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a. Rs.62095
b. Rs.62607
c. -Rs.61605
d. -Rs.60189
a. The result of the formula for effective duration is for a 0.01% change in interest rates.
b. A bond’s percentage change in price and dollar change in price are both tied to the
underlying price volatility.
c. The formula for effective duration is: (price when yields fall - price when yields rise) / (initial
price * change in yield expressed as a decimal).
d. For a given change in interest rates, the greater the duration, the lower the price volatility.
Qs.4: Assume that the duration of a bond is 5.47 and its current price is 98.63. Which of
the following is a good estimate of the bond price change if interest rates increase by
2%?
a. -10.79
b.-10.94
c. 10.79
d.10.94
a. Rs.155.1 million
b. Rs.153.4 million
c. Rs.132.1 million
d. Rs.158.5 million
Qs.6: Amit has been hired to estimate the beta for PeroSof, a firm that produces
entertainment software. The stock is currently trading at Rs.40 per share, and there
are 250 million shares outstanding; the firm has no debt outstanding. PeroSof also has
Rs. 2 billion in cash that it has accumulated over time. The average beta for
entertainment software firms is 1.50, and that the average debt/equity ratio of these
firms is 10%. (Assume that the cash balances at these firms are negligible and that the
marginal tax rate is 40% for all firms). Estimate Perosof’s current beta.
a. 1.42
b. 1.13
c. 1.49
d. 1.08
a. 14%
b. 15%
c. 16%
d. 20%
a. 8.2%
b. 6.1%
c. 5.8%
d. 7.0%
Qs.9: If you capitalize operating leases and treat them as debt, which of the following
will always occur?
a. The cost of equity will increase because of the higher debt ratio
b. The operating income will increase because you will be adding back operating lease
expenses
c. The debt ratio will increase
d. The return on capital will go up
e. None of the above
Qs.11: For most companies, the effective tax rate is lower than the marginal tax
rate. For such companies, using the effective tax rate (instead of the marginal tax
rate) in perpetuity to compute the after tax operating income will result in which
of the following?
a. Value of the company is overstated
b. Value of the company is understated
c. No effect on the value of the company
Qs.13: The current dividend yield on the share of XYZ Ltd. is 6%. The face value of the
share is Rs. 20. The book value to face value multiple is 5.8. The net worth of the
company is 232000000. If the dividend rate is 50%, then the price per share and total
market capitalization are as follows:
a. elastic, elastic
b. inelastic, elastic
c. inelastic, elastic
d. elastic, inelastic
Qs.15: At yield levels that are close to the bond’s coupon rate, is the price of an option-
free bond higher than the price of an otherwise identical:
a. NO NO
b. YES YES
c. YES NO
d. NO YES
Qs.16: If the security’s return plots below the SML, then it can be said that
a. It is overpriced
b. The required rate of return is much lower than the actual rate of return
c. The investors would try to buy more of the security
d. It is a defensive security
e. Both (a) and (b) above
Qs.18: Which one of the following cannot lie on the efficient frontier as described by
Markowitz?
a. W 15 36
b. X 12 15
c. Z 5 7
d. Y 9 21
Qs.19: Reliable Capital has debt/equity ratio of 40/60. A comparable firm Unique
Capital has debt/equity ratio of 60/40 and its beta is 0.89. What will be the beta of
Reliable Capital?
a. 0.593
b. 1.33
c. 0.356
d. 0.53
Qs.21: Both portfolio X and Y are well diversified. The risk free rate is 5% and the return
for the market is 15%.
