6(-)
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Roll Number:
Thapar Institute of Engineering & Technology, Patiala
Department of Computer Science and Engineering
END SEMESTER EXAMINATION
B. E. (Third Year): Semester-VI
Course Code: UCS657
(CSE, COE, COEMBA)
Course Name: Financial and Derivative
Date: 28Th May, 2022
Time: 2 Hours, M. Marks: 35
Markets
Saturday: 11:15 am
Name of Faculty: Dr. Rakesh
Note: (1) Attempt all questions with proper justification and working.
(2) Assume missing data, if any, suitably.
(3) Answers of descriptive questions should be in less than 200 words.
(4) Use of scientific calculator is allowed.
Q1
Calculate the following. Show your working clearly.
(5+2)
FTSE 100, the stock index of the United Kingdom, closed at the
following index values in each of the given years. Based on this
information and ignoring the dividends paid by each constituent
company of FTSE 100, calculate the annual risk and volatility.
Year 2001 = 5217.40, Year 2002 = 3940.40, Year 2003 = 4476.87
Year 2004 = 4814.30, Year 2005 = 5618.76
(ii). You invest 3,00,000 in the shares of Wedding Bells Ltd. After
three months of your purchase, the company announces a dividend
which results in a cash flow of 3,000 for you. Assuming that you
received your dividend immediately, calculate the EAR.
Q2(a)
A businessman/ woman starts a business because he/ she believes in his/ (1*6)
her skill of starting and growing a business. While doing so, he/ she
implicitly accepts the internal risks of the business and believes in his/ her
ability to overcome them. Elaborate the six internal risks.
Q2(b)
Expected return = Risk-free rate +
Q3(a)
What is the meaning and need of diversification? How is diversification (2+2)
different from portfolio creation?
Q3(b)
What is the 'capital market line'? State any of its two features.
(1+2)
Q4
Calculate the following. Show your working clearly.
(4+3)
(i)
. (Fill in the blank space)
(1)
A portfolio comprises 3 assets with following weights (wi),
volatilities (a)) and correlation of returns (pi,j). Find volatility of the
portfolio (o-p).
Weights -' w1 = 30%, w2 = 50%, W3 = 20%
Volatilities —4 o- i = 6%, a2 = 9%, 63 = 10%
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Correlation of returns —) pi2 = 0.4, p13 = 0.6, p23 = 0.7
(ii) Suppose Turbo Jet Ltd. has a beta of 0.50 and the risk-free rate of
return is 4%. If the expected return of the market portfolio is 10%,
calculate the expected return of Turbo Jet Ltd., as per CAPM.
Q5
Calculate the following. Show your working clearly.
(1)
(4+3)
Mathematically prove that multiple combinations of any portfolio
on a given efficient frontier and a given risk-free asset would form a
line when plotted on a risk-return scatter plot.
(ii) Suppose the risk-free return is 4% and the market portfolio has an
expected return of 10% and a volatility of 16%. Shares of Happy
Feet Ltd. have a 26% volatility and a correlation of 0.33 with the
market. Calculate the beta for Happy Feet. What CML portfolio will
have its beta equivalent to the beta of Happy Feet?.
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