Question 2 MCQ · 2.0 marks
If the nominal interest rate is 15.5% and the expected inflation rate is 10.2%, the real interest rate
is 27.3%.
- True
- False
A published solution is not available for this question yet.
ms3034_2026T1_ET_FN.pdf
Corporate Finance · End Term · Jan 2026 FN
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Questions and published explanations below are available without starting a test. Some questions may not have a published solution yet.
Question 3 MCQ · 2.0 marks
An upward-sloping yield curve indicates that long-term interest rates are lower than short-term
interest rates.
- True
- False
A published solution is not available for this question yet.
Question 4 MCQ · 2.0 marks
If the exchange rate changes from 90 Rupees per Dollar to 95 Rupees per Dollar, then the Rupee
has depreciated, and it buys fewer American goods.
- True
- False
A published solution is not available for this question yet.
Question 5 MCQ · 2.0 marks
An American call option gives the holder the right to sell the underlying asset at the strike price
only on the expiry date.
- True
- False
A published solution is not available for this question yet.
Question 6 MCQ · 2.0 marks
A bank’s leverage ratio is defined as the ratio of its liabilities to its total assets.
- True
- False
A published solution is not available for this question yet.
Question 7 MCQ · 2.0 marks
Reserve requirements and deposit insurance are governance tools to develop safeguards against
banking collapse.
- True
- False
A published solution is not available for this question yet.
Question 8 MCQ · 2.0 marks
If an investor writes a call option, her maximum potential loss is the strike price minus the
premium received.
- True
- False
A published solution is not available for this question yet.
Question 9 MCQ · 2.0 marks
Suppose the current market price of a stock is Rs. 82. If a call option on this stock has a strike price
of Rs. 80, then the option is in-the-money.
- True
- False
A published solution is not available for this question yet.
Question 10 MCQ · 2.0 marks
The Efficient Market Hypothesis asserts that an experienced trader can consistently achieve higher
returns than the market average.
- True
- False
A published solution is not available for this question yet.
Question 11 MCQ · 2.0 marks
The risk-free rate is 2%. The expected market rate of return is 8%, and the standard deviation of
the market return is 12%. Then, the slope of the Security Market Line (SML) is 0.5.
- True
- False
A published solution is not available for this question yet.
Question 12 MCQ · 2.0 marks
In the Black-Scholes pricing formula, the stock prices are considered to be normally distributed.
- True
- False
A published solution is not available for this question yet.
Question 13 MCQ · 2.0 marks
A long position in an option describes holding an option contract with a maturity of more than 5
years.
- True
- False
A published solution is not available for this question yet.
Question 14 MCQ · 2.0 marks
A put option decreases in value when the stock price increases, with all else remaining the same.
- True
- False
A published solution is not available for this question yet.
Question 15 MCQ · 2.0 marks
A long straddle strategy requires buying both a call and a put option, each with the same strike
price and the same expiration date.
- True
- False
A published solution is not available for this question yet.
Question 16 MCQ · 2.0 marks
The part of the minimum variance set that lies above the global minimum variance portfolio is
called the efficient frontier.
- True
- False
A published solution is not available for this question yet.
Question 17 MCQ · 3.0 marks
Suppose you purchased a call option 26 days ago for Rs. 4.50. The call option has a strike price of
Rs. 84, and the stock is now trading for Rs. 92. If you exercise the call option today, what will be
your holding period return?
- 4.17%
- 28.57%
- 53.17%
- 77.78%
A published solution is not available for this question yet.
Question 18 MCQ · 3.0 marks
OPQ Inc. has an expected rate of return of 25% and a standard deviation of the rate of return of
20%. The expected market return is 12%, and the standard deviation of market return is 12%. OPQ
Inc. has a correlation coefficient with the market of 0.6. Then, what is the market beta of OPQ Inc.?
- 0.8
- 1.0
- 1.2
- 1.5
A published solution is not available for this question yet.
Question 19 MCQ · 3.0 marks
Suppose that the interest rate at a point in time in the domestic economy is 4%, and the interest
rate in the foreign economy at that point in time is 9%. What is the expected rate of appreciation
of the domestic exchange rate at that point in time?
- -4.81%
- -2.86%
- 2.86%
- 4.81%
A published solution is not available for this question yet.
Question 20 MCQ · 3.0 marks
A trader buys a call option on a stock with a strike price of Rs 48 when the option price is Rs 4. The
trader makes a profit when the stock price is
- Rs 30
- Rs 40
- Rs 50
- Rs 60
A published solution is not available for this question yet.
Question 21 MCQ · 3.0 marks
Suppose that in the Black-Scholes pricing formula for a put option, we have [[IMAGE:cc714cf6666ec686_6_2]] and
[[IMAGE:cc714cf6666ec686_6_3]] . If the stock price increases by Rs 1, then what will be the change in the price of the
put option?
- The put option price increases by Rs 1.
- The put option price increases by Rs 0.5.
- The put option price decreases by Rs 0.6.
- The put option price decreases by Rs 0.5.
A published solution is not available for this question yet.
Question 22 MCQ · 3.0 marks
A firm has three divisions: sales division, accounting division and logistics division. The sales
division has a beta of 2.7, the accounting division has a beta of 0.6, and the logistics division has a
beta of 1.5. The sales division has 50% of the company’s assets, the accounting division has 20%,
and the logistics division has 30%. What is the company’s overall beta?
- 1.12
- 1.52
- 1.72
- 1.92
A published solution is not available for this question yet.
Question 23 MCQ · 3.0 marks
A stock currently trading at Rs 20 can either rise to Rs 25 or fall to Rs 16 in three months. The
three-month risk-free rate is 2%. Using the risk-neutral approach, what is the risk-neutral
probability that the stock price increases?
