0.8696, 0.7561, 0.6575 and 0.5718. | 10 | (0) | ||||||||||||||||||||||||||

(b) | In December, 2011 AB Co.’s share was sold for Rs. 146 per share. A long term earnings growth rate of 7.5% is anticipated. AB Co. is expected to pay dividend of Rs. 3.36 per share.
| 6 | (0) | |||||||||||||||||||||||||||

3. | (a) | LMN Ltd is considering merger with XYZ Ltd. LMN Ltd’s shares are currently traded at Rs. 30.00 per share. It has 3,00,000 shares outstanding. Its earnings after taxes (EAT) amount to Rs. 6,00,000. XYZ Ltd has 1,60,000 shares outstanding and its current market price is Rs. 15.00 per share and its earnings after taxes (EAT) amount to Rs. 1,60,000. The merger is decided to be effected by means of a stock swap (exchange). XYZ Ltd has agreed to a proposal by which LMN Ltd will offer the current market value of XYZ Ltd’s shares. Find out:
| 8 | (0) | ||||||||||||||||||||||||||

(b) | DEF Ltd has been regularly paying a dividend of Rs. 19,20,000 per annum for several years and it is expected that same dividend would continue at this level in near future. There are 12,00,000 equity shares of Rs. 10 each and the share is traded at par. The company has an opportunity to invest Rs. 8,00,000 in one year’s time as well as further Rs. 8,00,000 in two year’s time in a project as it is estimated that the project will generate cash inflow of Rs. 3,60,000 per annum in three year’s time which will continue for ever. This investment is possible if dividend is reduced for next two years. Whether the company should accept the project? Also analyze the effect on the market price of the share, if the company decides to accept the project. | 8 | (0) | |||||||||||||||||||||||||||

4. | (a) | Indira has a fund of Rs. 3 lacs which she wants to invest in share market with rebalancing target after every 10 days to start with for a period of one month from now. The present NIFTY is 5326. The minimum NIFTY within a month can at most be 4793.4. She wants to know as to how she should rebalance her portfolio under the following situations, according to the theory of Constant. Proportion Portfolio Insurance Policy, using "2" as the multiplier:
For the sake of simplicity, assume that the value of her equity component will change in tandem with that of the NIFTY and the risk free securities in which she is going to invest will have no Beta. | 8 | (0) | ||||||||||||||||||||||||||

(b) | X Ltd has an internal rate of return @ 20%. It has declared dividend @ 18% on its equity shares, having face value of Rs. 10 each. The payout ratio is 36% and Price Earning Ratio is 7.25. Find the cost of equity according to Walter’s Model and hence determine the limiting value of its shares in case the payout ratio is varied as per the said model. | 8 | (0) | |||||||||||||||||||||||||||

5. | (a) | NP and Co. has imported goods for US $ 7,00,000. The amount is payable after three months.The company has also exported goods for US $ 4,50,000 and this amount is receivable in two months. For receivable amount a forward contract is already taken at Rs. 48.90.
| 8 | (0) | ||||||||||||||||||||||||||

(b) | A has portfolio having following features:
You are required to find out the risk of the portfolio if the standard deviation of the market index (σ | 8 | (0) | |||||||||||||||||||||||||||

6. | (a) | Sumana wanted to buy shares of EIL which has a range of Rs. 411 to Rs. 592 a month later. The present price per share is Rs. 421. Her broker informs her that the price of this share can sore up to Rs. 522 within a month or so, so that she should buy a one month CALL of EIL. In order to be prudent in buying the call, the share price should be more than or at least Rs. 522 the assurance of which could not be given by her broker. Though she understands the uncertainty of the market, she wants to know the probability of attaining the share price Rs. 592 so that buying of a one month CALL of EIL at the execution price of Rs. 522 is justified. Advice her. Take the risk free interest to be 3.60% and e | 8 | (0) | ||||||||||||||||||||||||||

(b) | A Mutual Fund Co. has the following assets under it on the close of business as on:
| 8 | (0) | |||||||||||||||||||||||||||

7. | Write short notes on any four of the following: | 4x4=16 | ||||||||||||||||||||||||||||

(a) | Zero coupon bonds | (0) | ||||||||||||||||||||||||||||

(b) | Interest swap | (0) | ||||||||||||||||||||||||||||

(c) | Inter–Bank Participation Certificate. | (0) | ||||||||||||||||||||||||||||

(d) | Meaning and Advantages of Netting | (0) | ||||||||||||||||||||||||||||

(e) | Nostro, Vostro and Loro Accounts. | (0) |