Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis – I - Question Paper

= 147.33 – 41.67 = 105.66.

Therefore, choice (c) is the accurate ans.
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20.
Answer: (b)

Reason: Statement (b) is false. truly YTM is measured by comparing the current value of coupon payments and redemption of the bond by the issuer at a contracted value and not the value at which it is sold to the prevailing market price.

All other statements are actual.

Therefore, choice (b) is the accurate ans.
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21.
Answer: (c)

Reason: choice (c) Is the accurate ans. An increase in the tax rate on business profits would make investment in capital less profitable, reducing the demand for loanable funds to invest in capital.

An increase in the interest rate would reason a movement along the demand curve for loanable funds.

An increase in the tax on interest income would reason the supply of loanable funds to reduce.

While an increase in real GDP and increase in corporate earnings would reason both the supply of and demand for loanable funds to increase.

Therefore, choice (c) is the accurate ans.
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22.
Answer: (a)

Reason:

Purchase price

Imputed interest income in the 2nd year



Imputed interest income of the last year



Therefore, choice (a) is the accurate ans.
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23.
Answer: (d)

Reason: The holding period at which the terminal value of the bond will remain identical irrespective of the change in the reinvestment rate can be defined as duration.

computation for duration is as follows: (Assume Reinvestment rate of 12.5%.)

D =



=

= 4.

Therefore, choice (d) is the accurate ans.
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24.
ans : (b)

cause : Statement I, II and IV are accurate with respect to KRD. The major drawback of effective duration measure is that it is computed based on the assumption of parallel shifts in the yield curve. To overcome this an option measure used for various kinds of yield curve shifts is ”Key Rate Duration” popularly referred to as KRD.
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25.
ans : (e)

cause : A call choice is stated to be in-the-money, if the market price of the underlying asset is greater than the strike price. A put choice is stated to be in the money, if the strike price is greater than the market price of the underlying asset. So all choices other than A are not in the money and the ans is (e).

Earning:   Approval pending.