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Roll No. .

Total No. of Questions -

6 Total No. of Printed Pages 11

Time Allowed -3 Hours
Maximum Marks 100

PMC
Answers questions are to be given only in English except in the case of candidates
to

who have opted for Hindi Medium. Ifa candidate has not
opted for Hindi Medium,

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fin
his/her answers in Hindi will not be valued.

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no
Question No. 1 is compulsory.

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t.m
Candidates are also required to answer any four questions from the remaining five questions.

//
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Working notes should form part of the respective answer.
l :h
ne

F
n

Marks
ha

ay ble
C

1. (a) ZX Ltd. has made(purchases worth USD 80,000 on 1st May 2020 for 8
m
ra
eg

which it has to make a payment on 1st November 2020. The present

el
lT

exchange rate is INRIUSD 75. The company can purchase forward

na
Fi

dollars at INR/USD 74. The company will have to make an upfront

A
C

premium@1 per cent of the forward amount purchased. The cost of

m
fro

funds to ZX Ltd. is 10 per cent per annum.

d
de

The company can hedge its position with the following expected rate
oa
nl

of USD in foreign exchange market on 1st May 2020: c

ow
D

Exchange Rate Probability

3
(i) INR/USD 77 0.15 CS
(ii) INR/USD 71 0.25
(ii) INR/USD 79 0.20

(iv) INR/USD 74 0.40

suitable for risk.
required to advise the company for a
cover
You are

PMC P.T.O.

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(2)
PMC Marks
(b) A two year tree for a share of stock in ABC Ltd., is as follows 8
Now 1 year later 2 years later

(N2) 11664

108

100 102.60

l
a
(NI) 95

fin
s_
(N3) 90.25

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no
Consider a two years American cal option on the stock of ABC Ltd.,

ca
e/
with a strike price of 7 98. The current price of the stock is 100. Risk

m .
//t
free return is 5 per cent per annum with a continuous compounding

s:
and e005 = 1.05127. tp
ht
:
el

Assume two time periods of one year each.

nn
ha

Using the Binomial Model, calculate:

C
am

() The probability of price moving up and down;

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le

(ii) Expected pay offs at each nodes i.e. NI, N2 and N3 (round off
Te
al

upto 2 decimal points).

n
Fi
A
C
m

(c) On Tuesday morning (before opening of the capital market) an 4

fro

investor, while going through his bank statement, has observed that an
d
de
oa

amount o f 7 lakhs is lying in his bank account. This amount is

nl
ow

available for use from Tuesday till Friday. The Bank requiresa
D

minimum balance of R 1000 all the time. The investor desires to make
a maximum possible investment where Value at Risk (VaR) should not
exceed the balance lying in his bank account. The standard deviation
of market price of the security is 1.5 per cent per day. The required
confidence level is 99 per cent.

PMC

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(3)
PMC Marks

Given
Standard Normal Probabilities

.06 .07 08 .09

03 0.04 .05
Z 0.00 .01 .02
9878 .9881 .9884 9887
9887 9890
9890
.09871.9875
.9861 .9864|.9868
2.2 9861

a l
in
9909 9911 .9913.9916
9901 9904 9906

f
.9893 .98969998

s_
2.3
9936

te
.99229923 .9925 9929 9931.99329934

no
2.4 9918 .9920

ca
possible investment.
to determine the maximum

e/
You are required

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s:
total Debt of 7 8 8
Equity Capital of 7 12 Lakhs,

ttp
2. (aAB Industries has

:h
Two mutually exclusive
Lakhs, and annual sales of 7 30 Lakhs.

el
are under consideration
for the next year. The details of the
nn
proposals
ha

proposals are as under:

C
m
ra

Particulars Proposal Proposal

g

no. 1 no. 2
le
Te

0.65 0.62 Prise.

Target Assets to Sales Ratio
l
na

e t prh
Fi

4 5
Target Net Profit Margin (%)
A
C

2:3 4:1
Target Debt Equity Ratio (DER)
m

elN
fro

Ratio (of Earnings) 75

d

Target Retention
de
oa

(%)
nl
ow

Annual Dividend (7 In Lakhs) 0.30

D

Raised (R in Lakhs)
NewEquity
to calculate sustainable growth rate for both the
You are required
proposals. 1 - kt

PMC
P.T.O.
D

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(4)
PMC Marks
(b1B an Indian firm has its subsidiary in Japan and Zaki a Japanese firm 8
has itssubsidiary in India and face the following interest rates:
Company
INR floating rate
IB Zaki
BPLR+0.50 % BPLR+2.50 %
| JPY (Fixed rate)
2% 2.25%
Desi e e
Zaki wishes to borrow Rupee Loan at floating

l
a rate and IB wishes

a
to

in
borrow JPY at fixed The amount of loan

_f
a rate.
required by both the

es
firms is same at the current exchange

ot
rate. A
financial institution may

n
ca
arrange a swap and requires 25 basis points as its commission.
Gain, if

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any, is to be shared by the firms equally.

