Advanced Financial Management - May 2025 RTP

Mr. B is a rational risk taker. He takes his position in a single stock for 4 days in a week. He does not take a position on Friday to avoid weekend effect and takes position only for four days in a week i.e. Monday to Thursday. He transfers the amount on Monday morning and withdraws the balance on Friday morning. He desires to take a maximum exposure in the single stock (not the portfolio) where Value at Risk (VAR)…

P Ltd. is planning to borrow an amount of ` 60 crores for a period of 3 months in the coming 6 month's time from now. The current rate of interest is 9% p.a., but it is likely to go up in 6 month’s time. The company wants to hedge itself against the likely increase in interest rate. You as CFO has been asked to suggest both traditional as well as modern methods to hedge interest rate risk. Suppose the…

AB Ltd.'s equity shares are presently selling at a price of ` 500 each. An investor is interested in purchasing AB Ltd.'s shares. The investor expects that there is a 70% chance that the price will go up to ` 650 or a 30% chance that it will go down to ` 450, three months from now. There is a call option on the shares of the firm that can be exercised only at the end of three months at…

ABC, a large business house is planning to sell its wholly owned subsidiary KLM. Another large business entity XYZ has expressed its interest in making a bid for KLM. XYZ expects that after acquisition the annual earning of KLM will increase by 10%. Following information, ignoring any potential synergistic benefits arising out of possible acquisitions, are available: 5 (i) Profit after tax for KLM for the financial year which has just ended is estimated to be ` 10 crore. (ii)…

Omega Electronics Ltd. exports air conditioners to Germany by importing all the components from Singapore. The company is exporting 2,400 units at a price of Euro 500 per unit. The cost of imported components is S$ 800 per unit. The fixed cost and other variables cost per unit are ` 1,000 and ` 1,500 respectively. The cash flows in Foreign currencies are due in six months. The current exchange rates are as follows: `/Euro `/S$ 6 51.50/55 27.20/25 MAY 2025…

A firm has an investment proposal, requiring an outlay of ` 12 crore. The investment proposal is expected to have two years economic life with no salvage value. In year 1, there is a 0.7 probability that cash inflow after tax will be ` 7.50 crore and 0.3 probability that cash inflow after tax will be ` 9 crore. The probability assigned to cash inflow (after tax) for the year 2 corresponding to the year / Cash Inflow is as…

Carryout all calculations in ` crore & round off them upto 2 decimal points. MAY 2025 EXAMINATION REVISION TEST PAPER ADVANCED FINANCIAL MANAGEMENT Portfolio Management