X 17% 1.2
Y 15% 0.2
Portfolio X Portfolio Y
a. Overvalued Undervalued
b. Fairly valued Fairly valued
c. Undervalued Undervalued
d. Fairly valued Undervalued
Qs.23: Nikhil invests Rs.100 in a complete portfolio. The complete portfolio comprises a
risky asset with an expected rate of return of 15% and a standard deviation of 15% and a
Treasury bill with a rate of return of 8%. A portfolio that has an expected value at the
end of the period of Rs.120 could be formed if Nikhil:
Statement 1: “If interest rates increase dramatically, callable bonds can exhibit negative
convexity
Statement 2: “The higher the level of interest rates, the lower the price volatility of a
bond to changes in interest rates
Qs.27: If there is zero correlation among the securities of a portfolio, the resulting graph
will be a/an
a. 10 days
b. 12 days
c. 15 days
d. 21 days
e. 25 days
Qs.30: The estimated annual usage of boxes for a packaging firm is 45,000 units. The
cost per box is Rs.6 and the ordering cost is Rs.150 per order. The inventory carrying
cost is estimated at 25% of unit value per annum. The economic order quantity is
a. 1000 units
b. 1500 units
c. 1750 units
d. 2200 units
e. 3000 units
a. Gain of Rs.12000
b. Gain of Rs. 16000
c. Gain of Rs. 20000
d. Loss of Rs. 4000
e. No profit, no loss
a. 14.10%
b. 14.39%
c. 15.23%
d. 15.45%
e. 16.35%
a. Rs. 4
b. Rs. 5
c. Rs. 6
d. Rs. 8
e. Rs. 10
a. Rs. 10 lakh
b. Rs. 15 lakh
c. Rs. 20 lakh
d. Rs. 25 lakh
e. Rs. 30 lakh
If the number of shares outstanding for the firm is 100000, the market value of equity
of the firm as per Walter’s Model for dividend policy is:
a. Rs.69.33 lakh
b. Rs.71.66 lakh
c. Rs.78.70 lakh
d. Rs.80.37 lakh
e. Rs.85.33 lakh
a. Rs.92.84
b. Rs.94.56
c. Rs.95.65
d. Rs.96.88
e. Rs.98.76
Qs.38: Sudarshan plans to buy a Hyundai Santro costing Rs.450000 and goes for a motor
vehicle loan being offered by ICICI Bank. The rules of the bank require him to make a
down payment of Rs.45000. The remaining amount would be financed by them and the
repayment can be done over five years. The interest rate offered by the bank is 12%
compounded monthly. If he accepts this proposal, the equated monthly payment and the
effective annual interest rates respectively are:
a. Rs. 6,750; 12.12%
b. Rs. 8,760; 12.68%
c. Rs. 9,008; 12.68%
d. Rs.10,008; 12.88%
e. Rs.10,567; 12.98%.
The company’s total assets turnover ratio is 3, its fixed operating costs are Rs.100000
and its variable operating cost ratio is 40%. The income-tax rate is 40%. The face value
of the company’s shares is Rs.10. What is the company’s total leverage and if the sales of
the company increase by 45%, the new EPS of the company would be:
a. 1.29; Rs.32.67
b. 1.36; Rs.32.67
c. 1.43; Rs.39.67
d. 1.43; Rs.41.42
e. 1.56; Rs.49.32
a. Rs.945.49
b. Rs.956.39
c. Rs.978.39
d. Rs.987.59
e. Rs.995.29
Qs.42: Projected net capital expenditures and financing decisions are most important as
a component of a firm’s:
a. Factoring agreement
b. Revolving line of credit
c. Blanket lien
d. Uncommitted line of credit
Qs.44: MC Pandey, a bond investor is concerned about price volatility. All else equal,
which of the following fixed-coupon bonds would he most likely buy?
Qs.46: Which of the following is the most appropriate strategy for a fixed income
portfolio manager under the anticipation of an economic expansion?
a. Exchange parity
b. The Law of One price
c. Payoff Parity
d. Arbitrage
Qs.49: Assume that the value of a put option with a strike price of Rs.100 and six months
remaining to maturity is Rs.5. For a stock price of Rs.110 and an interest rate of 6
percent, what is the value of the corresponding call option with the same strike price and
same expiration as the put option. Which of the following is closest to the correct
answer?
a. Rs.11.99
b. Rs.12.74
c. Rs.17.87
d. Rs.15.00
a. Increase Increase
b. Decrease No effect
c. Decrease Decrease
d. Increase No effect