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You

s:
are required to find out:
ttp
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Whether a swap can be arranged which may be beneficial to both
el

the firms ?
nn
ha

(i) What rate of interest will the firms end up paying?

C
m
ra
eg

(CPeer to Peer Lending and Crowd

el

- -

funding are same and traditional

lT

A
methods of funding. Do you agree
na

? Justify your stand.

Fi
A
C
m
fro

3. (a) The following data are available for a bond:

d
de
oa

Face Value 7 10,000 to be redeemed at par on maturity

nl
ow

Coupon rate 8.5 per cent per annum

D

Years to Maturity 5 years

Yield to Maturity (YTM) 10 per cent

You are
required to calculate

PMC

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(5)
PMC Marks

Current market price ofthe Bond,

i Macaulay's Duration,
(iji Volatility of the Bond,
v)Convexity of the Bond,
if there is decrease in the YTM by 200
(vExpected market price, a

basis points

al
(a ByMacaulay's Duration based estimate

fin
s_
(bBy Intrinsic Value Method.

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no
Given

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e/
Years 2 3 45

.m
//t
0.751 0.683 0.621
s:
0.826
PVIF(10%,n)0.909 ht
tp
PVIF(8%,n) 0.926 0.857 0.794 0.735 0.681
:
el
nn
ha

(b) M/S. Corpus an AMC, on 1.04.2015 has floated two schemes viz. 10
C

Dividend Plan and Bonus Plan. Mr. X, an investor has invested in both
m
ra
eg

the schemes. The following details (except the issue price) are
el
lT

available:
na
Fi

Date Dividend Bonus Ratio NAV

A
C

(%) Dividend Bonus

m
fro

Plan Plan
ed
d

1.04.2015
oa
nl

31.12.2016 1:4 (One unit on 47 40

ow

4 units held)
D

31.03.2017 12 48 42

31.03.2018 10 50 39

31.12.2018 1:5 (One unit on 46 43

5 units held)
15 45 42
31.03.2019
49 44
31.03.2020

PMC P.T.O.
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(6)
PMC
Marks
Additional details
Investment (R) T9,20,000 10,00,000
Average Profit (?) 27,748.60
Average Yield (%) 40

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fin
You are
required to calculate the

s_
issue price of both the
schemes as on

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1,04.2015

no
ca
e/
.m
(c) An individual attempts a l e Caer
to found and build

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a
personal company from

s:
finances or from the 3
operating revenues of
the new ttp
company. What
:h
this method
is called ? Discuss any two methods. eot P
el
nn

Leas
ha
C

4. (a) ICL is proposing to take

m

over SVL with an

objective to
diversify.
ra

ICL's 12
profit after
eg

(PAT) has grown

tax
18 per cent
per annum and
el

SVL's PAT is
lT

grown @ 15 per cent per annum. Both the

companies
na

pay dividend regularly.

Fi

The summarised Profit & Loss Account of

A

both the companies are as follows:

C
m
fro

in Crores
d
de

Particulars ICL
oa

SVL
nl

Net Sales
ow

4,545 1,500
D

PBIT 2,980 720

Interest 750 25
Provision for Tax 1,440 445
PAT 790 250

Dividends 235 125

Undistributed Profits 555 125

PMC
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(7)
Marks
PMC

ICL SVL

Fixed Assets
720 190
Land & Building (Net)

l
900 350

a
Plant &Machinery (Net)

fin
s_
30 1,650 10 550
Furniture & Fixtures (Net)

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no
775 580
Current Assets

ca
e/
|Less Current Liabilities

t.m
230 130

//
Creditors

s:
ttp
Overdrafts 35 10

:h
145 50

el
Provision for Tax
nn
60 470 50 240
ha
Provision for dividends
C

1,955 890
m

Net Assets
ra

250 125
g

Paid up Share Capital (7 10 per

le
Te

share)
l
na

Reserves and Surplus 1,050 1,300 660 785

Fi
A

Borrowing 655 105

C
m

1,955 890
fro

Capital Employed
d
de

Market Price Share (R) 52 75

oa
nl

prices. SVL's Land &

ow

ICL's Land & Buildings are stated at current

D

are revalued three years ago. There has been an increase of

Buildings
30 per cent per year in the value
of Land & Buildings.
@ 18 per cent each year, after merger.
SVL is expected to grow

ICL's Management wants to determine the premium on the shares over

the current market price which can be paid on the acquisition of SVL.

PMC P.T.O.
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(8)
PMC Marks

You are required to determine the premium using

(i) Net Worth adjusted for the current value of Land & Buildings
plus the estimated average profit after tax (PAT) for the next five

years.

la
in
ii) The dividend growth formula.