- 78.6%
- 60.0%
- 48.9%
- 43.1%
A published solution is not available for this question yet.
Question 24 MCQ · 3.0 marks
Your expected return on a stock is 16%. The stock has a beta of 1.8. If the risk-free rate is 4% and
the expected market return is 12%, what is the stock's alpha (in percent)?
- -2.4%
- -1.5%
- 1.5%
- 2.4%
A published solution is not available for this question yet.
Question 25 MCQ · 3.0 marks
A risky asset has an expected rate of return of 16%, and the Sharpe ratio of this risky asset is 0.75.
If the risk-free rate of return is 6%, then what is the standard deviation of the rate of return of the
risky asset?
- 13.33%
- 11.22%
- 9.35%
- 8.28%
A published solution is not available for this question yet.
Question 26 MCQ · 3.0 marks
Consider an asset whose return over the next year is sensitive to two factors – return on a weather
index ( [[IMAGE:cc714cf6666ec686_8_4]] ) and return on a commodity index ( [[IMAGE:cc714cf6666ec686_8_5]] ). Suppose that the sensitivity of the asset return
to the weather index is 1.1 and the sensitivity of the asset return to the commodity index is 1.8. If
the risk-free interest rate is 4%, the risk premium on the weather index is 3%, and the risk
premium on the commodity index is 6%, then what is the expected return on the asset over the
next year, according to the Arbitrage Pricing Theory?
- 7.2%
- 9.5%
- 12.4%
- 18.1%
A published solution is not available for this question yet.
Question 27 NAT · 4.0 marks
Lokesh is considering investing in an opportunity that promises to pay Rs 3,000 in one year, Rs
2,500 in two years and Rs 2,000 in three years. If the prevailing constant rate of return is 8%, then
what is the maximum price that Lokesh should agree to pay for the opportunity? (Round off to the
nearest integer)
A published solution is not available for this question yet.
Question 28 NAT · 4.0 marks
The price of a six-month European put option on a non-dividend-paying stock with a strike price of
Rs 450 is Rs 35. The stock price is Rs 430, and the annual risk-free rate is 10% (continuously
compounded). What is the price of a six-month European call option on the same stock with a
strike price of Rs 450? (Round off to the nearest integer)
A published solution is not available for this question yet.
Question 29 NAT · 4.0 marks
The current price of a non-dividend-paying stock is Rs 60. Over the next six months, it is expected
to rise to Rs 75 or fall to Rs 50. Assume the risk-free rate is zero. A six-month call option with a
strike price of Rs 70 is trading at Rs 3. How many options are required to hedge the purchase of 50
stocks? (Round off to the nearest integer)
A published solution is not available for this question yet.
Question 30 NAT · 4.0 marks
The current share price of OPC Inc. is Rs 600. OPC Inc. is expected to pay a dividend of Rs 30 per
share next year. The appropriate cost of capital is [[IMAGE:cc714cf6666ec686_10_6]] % per year, and the OPC Inc. dividend is
expected to grow at 2% per year. If OPC Inc. is fairly priced according to the Gordon Growth
model, then what is the value of [[IMAGE:cc714cf6666ec686_10_7]] ? (Round off to the nearest integer)
A published solution is not available for this question yet.
Question 31 NAT · 4.0 marks
An employee contributes 100 rupees per year to a retirement account with 5% average annual
returns. She starts contributing after age 25 and continues until retirement at 60 (a total of 35
years of contributions). How much would the employee have in her retirement account at the age
of 60 (in rupees)? (Round off to the nearest integer)
A published solution is not available for this question yet.
Question 32 NAT · 4.0 marks
A stock is trading at Rs 80 today. In six months, the stock price can either increase to Rs 100 or
decrease to Rs 70. The six-month risk-free rate is 5%. A six-month call option has an exercise price
of Rs 90. What would it cost (in Rs) to buy 100 such call options? (Round off to the nearest integer)
A published solution is not available for this question yet.
Question 33 NAT · 4.0 marks
A one-year European call option with a strike price of Rs 80 is selling at a call price of Rs 6. A one-
year European put option with a strike price of Rs 80 is selling at a put price of Rs 4. The current
share price is Rs 75. One year later, the share price increases to Rs 96. If you purchase two call
options and one put option today, then how much profit do you make in one year? (Round off to
the nearest integer)
A published solution is not available for this question yet.
Question 34 NAT · 4.0 marks
The risk-free rate of return is 4%. The optimal risky portfolio has an expected return of 9% and a
standard deviation of 15%. An investor optimally allocates her total wealth of 100 units between
the risk-free asset and the optimal risky portfolio. Her utility function is given as [[IMAGE:cc714cf6666ec686_11_8]] .
Given this information, what is the expected value of her wealth in the next period? (Round off to
the nearest integer)
A published solution is not available for this question yet.
Question 35 NAT · 4.0 marks
An investor purchases one call option and two put options with the same strike price of Rs 65 and
maturity of three months. The three-month risk-free rate is 4%. The price of the call option is Rs 7,
and the price of the put option is Rs 5. What is the maximum loss (in Rs) the investor may incur on
her portfolio with this strategy? (Round off to the nearest integer)
A published solution is not available for this question yet.
Question 36 NAT · 4.0 marks
A project is expected to have a payoff of Rs 5,000 in one year. The beta for the project is 1.5. If the
risk-free rate is 4% and the expected market return is 10%, what should be the price (in Rs) for the
project according to CAPM? (Round off to the nearest integer)
A published solution is not available for this question yet.