CWA ICWA Final - Group III : Capital Market Analysis and Corporate Laws - June 2011

CWA ICWA Final - Group III • Capital Market Analysis and Corporate Laws • June 2011

This Paper has 39 answerable questions with 0 answered.

F—P11(CMC) Syllabus 2008
Time Allowed : 3 Hours	Full Marks : 100

The figures in the margin on the right side indicate full marks.

Working notes should form part of the answer.

Please

(i)
(ii)

Answer all bits of a question at one place.
Open a new page for answer to a new question.

SECTION I (60 Marks)

(Capital Market Analysis)

Answer Question No. 1 which is compulsory and answer any two from the rest in this section.

Marks

(a)

In each of the cases given below one out of four is correct. Indicate the correct answer (= 1 mark) and give your working/reasons in support of your answer(= 1 mark):

2x5=10

(i)

VENTEX LTD.issued right shares which increased the market value of the share of the company by Rs.150 crore.The existing Base year average is Rs.952.83 crore.If the New Base year average is Rs.1010 crore,the aggregate (old) market value of all the shares inculded in the index before right issue made will be

A.	Rs.2500 crore
B.	Rs.1070.60 crore
C.	Rs.1005.50 crore
D.	None of the above

(0)

(ii)

Historically,when the market return changed by 10%, the return on the stock of ARIHANT LTD.,changed by 16%.If the variance of market return is 257.81,what would be the systematic risk for Arihant Ltd?

A.	320%
B.	480%
C.	660%
D.	Insufficient information

(0)

(iii)

The characteristics of two securities A and B are as follows:

Particulars	Security A	Security B
Expected Return (%) Standard deviation of return(%) Beta(β)	12 21 1.10	13 29 1.20

The correction co–efficient between the returns on securities A and B is 0.94.
If variance of returns on the market Index is 400%,the systematic risk of portfolio consisting of two securities in equal proportion will be

A.	460%
B.	529%
C.	606.5%
D.	None of the above

(0)

(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 per cent respectively.How much should the mutual fund earn to provide Mr.SAURAV GANGULY,a return of 20%?

A.	26.5%
B.	21.55%
C.	22.55%
D.	None of the above

(0)

(v)

The beta co–efficient of equity stock of ARISTO LTD.is 1.6.The risk free 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 Rs.2.50 and the growth rate of dividend and earings is 8%,at what price the stock of ARISTO LTD.can be sold (based on CAPM)?

A.	Rs.12.50
B.	Rs.16.80
C.	Rs.28.41
D.	Insufficient information

(0)

(b)

Choose the most appropriate answer from the stated options and write it down. (only indicate A, B, C or D as you think correct):

1x5=5

(i)

Which of the following statements is TRUE regarding mutual funds?

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

(0)

(ii)

If an investor belives that probability of the price of a stock moving up is higher than the probability of price plummeting,he should

A.	Buy an in the money put and sell an in the money call
B.	Buy an in the money call and sell an out of the money put
C.	Buy an in the money call and buy an out of the money put
D.	Sell an in the money call and buy an out of the money put

(0)

(iii)

Even though SEBI has been given wide power under the SEBI Act 1992,the Central Goverment continues to excercise which of the following powers under the Securities Contracts (Regulation) Act.

A.	Power to amend bye–laws of stock Exchange
B.	Licensing dealers in securities in certain areas
C.	Power to suspend business of a recognised stock Exchange
D.	Power to call for periodical returns from stock Exchange

(0)

(iv)

In capital Market Analysis the external factor influencing the industry as a whole is called

A.	Industrial Risk
B.	Market Risk
C.	Systematic Risk
D.	None of the above

(0)

(v)

In efficient market,the market price is an ‘unbiased estimate’ of the true value of the stocks (shares).This implies that

A.	The market price always equals the true value
B.	The market value has no relation to the true value
C.	Market prices contain errors,but these being random can not be explotied by investors
D.	Market make mistakes about true value,which can be exploited by investors.

(0)

(c)

Fill up the blanks in the following sentences by using appropriate words/phrases:

1x5=5

(i)

In BSE for most stocks the roling settlement period is______________.

(0)

(ii)

Insurance Companies are regulated by the ______________ Act which was passes in the year 1999.

(0)

(iii)

In the Context of Investment risk, International Risk includes Country Risk and ____________Risk.

