Download GTU (Gujarat Technological University) MBA (Master of Business Administration) 2016 Summer 4th Sem 2840202 Risk Management Previous Question Paper

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA ? SEMESTER IV ? EXAMINATION ? SUMMER 2016

Subject Code: 2840202 Date: 07/05/2016

Subject Name: Risk Management

Time: 10.30 am to 1.30 pm Total Marks: 70

Instructions:

1. Attempt all questions.

2. Make suitable assumptions wherever necessary.

3. Figures to the right indicate full marks.

Q.1

(A)

From the four alternative answers given against each of the following cases,

indicate the correct answer: (just state A, B, C or D)

06

1. Which of the following is the world?s oldest derivative exchange commence

Future Trading?

A. Chicago Mercantile Exchange

(CME)

B. Chicago Board of Trade (CBOT)

C. LIFFE, England D. TIFFE, Japan

2. Recently (in July,2015) SEBI has decided to increase the minimum lot value in

equity derivative to --

A. Rs.2 lakh B. Rs.3 lakh

C. Rs.4 lakh D. Rs.5 lakh

3. The BEP point for a Put Option with an exercise price of Rs.100 and a premium

of Rs.4 is ---

A. Rs.104 B. Rs.96

C. Rs.100 D. Rs.108

4. An investor expects a significant change in the market but not sure about its

direction. He should use ---

A. Bull Spread B. Box Spread

C. Butterfly Spread D. Straddle

5. Which of the following is the part of Exotic Options?

A. Binary Option B. Call Option

C. Put Option D. All of the above

6. A trader enters into a one year forward contract to sell an asset for Rs.60 when

the spot price is Rs.58. The spot price in one year proves to be Rs.64. What is

the trader?s gain or loss?

A. Gain of Rs.4 B. Loss of Rs.4

C. Gain of Rs.6 D. Loss of Rs.6

Q.1 (b) Explain the following term with appropriate example. 04

i) Open Interest and Volume

ii) Cross Hedging

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Page 1 of 4

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA ? SEMESTER IV ? EXAMINATION ? SUMMER 2016

Subject Code: 2840202 Date: 07/05/2016

Subject Name: Risk Management

Time: 10.30 am to 1.30 pm Total Marks: 70

Instructions:

1. Attempt all questions.

2. Make suitable assumptions wherever necessary.

3. Figures to the right indicate full marks.

Q.1

(A)

From the four alternative answers given against each of the following cases,

indicate the correct answer: (just state A, B, C or D)

06

1. Which of the following is the world?s oldest derivative exchange commence

Future Trading?

A. Chicago Mercantile Exchange

(CME)

B. Chicago Board of Trade (CBOT)

C. LIFFE, England D. TIFFE, Japan

2. Recently (in July,2015) SEBI has decided to increase the minimum lot value in

equity derivative to --

A. Rs.2 lakh B. Rs.3 lakh

C. Rs.4 lakh D. Rs.5 lakh

3. The BEP point for a Put Option with an exercise price of Rs.100 and a premium

of Rs.4 is ---

A. Rs.104 B. Rs.96

C. Rs.100 D. Rs.108

4. An investor expects a significant change in the market but not sure about its

direction. He should use ---

A. Bull Spread B. Box Spread

C. Butterfly Spread D. Straddle

5. Which of the following is the part of Exotic Options?

A. Binary Option B. Call Option

C. Put Option D. All of the above

6. A trader enters into a one year forward contract to sell an asset for Rs.60 when

the spot price is Rs.58. The spot price in one year proves to be Rs.64. What is

the trader?s gain or loss?

A. Gain of Rs.4 B. Loss of Rs.4

C. Gain of Rs.6 D. Loss of Rs.6

Q.1 (b) Explain the following term with appropriate example. 04

i) Open Interest and Volume

ii) Cross Hedging

Page 2 of 4

iii) Stack and Rolling Hedge

iv) Money-ness of Put Option

(c) ?Futures contracts are improvised forward contracts.? Do you agree with

the statement ? Explain the statement in the light of difference between

forward and future contract.

04

Q.2 (a) Using the following data, prepare the margin account of the investor.

Assume that if a margin call is made at any time, the investor would

deposit the amount called for.

Position : Short

Contract Size : 500 units

Unit Price : Rs.22

No. of contracts : 8

Initial Margin : 12 %

Maintenance Margin : 3/4ths of Initial margin

Date of Contract : June 3

Closing Prices :

Date

June

4

June

5

June

6

June

7

June

10

June

11

June

12

Price 22.30 23.10 22.90 23.00 23.15 22.85 22.95

07

(b) Define Option Contract. Explain the different factors that affect the price

of an option.

