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25 views7 pagesFe 2018
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ayush agarwalCopyright
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/ 7
(This question paper contains 12 printed pages.)
Your Roll No.
Sr. No. of Question Paper : 42824. HC
Unique Paper Code 12277612
Name of the Paper Financial Economies
Name of the Course
Semester
Duration : 3 Hours Maximum Marks : 75
Instructions for Candidates
{Write your Roll No, on the top immediately on receipt of
this question paper.
2. Attempt FIVE questions in all
3. Selecting at least ome question from each section.
4. Use of scientific calculator is allowed.
5. Answers may be written either in English or Hindi; but the
same medium should be used throughout the paper,
oat & fre fete
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Sat ar arr gee BAT eRe
PTO 4282A 2
SECTION A
1. (@) Some firms prefer the IRR rule to the NPV criterion,
Explain carefully four major drawbacks of depending
solely on the IRR rule. Why is it still widely used in
finance? (842)
(b) Consider two mutually exclusive projects as under
Project___[ CO a 2 a
A 100 0, 0. oO
3 =100 140
(@ Calculate the NPV of each project using discount
ates 10% and 20%.
Gi) Plot these on a graph, +2)
(a) yo wl NPV ads oF oer IRR Fem eis aC 2
IRR fet ae Beer genie ae ye aha aT era B
Paestenr a 1 ae fe ant wes Rega ee at oo Fa
wet #1
(=) AY a acento fms wfeitorn we fae aR
Project [C0 ci @ [a
A =100, oO 60 o
B =100 140
4282A 3
(i) Be 10% we 20% Bet ER HE WRT
@ fe NPV & me aX
(i) we we ee tee a
2. (@) Derive an expression for modified duration, What is the
relationship between duration and price sensitivity?
(42)
(®) Consider two 10 year bonds, one has a 10% coupon
and price 98.72 and the other has a 8% coupon
and price of 85.89 and both have same face value
normalized to 100. Construct a zero-coupon bond and
find its price, 242).
(©) State the two-fund theorem and its implications.
What are the assumptions under which the theorem
holds? 342)
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dag wtentteat F dtu eau ea #7
(a) 10 aia wiese oe fae a frat wa aT aT 10% TAT
‘aioe 9e.70 war Gar aT 0% ar Ae 05.89 Wi DAT
‘arr ye RE aera we yoo Tem ET aT a es at
weet wor ned a ae at)
P.T.O. 4282A 4
(3) Q-ate wa afters et gmt eed Bitar A are
fat wernt sida ae vais et F1
3. (a) Using CAPM, show how the expected rate of return of
fan individual asset retates to its individual risk. (5)
(b) Consider a portfolio of 250 shares of firm A worth $30/
share and 1500 shares of firm B worth $20/share. You
expect a return of 4% for stock A and a return of 9%
for stock B.
(@) What is the total value of the portfolio, what are
the portfolio weights and what is the expected
retura? “
Gi Suppose firm A's share price falls to $24 and
firm B’s share price goes up to $22. What is the
new value of the portfolio? What return did it
earn? After the price change, what are the new
portfolio weights? ©
(8) CAPM amr oeir wet ga Red fr -AR eH mer
often at orgnitr ower at a rat afaee vier a
tu wh F
(9) $30 WR due wet B wo_A R250 eit eT 520
tee wine BoB 1500 ut we Pare wR MT wer
A Rie ay @ site va ete BE Re 9% & eT
“mr agers saa 1
42824 5
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argaia after Pier &1
(ii) we fr HA Ae WH aa S24 eh Fer
wa Be tee ahem S22 aah PEAR a
pr #7 ag fae aes wT wer se
fea ae ser EAL oe eB?
SECTION B
4, (a) Explain the concept of stack and roll? @
(b) On July 1, an investor holds 50,000 shares of a certain
stock. The market price is Rs. 30 per share, The investor
is interested in hedging against the movements in the
market over the next month and decides to use the
September NSE futures contract, The index is currently
4200 and one contract is for delivery of Rs. 200 times
the index. The beta of the stock is 1.3, Whet strategy
should the investor follow? ©
(©) An airline exceutive has argued: “There is no point in
our using ofl futures. There is as much chanee that the
price of oil in the future will be less than the future
price as there is that it will be greater than this price”
Discuss the executive's viewpoint with the help of a
numerical example, 6)
PTO. 42824
(a)
6
vets i da (coll) B aren ar Ate aY
1 gard oi ee Pitrect er Riar lar 50,000 dae
“erm 1 rane es 30 eve A Be Bs tS ae EP
& ime wre after & fe BMT (hedging) # Pte
weet wr rege # war Ree NSE war eer aT sotto
wed on Sia Gor #1 air quate 4200 F ea ew
cater quate & 200 yA GES ARE BL ele a ir
13 21 Prtewat ser One eR ae |
ee aces aa 3 ae Rare vat Rar ten oh
aN we Et Br ar a & fe ter Ber ve
vitor wine 8 sat foe et fier ee aie a EAT
after BA asta Genser Re eT Bera ae
@ feat a Riser at
) Consider a 3-month futures contract on an index.
Suppose that the stocks underlying the index provide
a dividend of 1% per annum, that the current value
of the index is 1300 and the continuously
compounded risk-free interest rate is 5% per
annum, Find the futures price. @
Gi) Explain how the futures price of a consumption
commodity is related to the spot price. How is
this relation different from that of investment
asset? (242)
42824 a
(b) Consider a long forward contract to purchase & coupon
bearing bond whose current price is $900. Suppose that
the forward contract matures in 9 months and a coupon
payment of $40 is expected after 4 months. The 4-
9-month risk-free interest rates
(compounded continuously) are 3% and 4% per annum
respectively. Calculate the forward price assuming that
there are no arbitrage opportunities. Oy
month and the
(c) Explain the meaning of the terms dividend stocks and
stock splits. A company declares a 2 for 1 stock split.
Explain how the term changes for a call option with
strike price of Rs. 1307 (242)
(3) permanganate we Rea aT
it quate & sina wher 1% oA at ae
Ret yawn ar ada aT 00 F aT wR
vanaf Str et ar a 9% oA ad Hee a,
“after hae ae wR
i) RB ER BR ee oe eg A ter aia
ae ag @ dahon 21 Boe ar Bb oe
a fe 2)
(@) ea age ofa is whet Bay em are acres
“after we ror a eae adr met $900 Fa A
P10. 42824,
@)
swsafta Aer 9 WAR A aera aa Ban Sao Bee EET
myers 4 aA BS ae orga eon wren Fi a Ae
rer 9 wher Ste wea emit ax (sage Sere) wT: 3%
Wa 4% #1 ara fe AE sat (arbitrage) mR Et
%, omen aen eE
ray iy eer ar cher SH (split) wae
