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N.B. (1) All questions are compulsory. (2) All questions cany equal marks. 1. (A) ABC Co. has sold a 20 year maturity, Rs. 1000/- face value, 12% debentures 10 years ago. Interest rates have risen since then, such that; debentures of this company are now selling at 15% yield basis. (1) Determine the current market price of the debentures. Would you buy the debentures for Rs. 700/- ? (i) Assume that the debentures are selling at Rs. 825/-. If the debentures have 10 years to maturity, compute the approximate effective yield an investor would earn on this investment. OR (B) A company is likely to grow at the rate of 2% in the first year, 3% in the next two years and then at 6%p.a. thereafter. The company recently paid a dividend of Rs. 10/- per share. The rate of return expected from another company of a similar risk class is 8%, what is the appropriate price of a share of this company ? 2. (A) What do you mean by fundamental analysis? Explain the difference approaches to fundamental analysis. OR (B) What do you mean by Market Efficiency ? Explain the different forms of efficient markets by highlighting the different types of information used in each form. 3. (A) Risk-return features of two securities 'X' and 'Y' are : Portfolio Expected Return Standard Deviation Weight X (%) 12 16 0.5 Y (%) 20 24 0.5 (1) If the desired portfolio standard deviation is 20%, determine the correlation coefficient that would yield the desired level of risk. (1) Find the portfolio standard deviation if 'X' and 'Y' are mixed in the ratio of 3:1. Comment on the results. OR (B) Write a detailed note on the characteristic features of share which are considered in order to be selected as a constituent of NIFTY. 4. (A) "The spot price and the futures price converge on expiry." Explain the statement with the help of cost of carry model. OR BKR-11963 1 (Contd.) (b) Draw a typical organisation chart highlighting the finance function of a company. 2. (a) The company has the following amount and specific costs of each type of Capital. Type of Capital Book Value Market Value Specific Cost Rs. Rs. Preference 1,00,000 1,10,000 8% Equity 6,00,000 12,00,000 13% Retained Earnings 2,00,000 Debt 4,00,000 3,80,000 5% Total 13,00,000 16,90,000 Determine the WACC using : (1) Book value weights and (i) Market value weights. OR (b) A firm requires total capital funds of Rs. 25 lakh and has two options : All equity and Half equity and Half 15% debt. The equity share can be currently issued at Rs. 100 per share. The expected EBIT of the company is Rs. 2,50,000 with tax rate at 40%. Find out the EPS under both the financing mix. Also calculate the indifference level of EBIT and EPS at indifference level. 3. (a) BML Ltd. is considering two different proposals A and B. The details are as under : Proposal A Proposal B Investment Cost 9,500 20,000 Estimated Income Year 1 4,000 8,000 Year 2 4,000 8,000 Year 3 4,500 12,000 RQA-1425 1 (Contd.) N.B. (1) All questions are compulsory. (2) All questions cany equal marks. 1. (A) ABC Co. has sold a 20 year maturity, Rs. 1000/- face value, 12% debentures 10 years ago. Interest rates have risen since then, such that; debentures of this company are now selling at 15% yield basis. (1) Determine the current market price of the debentures. Would you buy the debentures for Rs. 700/- ? (i) Assume that the debentures are selling at Rs. 825/-. If the debentures have 10 years to maturity, compute the approximate effective yield an investor would earn on this investment. OR (B) A company is likely to grow at the rate of 2% in the first year, 3% in the next two years and then at 6%p.a. thereafter. The company recently paid a dividend of Rs. 10/- per share. The rate of return expected from another company of a similar risk class is 8%, what is the appropriate price of a share of this company ? 2. (A) What do you mean by fundamental analysis? Explain the difference approaches to fundamental analysis. OR (B) What do you mean by Market Efficiency ? Explain the different forms of efficient markets by highlighting the different types of information used in each form. 3. (A) Risk-return features of two securities 'X' and 'Y' are : Portfolio Expected Return Standard Deviation Weight X (%) 12 16 0.5 Y (%) 20 24 0.5 (1) If the desired portfolio standard deviation is 20%, determine the correlation coefficient that would yield the desired level of risk. (1) Find the portfolio standard deviation if 'X' and 'Y' are mixed in the ratio of 3:1. Comment on the results. OR (B) Write a detailed note on the characteristic features of share which are considered in order to be selected as a constituent of NIFTY. 4. (A) "The spot price and the futures price converge on expiry." Explain the statement with the help of cost of carry model. OR BKR-11963 1 (Contd.) (b) Draw a typical organisation chart highlighting the finance function of a company. 2. (a) The company has the following amount and specific costs of each type of Capital. Type of Capital Book Value Market Value Specific Cost Rs. Rs. Preference 1,00,000 1,10,000 8% Equity 6,00,000 12,00,000 13% Retained Earnings 2,00,000 Debt 4,00,000 3,80,000 5% Total 13,00,000 16,90,000 Determine the WACC using : (1) Book value weights and (i) Market value weights. OR (b) A firm requires total capital funds of Rs. 25 lakh and has two options : All equity and Half equity and Half 15% debt. The equity share can be currently issued at Rs. 100 per share. The expected EBIT of the company is Rs. 2,50,000 with tax rate at 40%. Find out the EPS under both the financing mix. Also calculate the indifference level of EBIT and EPS at indifference level. 3. (a) BML Ltd. is considering two different proposals A and B. The details are as under : Proposal A Proposal B Investment Cost 9,500 20,000 Estimated Income Year 1 4,000 8,000 Year 2 4,000 8,000 Year 3 4,500 12,000 RQA-1425 1 (Contd.)