07

OR

(b) From the following data, calculate the value of call option using Black and

Scholes model and put option using put-call parity relationship:

Current price of the share = Rs.486

Exercise price = Rs.500

Time to expiration (Assume 365 days in a year)= 65 days

Standard Deviation = 0.54

Continuously compounded rate of interest = 9%

07

Q.3 (a) In the recent past i.e. February and March 2016, the equity market faced

high volatility. But after this mayhem in equity market, an investor now

expects that the market is likely to remain stable in near future and hence the

stocks. The following information is available on call options, with two

months expiration date, on a stock:

Call Exercise Price Call Price

1 50 8.00

2 55 4.50

3 60 2.00

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Page 1 of 4

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA ? SEMESTER IV ? EXAMINATION ? SUMMER 2016

Subject Code: 2840202 Date: 07/05/2016

Subject Name: Risk Management

Time: 10.30 am to 1.30 pm Total Marks: 70

Instructions:

1. Attempt all questions.

2. Make suitable assumptions wherever necessary.

3. Figures to the right indicate full marks.

Q.1

(A)

From the four alternative answers given against each of the following cases,

indicate the correct answer: (just state A, B, C or D)

06

1. Which of the following is the world?s oldest derivative exchange commence

Future Trading?

A. Chicago Mercantile Exchange

(CME)

B. Chicago Board of Trade (CBOT)

C. LIFFE, England D. TIFFE, Japan

2. Recently (in July,2015) SEBI has decided to increase the minimum lot value in

equity derivative to --

A. Rs.2 lakh B. Rs.3 lakh

C. Rs.4 lakh D. Rs.5 lakh

3. The BEP point for a Put Option with an exercise price of Rs.100 and a premium

of Rs.4 is ---

A. Rs.104 B. Rs.96

C. Rs.100 D. Rs.108

4. An investor expects a significant change in the market but not sure about its

direction. He should use ---

A. Bull Spread B. Box Spread

C. Butterfly Spread D. Straddle

5. Which of the following is the part of Exotic Options?

A. Binary Option B. Call Option

C. Put Option D. All of the above

6. A trader enters into a one year forward contract to sell an asset for Rs.60 when

the spot price is Rs.58. The spot price in one year proves to be Rs.64. What is

the trader?s gain or loss?

A. Gain of Rs.4 B. Loss of Rs.4

C. Gain of Rs.6 D. Loss of Rs.6

Q.1 (b) Explain the following term with appropriate example. 04

i) Open Interest and Volume

ii) Cross Hedging

Page 2 of 4

iii) Stack and Rolling Hedge

iv) Money-ness of Put Option

(c) ?Futures contracts are improvised forward contracts.? Do you agree with

the statement ? Explain the statement in the light of difference between

forward and future contract.

04

Q.2 (a) Using the following data, prepare the margin account of the investor.

Assume that if a margin call is made at any time, the investor would

deposit the amount called for.

Position : Short

Contract Size : 500 units

Unit Price : Rs.22

No. of contracts : 8

Initial Margin : 12 %

Maintenance Margin : 3/4ths of Initial margin

Date of Contract : June 3

Closing Prices :

Date

June

4

June

5

June

6

June

7

June

10

June

11

June

12

Price 22.30 23.10 22.90 23.00 23.15 22.85 22.95

07

(b) Define Option Contract. Explain the different factors that affect the price

of an option.

07

OR

(b) From the following data, calculate the value of call option using Black and

Scholes model and put option using put-call parity relationship:

Current price of the share = Rs.486

Exercise price = Rs.500

Time to expiration (Assume 365 days in a year)= 65 days

Standard Deviation = 0.54

Continuously compounded rate of interest = 9%

07

Q.3 (a) In the recent past i.e. February and March 2016, the equity market faced

high volatility. But after this mayhem in equity market, an investor now

expects that the market is likely to remain stable in near future and hence the

stocks. The following information is available on call options, with two

months expiration date, on a stock:

Call Exercise Price Call Price

1 50 8.00

2 55 4.50

3 60 2.00

Page 3 of 4

You are requested to suggest appropriate strategy with the help of the above

data. Also, construct a table to show how profit/loss would vary with the

stock price if it is (i) Rs.46, (ii) Rs.54 ,(iii) Rs.58 and (iv) Rs.67.

(b) Selan Exploration needs 1075 barrels of crude oil in the month of July

whereas the current price of crude oil is Rs.3000 per barrel at the end of

January month. July futures contract at MCX is trading at Rs.3200. The firm

expects the price to go up further and beyond Rs.3200 in July. It has the

option of buying the stock now or it can hedge through futures contract.