(0)

(iv)

The orders of SEBI under the Securities Laws are appealable before the _____________.

(0)

(v)

An ______________ shows how a specified portfolio of share prices are moving in order to give an indication of market trends.

(0)

(a)

Define the term financial market.Briefly sketch the four broad sub–divisions of financial market.

(0)

(b)

Ms MITRIKA an analyst at ASHIKA SECURITIES LTD.is considering the stocks of spark Ltd.and Global Ltd.for investment.Expected returns on the stocks depend on the growth rate GDP.The conditional returns of the market and the stocks are given below:

Economic Scenario GDP Growth rate	Probability	Return on (%)		Return on Market%
		Spark Ltd.	Global Ltd.
1.00—3.0% 3.00—6.00% 6.00—8.00% More than 8.00%	0.18 0.24 0.26 0.32	15 25 38 46	9 14 27 33	7 11 18 25

The expected risk–free return is 6.5%.
Assume that CAPM holds good in the market
You are required to

(i)	Calculate the ex–ante–betas for the two stocks.

(ii)	Find out whether the stocks of spark Ltd.and Global Ltd.are under priced or overpriced.

(iii)

Calculate the proportion of systematic risk and unsystematic risk for both the companies

(iv)	Determine which stock the analyst would suggest to invest

6+3+4
+2=15

(0)

(a)

What do you mean by ETF (Exchange Traded Funds)? State in brief the application of it.

2+4=6

(0)

(b)

The stock of APSHARA LTD.(AL) is currently trading at Rs.597.12 and call option excerciseable in three months time has an exercise rate of Rs.600.The standard deviation of the continuously compounded stock price change for Apshara Ltd.is estimated to be 22 percent per year.The annualised Treasury Bill rate corresponding to this option life is 5%
Required:

(i)	What is the value of a three month CALL OPTION on the stock of APSHARA LTD (Using Black and Scholes Model)?

(ii)	What would be the value of PUT option?

(iii)

If this Call option is priced at Rs.26 What investment strategy would you adopt?

(iv)	If this PUT option is available in the market at Rs.25 What investment strategy would you adopt?

Note:
Extracted from the Tables:

(1)	Natural Logarithms: In(0.9952)=–0.00481,In (1.0048)=0.00479
(2)	Value of e^–x:e^–0.01=0.99005,e^–0.0125=0.98758
(3)	Cumulative standardized normal probability distribution:NCX When X ≥ 0:N(0.125)=0.5498,N(0.015)=0.5060 When ≤ 0 : N(–0.125)=0.4502,N(–0.015)=0.4940

6+2+1
+1=10

(0)

(c)

The IT Act 2000, the cyber Law of India,gives the legal framework so that information is not denied legal effect,validity or enforceability–Comment.

(0)

(a)

Describe briefly the main features of venture Capital Financing.

(0)

(b)

Ms TANIA an investor has invested in three Mutual Fund Schemes as per detailed below:

	MF–A	MF–B	MF–D
Date of Investment Amount of Investment Net Asset Value (NAV) at entry date Dividend received up to 31.3.2011 NAV as at 31.3.2011	01.12.2010 Rs.75000 Rs.10.50 Rs.1425 Rs.10.40	01.01.2011 Rs.150000 Rs.10.00 Rs.2250 Rs.10.10	01.03.2011 Rs.75000 Rs.10.00 NIL Rs.9.80

Required:
What is the effective yield on pre annum basis in respect of each of the three schemes to Ms Tania up to 31.3.2011?(Ignore time value of Money)

(0)

(c)

The financial data of ROYAL FABRICS LTD.is as follows:

Paid–up capital (4 lakh shares)
Reserve and surplus
profit after Tax

Rs. 40 lakh
Rs. 180 lakh
Rs. 32 lakh

The P/E multiple of the shares of Royal Fabrics Ltd.is 7.
The company has taken up an expansion project ay Nodia.The cost of the project is Rs.200 lakh.It proposes to fund it with a term loan of Rs.100 lakh from IDBI and balance by a rights issue.
The rights will be priced at Rs.25 per share (Rs.15 premium).
Requirements:

(i) Calculate the value of the rights and the Market Capitalization of Royal Fabrics Ltd.after the rights issue,and

(ii)	Calculate the Net Asset Value (NAV) of the shares after the rights issue.

