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

8.23
3.98
2.70
2.02




From the above table we can say that as the maturity of the bond increases the yield curve is also increasing albeit at a slower rate.

c. The issuer (LBL) has 4 European styles call choices with the identical exercise dates and exercise prices as the put choices. Actually, this bond with all its 8 embedded choices can be valued quite simply without using any option-pricing model at all. An important relationship known as the put-call parity implies that this bond is truly nothing but a simple discount bond with a maturity value of Rs 5000 at the end of five years. This is because the bond will be extinguished on that date either by the investors exercising their put choice or by the issuer exercising its call choice. Whatever the yield curve may look like at the end of five year, 1 of these 2 choices will be worth exercising.

< TOP >

4. a.

Buy Qty
Buy Price
Sell Price
Sell Qty

1760
187.80
188.00
6824

4570
187.75
188.05
1

12
187.70
188.10
541

250
187.60
188.15
1

26009
187.55
188.20
1011


b. 1. This order will be executed against the price of Rs.188.00

2. This order will be executed as follows:

· 1760 shares against the price of Rs.187.80

· 240 shares against the price of Rs.187.75

3. This transaction will remain in the order book till the price is matched

4. This transaction will remain in the order book till the price is matched

5. This order will be executed as follows:

· 4824 shares against the price of Rs.188.00

· one shares against the price of Rs.188.05

· 541 shares against the price of Rs.188.10

· one shares against the price of Rs.188.15

· 500 shares against the price of Rs.188.15 (This is with respect to the limit order in transaction no.4)

· 133 shares against the price of 188.20

6. This transaction will be executed as follows:

· 4330 shares against the price of Rs.187.75

· 5670 shares against the price of Rs.187.70

7. This transaction will remain in the order book till the price is matched

8. This transaction will remain in the order book till the price is matched

Earning:   Approval pending.