Assume the size of futures contract is 100 barrels.

a. If the cost of capital, insurance and storage is 15% continuously

compounding, examine if it is beneficial for the firm to buy now?

b. If the firm decides to hedge through futures, find out the effective price

it would pay for crude oil if at the time of lifting the hedge (i) the spot and

futures price are Rs.2900 and Rs2910 respectively and (ii) the spot and

futures price are Rs.3300 and Rs.3315 respectively.

07

OR

Q.3 (a) A stock is currently trading at Rs.50. It can either go up by 20% or fall by

20% in a period of three months. If the risk-free interest rate is 8%

continuously compounded, find the value of a call with an exercise price of

Rs.45 and maturity of six months using the risk-neutral method under the

binomial model for two periods.

07

(b) ABC Ltd. has invested Rs.50 crore in market-linked securities, providing

them with a current return of 8%, with current MIBOR at 7.50%. Of late,

yields in the market have started falling, adversely affecting income of the

company. The company has to protect their income and hence HDFC Bank

has offered a 3-year MIBOR based swap with rates at 7.30%-7.40%. Should

ABC Ltd. accept the swap, what income can they lock-in for the next three

years? What would be the advantage of Swap? Show the Swap arrangement.

07

Q.4 (a) Explain put-call parity relationship.

07

(b) Suppose that a call option involving 100 shares is selling for Rs.5.25 at

maturity when the share price is Rs.64 and exercise price is Rs.60. Is

arbitrageur can make any profit from the given scenario?

07

OR

Q.4 (a) Three zero coupon bonds X, Y and Z each having a face value of Rs.100

maturing after one, two and three years respectively are trading at Rs.95.43,

Rs.90.68 and Rs.85.04 respectively.

(i) Find out the yield offered by each of the bonds.

(ii) What forward rates of interest would you expect for (a) a one year and a

two year investment after one year and (b) a one year investment after

two years?

07

(b) A future contract on 200 shares, currently trading at Rs.112 per share, is due

in 45 days. If the annual risk-free rate of interest is 9% continuously

07

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Page 1 of 4

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA ? SEMESTER IV ? EXAMINATION ? SUMMER 2016

Subject Code: 2840202 Date: 07/05/2016

Subject Name: Risk Management

Time: 10.30 am to 1.30 pm Total Marks: 70

Instructions:

1. Attempt all questions.

2. Make suitable assumptions wherever necessary.

3. Figures to the right indicate full marks.

Q.1

(A)

From the four alternative answers given against each of the following cases,

indicate the correct answer: (just state A, B, C or D)

06

1. Which of the following is the world?s oldest derivative exchange commence

Future Trading?

A. Chicago Mercantile Exchange

(CME)

B. Chicago Board of Trade (CBOT)

C. LIFFE, England D. TIFFE, Japan

2. Recently (in July,2015) SEBI has decided to increase the minimum lot value in

equity derivative to --

A. Rs.2 lakh B. Rs.3 lakh

C. Rs.4 lakh D. Rs.5 lakh

3. The BEP point for a Put Option with an exercise price of Rs.100 and a premium

of Rs.4 is ---

A. Rs.104 B. Rs.96

C. Rs.100 D. Rs.108

4. An investor expects a significant change in the market but not sure about its

direction. He should use ---

A. Bull Spread B. Box Spread

C. Butterfly Spread D. Straddle

5. Which of the following is the part of Exotic Options?

A. Binary Option B. Call Option

C. Put Option D. All of the above

6. A trader enters into a one year forward contract to sell an asset for Rs.60 when

the spot price is Rs.58. The spot price in one year proves to be Rs.64. What is

the trader?s gain or loss?

A. Gain of Rs.4 B. Loss of Rs.4

C. Gain of Rs.6 D. Loss of Rs.6

Q.1 (b) Explain the following term with appropriate example. 04

i) Open Interest and Volume

ii) Cross Hedging

Page 2 of 4

iii) Stack and Rolling Hedge

iv) Money-ness of Put Option

(c) ?Futures contracts are improvised forward contracts.? Do you agree with

the statement ? Explain the statement in the light of difference between

forward and future contract.

04

Q.2 (a) Using the following data, prepare the margin account of the investor.

Assume that if a margin call is made at any time, the investor would

deposit the amount called for.

Position : Short

Contract Size : 500 units

Unit Price : Rs.22

No. of contracts : 8

Initial Margin : 12 %

Maintenance Margin : 3/4ths of Initial margin

Date of Contract : June 3

Closing Prices :

Date

June

4

June

5

June

6

June

7

June

10

June

11

June

12

Price 22.30 23.10 22.90 23.00 23.15 22.85 22.95

07

(b) Define Option Contract. Explain the different factors that affect the price

of an option.

