MFE 21
II Semester M.B.A. (FE) Examination, December 2011/January 2012
THE DERIVATIVES (Financial and Commodity)
(Old)
Time: 3 Hours
Max. Marks: 80
SECTION –A
(5×2 = 10)
1. Answer all questions. Each question carries two marks.
a. Distinguish between the long forward position and short forward position.
b. Give some reason for the growth of derivatives worldwide.
c. Difference between European Option and American Option.
d. Define Put Call Parity.
e. What is Carry-Pricing Model?
SECTION – B
(5×7 = 35)
Answer any five question. Each question carries 7 marks.
2. Enumerate different types of derivatives.
3. Describe the method of initiating trades and order flow for a futures contract.
4. What is a hedge ration? How is it determined?
5. Compare and contract between forward and future contracts with suitable
examples.
6. How is the value of an option with time to expiration determined? What are the
various factors affecting option prices?
7. What do you understand by the term interest rates?
8. What are the assumptions made in the valuation of forwards?
9. Explain reasons for buying a stock option.
SECTION – C
(2×10 = 20)
MFE21
Answer any two questions. Each question carries 10 marks.
10. “Options are highly leveraged instruments”. Do you agree? Explain.
11. Discuss various characteristic features of future contracts. “What is the role of
clearing corporation in trading of such contracts?
12. Then shares of Ganesh Chemicals are traded at Rs. 280 in the market. The
company is expected to pay dividends of Rs.5 and Rs. 8 three months and six
months from now. What would be the price of a nine-month futures contract on
this share? After five months, if the shares were traded at Rs. 292, what would
be the value of this contract? Also compute the new futures price. The risk free
rate of interest continuously. Compounded is 10% per annum.
SECTION – D
(1×15 = 15)
Answer any one question. Question carries 15 marks.
13. Discuss various factors affecting prices of options. Also indicate how each of
these would affect the price of:
a. Call option
b. Put option.
14. The current price of a share is Rs. 50 and it is believed that at the end of one
month the price will be either Rs. 55 or Rs. 45. What will a European call option
with an exercise price of Rs. 53 on this share be valued at, if the risk free rate of
interest is 15% p.a? Also calculate the hedge ratio.
MFE 22
II Semester M.B.A. (FE) Examination, Dec. 2011/Jan.2012
FUNDAMENTALS OF FINANCIAL ECONOMICS
(Old)
Time: 3 Hours
Max. Marks: 80
SECTION- A
Answer all questions. Each question carries two marks.
1. a)
(5×2=10)
Are the markets complete?
b)
What is the risk free rate of interest?
c)
Define an efficient portfolio.
d)
What is absolute risk premium?
e)
What are puzzles?
SECTION- B
Answer any five questions. Each question carries 7 marks:
(5×7=35)
2. What is the Arrow-Pratt approximation of the risk premium?
3. Explain Vasicek Model.
4. Discuss Black-Derman-Toy Model.
5. Write a note on factors effecting premiums.
6. State the assumptions of two-period Binomial Model.
7. Explain continuous time model.
8. Explain classic capital asset pricing model.
SECTION- C
Answer any two questions. Each question carries 10 marks:
9. Discuss infinite horizon economics.
10. Discuss tacking the puzzles.
11. Explain Itô’s Lemma.
(2×10=20)
12. Explain the types of property loss exposures.
SECTION- D
Answer any one question. Each question carries 15 marks:
(1×15=15)
13. Derive the arbitrage free price of the call using Put-Call-Parity.
14. Explain two-period Binomial Model.
______________
MFE 23
II Semester M.B.A. (FE) Examination, December 2011/January 2012
ACCOUNTING AND TAXATION ASPECTS OF DERIVATIVES (Old)
Time : 3 Hours
Max. Marks : 80
SECTION – A
Answer all questions. Each question carries two marks.
(5×2=10)
1. a) What is Vega?
b) Define put call parity.
c) What do you mean by speculation?
d) Explain risk free hedging.
e) What is a short hedge?
SECTION – B
Answer any five questions. Each question carries 7 marks.
2. What are the tax liabilities of unit holders of mutual fund?
3. State the assumptions of BSOPM.
4. Discuss the functions of clearing corporations.
5. Explain the revenues and expenses of stock broking firms.
6. Explain how income of mutual fund is computed.
7. Write a note on forward rate agreement.
8. How buyback of shares accounted?
(5×7=35)
SECTION – C
Answer any two questions. Each question carries 10 marks.
(2×10=20)
9. Explain the process of book building process.
10. Explain off-balance sheet financing.
11. Discuss the Dutch auction method of allotment.
12. Explain the methods of option pricing techniques.
SECTION – D
Answer any one question. Question carries 15 marks.
13. Explain the working of clearing corporations.
14. Explain how the currency fluctuation is managed.
(1×15=15)
MFE 24
II Semester M.B.A. (FE) Examination, Dec. 2011/Jan. 2012
FINANCIAL MATHEMATICS
(Old)
Time : 3 Hours
Max. Marks : 80
SECTION – A
Answer all questions. Each question carries two marks.
(5×2=10)
1. a) List any three reasons for buying a stock option.
b) What is a naked call?
c) What are the different types of financial SWAPs?
d) Define European option.
e) How vertical spread is created?
SECTION – B
Answer any five questions. Each question carries 7 marks.
(5×7=35)
2. Bring out the arguments in favour and against hedging.
3. Dist. b/w forwards and future contracts.
4. How can the companies cover their position by using currency future market?
5. What is forward rate agreement?
6. Explain why forward interest rates are less than future interest rate.
7. Describe the short and a long hedge.
8. Explain how butterly spread is created.
SECTION – C
Answer any two questions. Each question carries 10 marks.
(2×10=20)
9. “Forward contracts are zero-sum games.” Explain. Also give the differences between
the delivery price and forward price.
10. Suppose you want to buy a call option with strike price Rs. 42/$ and you expect the
following spot rates with their probabilities.
Rs/$
40.00 41.50 43.00 44.50 46.00
Probability
0.15
0.25
0.30
0.20
0.10
11. Explain Martingale representation theorem.
12. Calculate the forward price on a 6 months contract on a share, expected to pay no
dividend during the period, which is available at Rs. 75, given that the risk free rate
of interest be 8% p.a. compounded continuosly.
SECTION – D
Answer any one question. Question carries 15 marks.
(1×15=15)
13. The current price of a share is Rs. 50 and it is believed that at end of one month the
price will be either Rs. 55 or Rs. 45. What will a European call option with and
exercise price of Rs. 53 on this share be valued at, if the risk free rate of interest is
15% per annum? Also calculate ration, applying binominal formulation.
14. The following information is available.

Current stock price Rs. 225

Strike price Rs. 245

The continuosly compounded interest rate is 13% per annum

Volatility of interest rate is 4%

Duration of option 5 months.
Using the Black and Scholes Model, determine option delta, gamma, vega, theta
and rho.