_f
es
(ii) ICL will push forward which method during the course of

not
ca
negotiations ?

e/
t.m
1 2 3 4

//
Period (t) 5

s:
FVIF(30%, t) 1.300 ttp
1.690 2.197 2.856 3.713
:h
el
nn

FVIF(15 %,1) 1.15 2.4725 3.9938 5.7424 7.7537

ha
C
a m
gr
e
el

(b SD 10,000 is lying idle in your Bank Account. You are able to get 4
lT
na

the following quotes from the dealers

Fi
A
C

Dealer Quote
m
fro

A EUR/USD 1.1539 f/4

d
de

EUR/GBP 0.9094 /e
oa

B
nl
ow

C GBP/USD 1.2752 /
D

Is there an opportunity of gain from these quotes ?

(c) Side Pocketing enhances the value of the Mutual Fund. Do you agree ?
(c)
Briefly explain the process of side pocketing.

PMC

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(9)
Marks
PMC
raisea 8
It has
a) 1CL an Indian MNC is executing a plant in Sri Lanka.
six montns
7 400 billion. Half of the amount will be required after
on April,
time. ICL 1S looking an opportunity toinvest this amount
two underilyimg
2020 for a period of six months. It is considering
proposals:
US
Market Japan

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in
Index Fund Treasury

_f
Nature of Investment

es
(JPY) Bills (USD)

t
no
ca
e/
Dividend (in billions) 25 //t
.m
s:

Income from stock lending (in 11.9276

tp
ht
l:

billions)
e
nn
ha

Discount on initial investment at 2%

C
m
ra

theend
g
le

5 per cent per

Te

Interest
l
na

annum
Fi
A

JPY/INR USD/INR
USD/INR
C

Exchange Rate (1* April, 2020)

m
fro

1.58 0.014
d
de

JPYINR USD/INR
oa

Rate (30h September,

nl

Exchange
ow

1.57 0.013
D

2020)
required to suggest the best
course
is
Investment Manager,
You, as an

of option.
mutual funds of MFL: 8
0 The following are the details ofthree
Balanced Regular Market
rowth
Fund Fund
Fund
7 6
Average Return (%) 54.76 40.96 57.76
92.16
Variance 0.3025 0.6561 0.9604
Coefficient of
Determination
PMC P.T.O
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(0)

PMC Marks

The yield on 182 days Treasury Bill is 9 per cent per annum

You are required to :

Rank the funds as per Sharpe's measure.

(ii) Rank the funds as per Treynor's measure.

al
fin
(ii) Compare the performance with the market.

s_
te
no
ca
(e)In an efticient market, technical analysis may not work perfectly.

e/
.m
However, with imperfections, inefficiencies and irrationalities, which

//t
s:
characterises the real world, technical analysis may be helpful.

ttp
:h
Critically analyse the statement.
el
nn
ha
C

8
m

An investor is considering to purchase the equity shares of LX Ltd.

ra

6. (
eg

whose curent market price (CMP) is 112. The company is proposing

el
lT

4 for the year. LX Ltd. is expected

to grow @ 20
dividend of next
na

four years. The growth will decline

Fi

cent per annum for the next

per
A
C

16 per cent per annum after first four years. Thereatier, it

linearly to
m
fro

at 16 per cent per annum intinitely.

The investor requires
will stabilise
d
de

of 20 per cent annum.

a retum per
oa
nl
ow

You are required

D

(1) To calculate the intrinsic

value of the share of LX Ltd.
the share at this price.
(i) Whether it is worth purchase
to

2 4
Period

PVIF 20%.n) 0.833 0.694 0.579 0482 0.402 0.33509

PMC
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(11)
Marks
PMC
Ltd. is engaged in 8
The Management of a multinational company TL
(b) to construct a Toll
construction of Infrastructure Project. A proposal
the Management.
Road in Nepal is under consideration of
The following information is available :-

purchaseof equipment costing USD

The initial investment will be in

l
a
The

in
of the equipment is 10 years.
250 lakhs. The economic life

f
s_
be on straight line method.
charged
the equipment will

te
depreciation on

no
projected to be USD 33
EBIDTA tobe collected from the Toll Road is

ca
annum for a period of 20 years..

e/
lakhs per

t.m
government is offering a 15 year
To encourage investment Nepalese

//
loan of USD 150 lakhs at an interest rate of 6 per cent per annum.

s:
term

ttp
be repaid at the end of
The interest is to paid annually. The loan will

:h
15 year in one tranche.

el
under all equity financing is
The required rate of return for the
nn
project
ha
12 per cent per annum.
C

of debt is 5.6 per cent annum.

m

Post tax cost per

ra

Corporate Tax Rate is 30 per cent.

g
le

All cash Flows will be in USD.

lTe
na

Ignore inflation.
Fi

of the
You required to advise the management on the viability
are
A

proposal by using Adjusted Net Present Value method.

C
m

Given
fro

7.469, PVIFA (8%,

PVIFA(12%, 10) 5.650, PVIFA (12%, 20)
d

=
de

15)8.559, PVIF (8%, 15) =

0.315
oa
nl

(cDistinguish between Pass Through Certificates (PTC) and Pay

ow

(c)

Through Securities (PTS)

D

OR
Differentiate between Economic Value Added (EVA) and Market
Value Added (MVA)

PMC

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