07

OR

(b) From the following data, calculate the value of call option using Black and

Scholes model and put option using put-call parity relationship:

Current price of the share = Rs.486

Exercise price = Rs.500

Time to expiration (Assume 365 days in a year)= 65 days

Standard Deviation = 0.54

Continuously compounded rate of interest = 9%

07

Q.3 (a) In the recent past i.e. February and March 2016, the equity market faced

high volatility. But after this mayhem in equity market, an investor now

expects that the market is likely to remain stable in near future and hence the

stocks. The following information is available on call options, with two

months expiration date, on a stock:

Call Exercise Price Call Price

1 50 8.00

2 55 4.50

3 60 2.00

Page 3 of 4

You are requested to suggest appropriate strategy with the help of the above

data. Also, construct a table to show how profit/loss would vary with the

stock price if it is (i) Rs.46, (ii) Rs.54 ,(iii) Rs.58 and (iv) Rs.67.

(b) Selan Exploration needs 1075 barrels of crude oil in the month of July

whereas the current price of crude oil is Rs.3000 per barrel at the end of

January month. July futures contract at MCX is trading at Rs.3200. The firm

expects the price to go up further and beyond Rs.3200 in July. It has the

option of buying the stock now or it can hedge through futures contract.

Assume the size of futures contract is 100 barrels.

a. If the cost of capital, insurance and storage is 15% continuously

compounding, examine if it is beneficial for the firm to buy now?

b. If the firm decides to hedge through futures, find out the effective price

it would pay for crude oil if at the time of lifting the hedge (i) the spot and

futures price are Rs.2900 and Rs2910 respectively and (ii) the spot and

futures price are Rs.3300 and Rs.3315 respectively.

07

OR

Q.3 (a) A stock is currently trading at Rs.50. It can either go up by 20% or fall by

20% in a period of three months. If the risk-free interest rate is 8%

continuously compounded, find the value of a call with an exercise price of

Rs.45 and maturity of six months using the risk-neutral method under the

binomial model for two periods.

07

(b) ABC Ltd. has invested Rs.50 crore in market-linked securities, providing

them with a current return of 8%, with current MIBOR at 7.50%. Of late,

yields in the market have started falling, adversely affecting income of the

company. The company has to protect their income and hence HDFC Bank

has offered a 3-year MIBOR based swap with rates at 7.30%-7.40%. Should

ABC Ltd. accept the swap, what income can they lock-in for the next three

years? What would be the advantage of Swap? Show the Swap arrangement.

07

Q.4 (a) Explain put-call parity relationship.

07

(b) Suppose that a call option involving 100 shares is selling for Rs.5.25 at

maturity when the share price is Rs.64 and exercise price is Rs.60. Is

arbitrageur can make any profit from the given scenario?

07

OR

Q.4 (a) Three zero coupon bonds X, Y and Z each having a face value of Rs.100

maturing after one, two and three years respectively are trading at Rs.95.43,

Rs.90.68 and Rs.85.04 respectively.

(i) Find out the yield offered by each of the bonds.

(ii) What forward rates of interest would you expect for (a) a one year and a

two year investment after one year and (b) a one year investment after

two years?

07

(b) A future contract on 200 shares, currently trading at Rs.112 per share, is due

in 45 days. If the annual risk-free rate of interest is 9% continuously

07

Page 4 of 4

compounded, calculate the value of the contract price if a dividend of Rs.4

per share is expected to be paid in 25 days before the due date?

Q.5 A firm had issued 10-year bonds worth Rs 10 crore at fixed coupon of 12%

payable annually. The coupon was consistent with the yield prevailing at the

time of the issue. Since then the yield has fallen and the bond has 5 years

remaining for maturity.

Swap rate offered by the bank is 9.00% - 9.20% against floating rate based

on MIBOR.

Depict the swap arrangement of the firm with the bank and find out the cost

of the bond after the swap is entered.

14

OR

Q.5 From the following data,

(i) Obtain the call option value based on Black & Scholes? formulation [2]

(ii) Obtain the value of put option using put call parity relationship. [2]

(iii) Calculate the value of the following Greek letters. [10]

1. Delta

2. Gamma

3. Theta

4. Rho

5. Vega

Stock price = Rs.120

Exercise price = Rs.115

Time to expiration = 3 months

Standard deviation of the continuously

Compounded rate of return on stock = 0.60

Continuously compounded rate of return = 10%

14

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This post was last modified on 19 February 2020