Visvesvaraya Technological University (VTU) 2008-4th Sem M.B.A - - Question Paper

Page No... I MBA4F7
USN r r l L I LL
2002 SCHEME
Fourth Semester MBA Degree exam , July 2007
Business Administration
Risk Management
Time: three hrs.] [Max. Marks:100
Note :1. ans any 4 full ques. from ques. no. ] -7.
2. ques. No.8 is compulsory.
3. Use of Natural logs, ex and e-x table and table of area under
normal curve (Z) permitted.
1 a. What is principle of sub rogation in insurance? (03 Marks)
b. Differentiate ranging from pure and speculative risk. ( 07 Marks)
c. discuss the different principles of insurance contract. ( 10 Marks)
2 a. What is a hedge ratio? How is it determined? ( 03 Marks)
b. Differentiate ranging from short hedge and long hedge. (07 Marks)
c. An investor took short position in 1 futures contract on premium rice at a price of
Rs.22/kg. The size of 1 contract is 1000 kg. The initial margin requirement on this
contract is 12% of the contract value and the maintenance margin is 75% of the initial
margin. The future price for the 1st 8 days are provided beneath. Prepare a margin
account of the investor. All margin calls are met immediately.
Day one - 21.50 Day five - 22.70
Day two - 22.25 Day six - 22.50
Day 3-22.75 Day?-23.75
Day four - 22.40 Day eight - 23.25 (10 Marks)
3 a. What is plain vanilla swap? (03 Marks)
b. elaborate forward contracts and future contracts? discuss the differences ranging from the
two. (07 Marks)
c. An investor has portfolio consisting of 7 securities as shown beneath :
Security Number of
shares
Share price
as on 18-4-2002
Beta
ABN AMRO 4000 1029.75 0.59
CIPLA 5200 208.40 1.32
ICICI Ltd. 6600 61.20 0.87
Infosys 2400 3958.95 0.35
TATA Engg. 5600 308.80 1.16
HIND LEVER 1500 128.05 1.24
Zee telefilm 4000 168.00 1.05
The cost of capital for the investor is provided to be 20% per annum. The investor fears
a fall in the prices of the shares in the near future. Accordingly, he approaches you
for advice. You are needed to;
i) compute the beta of his portfolio.
ii) The May future on BSE Sensex is quoted at 3444.60. Assuming the market lot to
be 100, compute the number of contracts, the investor should short for hedging
his portfolio against falling markets. (10 Marks)
Contd...2
Page No... two MBA4F7
4 a. How interest rate swaps are valued? discuss with an example. (03 Marks)
b. What ww°ill be the pay - off profile for a trader who adopts a strangle provided the data
beneath : (07 Marks)
choice Strike price (Rs.) Premium
Put 1.71 0.10
Call 1.75 0.05
c. A value weighted market index consists of only 5 stocks. The index currently
stands at 1240. The market lot for index futures is 100. a few details regarding the
constituent stocks are provided below:

Earning:   Approval pending.