ms3034_2025T3_ET_FN.pdf

A firm is considering an investment opportunity promising to pay Rs 8,000 in one year and Rs 12,000 in two years. If the prevailing constant rate of return is 6%, what is the maximum price the firm should pay for the project? (Round off to the nearest integer)

A stock currently trading at Rs 60 can either rise to Rs 75 or fall to Rs 50 in three months. The three-month risk-free rate is 5%. Using the risk-neutral approach, what is the risk-neutral probability that the stock price increases?

An investor opts for a straddle strategy for his portfolio by purchasing a call option and a put option with strike price of Rs 30 and expiration time of 3 months. The call option price is Rs 3 and put option price is Rs 4. What is maximum loss the investor can incur with this strategy?

If the interest rate in home country ( [[IMAGE:cdc160a925e538f8_3_2]] ) is 3% and the interest rate in the foreign country ( [[IMAGE:cdc160a925e538f8_3_3]] ) is 6%, [[IMAGE:cdc160a925e538f8_3_4]] what is the home country’s expected rate of appreciation of the exchange rate according to the uncovered interest parity condition?

A risky asset has an expected rate of return of 15% and a standard deviation of the rate of return of 20%. If the Sharpe ratio of this risky asset is 0.6, then what is the prevailing risk-free rate of return?

In the Black-Scholes pricing formula for a call option, the Delta (Hedge Ratio) is given by [[IMAGE:cdc160a925e538f8_3_5]] . If the Delta for a call option is 0.7, and the current stock price is Rs 100, how many whole shares of the stock are needed to perfectly hedge 10 written call options against a small change in the stock price?

A firm is financed with 60% debt and 40% equity. The equity beta is 2.5. The debt has a beta of 0.2. What is the asset beta of the firm?

Your portfolio consists of two stocks, X and Y, with returns that have a correlation coefficient of 0.5. Stock X has an expected return of 12% and a standard deviation of 20% and Stock Y has an expected return of 10% and a standard deviation of 25%. What is the covariance between the returns of the two stocks?

You invest 80% of your money in a security with a beta of 1.5, and the rest of your money in a risk- free security. What is the beta of your resulting portfolio?

The current market price of a stock is Rs 400. Next year's expected dividend is Rs 25 per share. The dividend growth rate is expected to be 4% per year forever, and the required rate of return is 8%. According to the Gordon Growth Model, what is the estimated fair price of the stock?

An investment is expected to yield a total holding period return of 140% over a period of 30 years. What is the annualized rate of return (in percent) on this investment?

A European put option with a strike price of Rs 90 is trading at a price of Rs 5. The stock price is Rs 88, and the risk-free rate is 4% (continuously compounded) for the 1-year time to expiration. According to the put-call parity theorem, what is the corresponding European call option price (in Rupees)?

The expected return on the market portfolio is 10% and the risk-free rate is 5%. A security has an expected rate of return of 12.5%. According to CAPM, what is the beta of this security?

Your expected return on a stock is 15%. The stock has a beta of 1.5. If the risk-free rate is 4% and the expected market return is 10%, what is the stock's alpha (in percent)?

The real interest rate in the US is 4%, and the expected US inflation rate is 1%. What is the nominal interest rate in the US (in percent)?

A long straddle strategy is executed by buying a one-year call option (price Rs 5) and a one year put option (price Rs 3) with the same strike price of Rs 70. If the stock price at expiration is Rs 80, what is the net profit (in Rupees) from this position?

A trader executes a strategy by selling a call option on a stock and simultaneously holding a long position (buying) in the same stock. This strategy is known as a

What option position results in the profit diagram as given in the figure, on the exercise date? ST denotes the price of the underlying asset and X denotes the strike price. [[IMAGE:cdc160a925e538f8_7_6]]

Kartik’s utility function can be written as [[IMAGE:cdc160a925e538f8_8_7]] , where [[IMAGE:cdc160a925e538f8_8_8]] is his wealth level. He currently has wealth equal to 200 thousand dollars. He invests his wealth in an asset, which will give a return of 5% with probability 0.75, or a return of -5% (that is, a return of negative 5%) with remaining probability by the end of the year (His wealth will not change due to any other reason). This asset gives him as much expected utility as if he invested his wealth in risk-free bonds with an interest rate of [[IMAGE:cdc160a925e538f8_8_9]] % per year. What is the value of [[IMAGE:cdc160a925e538f8_8_10]] ?

Consider a stock whose return over the next year is sensitive to one factor – return on an index fund ( [[IMAGE:cdc160a925e538f8_8_11]] ). Suppose that the sensitivity of the stock return to the index fund is 1.2. If the risk-free interest rate is 5% and risk premium on index fund is 3%, then what is the expected return on the stock over the next year, according to the Arbitrage Pricing Theory?

A risky asset has an expected rate of return of 16% and a standard deviation of 20%. If the risk- free rate is 4%, select the correct statements.

Consider a put option and a call option on the same stock with the same strike price of Rs 250 and time to maturity of three months. Select the correct statements

A trader buys a call option on a stock with a strike price of Rs 40 when the call option price is Rs 4. He also buys two put options with the same strike price of Rs 40 and the put option price is Rs 3. The trader makes a profit when the stock price at expiration is

A call option on a non-dividend-paying stock has a hedge ratio of 0.6, select the correct statements

The price of a one-year European call option on a non-dividend-paying stock is Rs 15 ( [[IMAGE:cdc160a925e538f8_10_13]] ) which has a strike price of Rs 120 ( [[IMAGE:cdc160a925e538f8_10_14]] ). The stock price is Rs 115 ( [[IMAGE:cdc160a925e538f8_10_15]] ), and the annual risk-free rate is 8% (continuously compounded, [[IMAGE:cdc160a925e538f8_10_16]] ). Select the correct statements.

Security A has an expected return of 14% and a standard deviation of 20%. Security B has an expected return of 18% and a standard deviation of 25%. Suppose that the rates of return of the two securities have a correlation coefficient of 0.8. Based on the given information select the correct statements from below.

A money manager calculates that JLK Inc stock has an expected rate of return of 16%. JLK Inc has a beta of 1.5. The risk-free rate of return is 6%, and the expected market rate of return is 12%. Which of the following statements are correct?

A stock is trading at Rs 100 today. In 6 months, the stock price can either increase to Rs 120 or decrease to Rs 90. The six-month risk-free rate is 2%. A six-month call option has an exercise price of Rs 110. Select the correct statements based on the given information.

KLM Inc. has an expected return of 12% and a beta of 1.6. The risk-free rate is 6% and the expected return on market portfolio is 10%. Select the correct statements according to CAPM

An investor is considering two assets for her portfolio: a risk-free asset with expected return of 5% and a risky asset with expected return of 12% and standard deviation of 10%. Her utility function is given as [[IMAGE:cdc160a925e538f8_12_19]] . Given this information select the correct statements.