Advanced Financial Management - May 2023 RTP

From the following information, compute the effective rate of interest per annum as well as the total cost of funds to Nirmal Ltd., which is planning a Commercial Paper (CP) issue: Issue Price of CP ` 4,87,750 Face Value ` 5,00,000 Maturity Period 3 Months Issue Expenses:

The following data are available for a bond: Face Value ` 10,000 to be redeemed at par on maturity Coupon rate 8.5 per cent per annum Years to Maturity 5 years Yield to Maturity (YTM) 10 per cent You are required to calculate: (i) Current market price of the Bond, (ii) Macaulay’s Duration, (iii) Volatility of the Bond, (iv) Convexity of the Bond, (v) Expected market price if there is a decrease in the YTM by 200 basis points (a)…

Ramesh has identified stocks of two companies A and B having good investment potential: Following data is available for these stocks: A (Market Price per Share in `) B (Market Price per Share in 2013 19.60 8.70 2014 18.75 12.80 2015 2016 33.42 42.64 16.20 18.25 2017 2018 43.25 44.60 15.60 13.25 2019 34.75 18.60 You are required to calculate: (i) The Risk and Return by investing in Stock A and B (ii) The Risk and Return by investing in…

Following information is available in respect of expected dividend, market price and market condition after one year. Market condition Probability Market Price Dividend per share 0.25 115 9 Normal 0.50 107 5 0.25 97 3 The existing market price of an equity share is ` 106 (F.V. ` 1), which is cum 10% bonus debenture of ` 6 each, per share. M/s. X Finance Company Ltd. had offered the buyback of debentures at face value. Find out the expected return…

M/S. Corpus an AMC, on 1.04.2015 has floated two schemes viz. Dividend Plan and Bonus Plan. Mr. X, an investor has invested in both the schemes. The following details (except the issue price) are available: Dividend (%) 1.04.2015 31.12.2016 Bonus Ratio Dividend Plan Bonus Plan 47 40 1 :4 (One unit on 4 units held) 31.03.2017 12 48 42 31.03.2018 10 50 39 46 43 45 42 49 44 31.12.2018 1 :5 (One unit on 5 units held) 31.03.2019 15…

A two year tree for a share of stock in ABC Ltd., is as follows: 6.40 4 Consider a two years American call option on the stock of ABC Ltd., with a strike price of ` 98. The current price of the stock is ` 100. Risk free return is 5 per cent per annum with a continuous compounding and e 0·05 = 1.05127. Assume two time periods of one year each. Using the Binomial Model, calculate: (i) The probability…

Shyam buys 10,000 shares of X Ltd., @ ` 25 per share and obtains a complete hedge of shorting 400 Nifty at ` 1,100 each. He closes out his position at the closing price of the next day when the share of X Ltd., has fallen by 4% and Nifty Future has dropped by 2.5%. What is the overall profit or loss from this set of transaction? Foreign Exchange Exposure & Risk Management

XYZ has taken a six-month loan from its foreign collaborator for USD 2 millions. Interest is payable on maturity @ LIBOR plus 1%. The following information is available: Spot Rate INR/USD 68.5275 6 months Forward rate INR/USD 68.4575 6 months LIBOR for USD 2% 6 months LIBOR for INR 6% You are required to : (i) Calculate Rupee requirements if forward cover is taken. (ii) Advise the company on the forward cover. What will be your opinion if spot rate…