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

Forward rate after 2 year




< TOP >

22.
Answer: (b)

Reason: All the choices are false other than choice (b). In this company can exercise call choice and not the investor. Thus choice (e) is false. Investor will not exercise the put option, as return he is earning is greater than true market return. Thus choice (c) is false. Coupon rate will not change and thus choice (a) is false. Duration will infact increase, as reinvestment rate has decreased, thus choice (d) is also false.

Therefore, choice (b) is the accurate ans.
< TOP >

23.
Answer: (e)

Reason: Default risk of the bond can be best defined by the credit rating of the bond.

Therefore, choice (e) is the accurate ans.
< TOP >

24.
ans : (d)

cause : For perfect immunization term-structure should not be upward sloping but it should be flat. All other conditions are actual with respect to perfect immunization.

Therefore, choice (d) is the accurate ans.
< TOP >

25.
ans : (c)

cause : The maximum possible gain per share when spot price exceeds strike price of Rs.55 is (55 – 50 + 2) = Rs.7.
< TOP >

26.
ans : (d)

cause : Futures margin depend on the price volatility of the underlying asset. Exchanges generally set this margin equal to m + three s then m is the avg. daily absolute change in the value of contract and s is standard deviation of these modifications over a period of time. Hence only (I) and (III) are accurate and therefore (d) is the ans.
< TOP >

27.
ans : (e)

cause : All the statements are accurate with respect the pricing of the warrant. Therefore, choice (e) is the accurate ans.
< TOP >

28.
Answer: (b)

Reason: choice adjusted duration



Therefore, choice (b) is the accurate ans.
< TOP >

29.
ans : (a)

cause :

Property
Net Operating Income (p.a.) (Rs.)
Market Value (Rs.)
NOI/Market Value (%)

House No. 1
18,000
3,50,000
5.14%

House No. 2
20,000
3,65,000
5.48%

House No. 3
24,000
3,95,000
6.08%

Earning:   Approval pending.