Advanced Financial Management - May 2015

1. Mr. Careless was employed with ABC Portfolio Consultants. The work profile of Mr. Careless involves advising the clients about taking position in Future Market to obtain hedge in the position they are holding. Mr. ZZZ, their regular client purchased 100,000 shares of X Inc. at a price of $22 and sold 50,000 shares of A plc for $40 each having beta 2. Mr. Careless advised Mr. ZZZ to take short position in Index Future trading at $1,000 each contract.…

2. Mr. X, is a Senior Portfolio Manager at ABC Asset Management Company. He expects to purchase a portfolio of shares in 90 days. However he is worried about the expected price increase in shares in coming day and to hedge against this potential price increase he decides to take a position on a 90-day forward contract on the Index. The index is currently trading at 2290. Assuming that the continuously compounded dividend yield is 1.75% and risk free rate…

3. Sensex futures are traded at a multiple of 50. Consider the following quotations of Sensex futures in the 10 trading days during February, 2014: PAPER - 2: STRATEGIC FINANCIAL MANAGEMENT 63 Day High Low Closing 4-2-14 3306.4 3290.00 3296.50 5-2-14 3298.00 3262.50 3294.40 6-2-14 3256.20 3227.00 3230.40 7-2-14 3233.00 3201.50 3212.30 10-2-14 3281.50 3256.00 3267.50 11-2-14 3283.50 3260.00 3263.80 12-2-14 3315.00 3286.30 3292.00 14-2-14 3315.00 3257.10 3309.30 17-2-14 3278.00 3249.50 3257.80 18-2-14 3118.00 3091.40 3102.60 Abshishek bought one sensex…

4. Sun Ltd. is planning to import equipment from Japan at a cost of 3,400 lakh yen. The company may avail loans at 18 percent per annum with which it can import the equipment. The company has also an offer from Osaka branch of an India based bank extending credit of 180 days at 2 percent per annum against opening of an irrecoverable letter of credit. Additional information: Present exchange rate 2100 = 340 yen 180 day's forward rate 2100…

5. An exporter requests his bank to extend the forward contract for US$ 20,000 which is due for maturity on 31s October, 2014, for a further period of 3 months. He agrees to pay the required margin money for such extension of the contract. Contracted Rate - US$ 1=% 62.32 The US Dollar quoted on 31-10-2014:- Spot - 61.5000/61.5200 3 months’ Discount -0.93% /0.87% Margin money from bank’s point of view for buying and selling rate is 0.45% and 0.20%…

Columbus Surgicals Inc. is based in US, has recently imported surgical raw materials from the UK and has been invoiced for £ 480,000, payable in 3 months. It has also exported surgical goods to India and France. The Indian customer has been invoiced for £ 138,000, payable in 3 months, and the French customer has been invoiced for € 590,000, payable in 4 months. Current spot and forward rates are as follows: £/ US$ Spot: 0.9830 - 0.9850 Three months…

Suppose Mr. A is offered a 10% Convertible Bond (par value = 1,000) which either can be redeemed after 4 years at a premium of 5% or get converted into 25 equity shares currently trading at 33.50 and expected to grow by 5% each year. You are required to determine the minimum price Mr. A shall be ready to pay for bond if his expected rate of return is 11%.

8. The following data is related to 8.5% Fully Convertible (into Equity shares) Debentures issued by JAC Ltd. at = 1000. Market Price of Debenture = 900 Conversion Ratio 30 Straight Value of Debenture = 700 Market Price of Equity share on the date of Conversion 325 Expected Dividend Per Share = PAPER - 2: STRATEGIC FINANCIAL MANAGEMENT 65 You are required to calculate: (a) Conversion Value of Debenture (b) Market Conversion Price (c) Conversion Premium per share (d) Ratio…