CA Final AFM Mock Test 1
Section A: MCQs (30 marks, Attempt any 15 out of 20)
1. The price of a bond moves _______ to market interest rates.
(A) Inversely (B) Directly (C) Proportionally (D) Not related
2. Beta greater than 1 indicates that the stock is:
(A) Less volatile than the market (B) More volatile than the market (C) Unaffected by market (D)
None of the above
3. The Sharpe Ratio is used to measure:
(A) Absolute Return (B) Risk-adjusted Return (C) Liquidity (D) Arbitrage
4. Which is NOT a derivative instrument?
(A) Options (B) Mutual Funds (C) Futures (D) Swaps
5. In the Black-Scholes Model, an increase in volatility ______ the value of a call option.
(A) Decreases (B) Increases (C) No effect (D) Uncertain
6. Value at Risk (VaR) measures:
(A) Total profit in a portfolio (B) Maximum loss over a period at a certain confidence level (C)
Minimum expected return (D) Average risk
7. The forward rate in Forex refers to:
(A) Current exchange rate (B) Expected rate at a future date (C) Historical rate (D) None of the
above
8. Securitisation is the process of:
(A) Selling equity (B) Pooling assets and issuing securities (C) Hedging derivatives (D) All of the
above
9. Swap Ratio in Mergers is calculated based on:
(A) Book Value only (B) Market Price and/or EPS (C) Number of Employees (D) Debt level
10. Money Market Hedge is used for:
(A) Equity investment (B) Interest rate management (C) Forex risk management (D) Portfolio
diversification
11. In a merger, the swap ratio is based on ______.
12. The Black-Scholes model is used for ______.
13. Markowitz theory focuses on ______.
14. CAPM helps in calculating ______.
15. NAV of a mutual fund is calculated as ______.
16. A call option is "out of money" when ______.
17. Portfolio beta is a measure of ______ risk.
18. Transaction exposure in Forex arises when ______.
19. Basis risk in derivatives is ______.
20. EVA stands for ______.
Section B: Descriptive/Numerical (70 marks)
Q.2 (Compulsory) (20 marks):
(a) A 7-year, Rs.1,000 face value bond pays 9% annual coupon. The required rate of return is 8%.
Calculate the price of the bond. If the bond is callable at Rs.1,050 after 5 years, find the yield to call.
(b) A portfolio consists of Rs.50,000 in Stock X (Beta 1.2), Rs.30,000 in Stock Y (Beta 0.9), and
Rs.20,000 in Stock Z (Beta 1.5). Calculate the portfolio beta. If the expected market return is 12%
and risk-free rate is 6%, calculate the expected return using CAPM.
(c) Explain the steps in constructing an optimal portfolio using Markowitz theory.
Q.3 (18 marks):
(a) Explain the difference between systematic and unsystematic risk with examples.
(b) Calculate the payoff and profit/loss for a bull spread strategy using call options on XYZ Ltd.
(Strike prices: Rs.500 and Rs.540; Premiums: Rs.20 and Rs.12; Spot price on expiry: Rs.525).
(c) Short note: "Value at Risk (VaR)".
Q.4 (18 marks):
(a) A company has USD 200,000 payable in 3 months. Spot rate is Rs.83/USD, forward rate is
Rs.84. What is the cost of hedging with forward contract? If the company uses a money market
hedge (interest rates: INR 6% p.a., USD 3% p.a.), calculate the effective cost.
(b) Discuss the advantages and limitations of derivatives in financial management.
Q.5 (18 marks):
(a) Company A (EPS Rs.15, shares 1,00,000) is merging with Company B (EPS Rs.10, shares
2,00,000). Market prices are Rs.200 and Rs.150 respectively. Find the swap ratio based on market
price and post-merger EPS if A issues new shares.
(b) Define and explain "Securitisation."
(c) Write a short note on "Start-up Finance."
Q.6 (18 marks):
(a) Calculate the value of a European call option using the Black-Scholes model. Data: Stock Price
= Rs.600, Strike Price = Rs.580, Time = 6 months, Risk-free rate = 6% p.a., Volatility = 25%.
(b) An Indian exporter is to receive EUR 50,000 in 2 months. Spot rate is Rs.91/EUR, 2-month
forward rate is Rs.90.80/EUR. Advise whether to hedge or not, and calculate the outcome for both.
(c) Explain "Interest Rate Swap" with a practical example.
Q.7 (18 marks):
(a) Calculate the Net Asset Value (NAV) of a mutual fund: Market value of investments: Rs.5 crore,
Receivables: Rs.50 lakh, Liabilities: Rs.30 lakh, Units outstanding: 25 lakh
(b) What is Economic Value Added (EVA)? Explain its calculation and significance.
(c) Write a note on regulatory framework for mergers in India.