2+2+
2=6

(0)

(d)

On May 28^th, the June,July and August contracts of LMN LTD.are open for trading on the stock exchange.All three contracts have exercise prices of Rs.50.The current market price of the stock is Rs.48.All of the LMN call options are trading at premiums.In addition,the premium for August is more than that of July and for July more than that of June.How? Explain.

(0)

SECTION II (40 Marks)
(Corporate Laws)
Answer Question No. 5 which is compulsory and answer any two from the rest in this Section.
Marks

SECTION II (40 Marks)

(Corporate Laws)

Answer Question No. 5 which is compulsory and answer any two from the rest in this Section.

Marks

(a)

Match the items in part A with the most appropriate one in part B.

Part A		Part B
(i) (ii) (iii) (iv) (v)	Appeal against refusal for registration of shares First directors of the company Memorandum of Association to contain certain particulars Cadbury Committee Clause 49 of the Listing Agreement	(i) (ii) (iii) (iv) (v) (vi) (vii)	Section 13 of the Companies Act, 1956 Are to be appointed and not elected Code of best practices Governance Standards Section 111 of the Companies Act, 1956 Are to be elected and not appointed Code of risk management

1x5=5

(0)

(b)

Fill in the blanks in the following sentences by using appropriate words/phrases:

1x5=5

(i)

For all listed companies as well as public limited companies whose paid–up capital and free reserves exceed rupees________crore or turnover exceeds rupees________crore there should be a certification by the CEO and CFO.

(0)

(ii)

The minimum number of members in a Nomination Committee is_______________.

(0)

(iii)

Any person aggrieved by any decision or order of the competition Commission may file an appeal to the____________.

(0)

(iv)

In the context of classification of risks,Elections will fail under_______________.

(0)

(v)

The recommended minimum size of Independent directors in all listed Companies by SEBI is__________________.

(0)

(a)

What is meant by "Sweat Equity Share"? When can the same be issued by a company as per the provisions of the companies Act,1956?

2+4=6

(0)

(b)

Mr.ANUP KUMAR was a member of the Competition Commission of India.He ceased to be such member on 31^st March,2011.There after,he was offered the post of Executive Director with appropriate remuneration and perquisites in the following organizations to join his duties on and from 1^st June,2011:

(i)	ASHLEEN LTD., A private sector public Limited company, whose case was disposed off by the Competition Commission under the provisions of the Competition Act, 2002 in the month of February, 2011.
(ii)	Life Insurance Corporation of India.

You are required to state with relevant provisions of the Competition Act, 2002, the option available to Mr. Anup Kumar in respect of accepting the above offers.

2+2+2=6

(0)

(c)

DHONI SYNTHETICS LTD.has sent two different notices for holding two separate Annual General Meetings (AGM),one relating to adjourned AGM of earlier year,and another relating to AGM of current year.Both AGMs are scheduled to be held on 30^th June,2011,one in the forenoon and another in the afternoon.A shareholder raises an objection that two AGMs cannot be held on the same day.Is his contention correct?

(0)

(a)

The public Information Officer of Delhi Municipal Corporation has turned down the request for information lodged by Mr.Kamal Hassan on the grounds that the request was sent through an e–mail and on the ground that the same was in Hindi and not in English.Are his contentions correct in law as per the RTI Act,2004?

(0)

(b)

In the Context of Risk Management considerations,what are the key factors to be included in the Check List prepared on assignment of risk ownership?

(0)

(c)

Can it be said that Management Audit incorporates in itself,an efficiency Audit?What are the main objects of efficiency Audit?

(0)

(a)

Mr.BHUSHAN is holding the post of director in five companies out of which SAMAROH LTD.is one.For the financial year ended on 31^st MARCH,2010,Samaroh Ltd.failed to pay interest on loans taken from a financial Institution and also failed to repay the matured deposits.On July,2010 Mr.Bhushan accepting the post of additional director in Fedex Ltd.submitted a declaration that the disqualification specified in section 274 of the companies Act,1956 is not applicable in his case.
Decide whether the declaration submitted by Mr.Bhushan to Fedex Ltd.is in order.

(0)

(b)

"A good Corporate Governance should have certain basic principles"–Enumerate them.

(0)

(c)

State the additional requirements stipulated in section 292A of companies Act,1956, which are silent in Clause 49 of the Listing Agreement.

(0)

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