Resit Examination

MBA (DFB)
Capital Markets and Instruments

MAXIMUM MARKS: 100 TIME: 7 DAYS

Instructions to students:

 This is an open book, take-home examination.

 All questions are compulsory.
 Use of hard copies, notes, text or reference books, soft copies of saved files on
laptops, lecture slides etc. are allowed. Use of Internet is allowed.
 Use of calculator is allowed.
 Use of external software like Excel is allowed.
 No penalty for exceeding the world limit.
 Please do not write your name, JGU Id or any identification text inside your
submission document.
 Please ensure that your submission strictly adheres to JGU plagiarism/ Similarity
guidelines.

 Ensure the submissions are done in a compatible file format adhering to the guidelines
provided in the question paper regarding file format and name of the document.
 Please follow the instructions provided in the question paper regarding name of the
document/ folder to be submitted. In case there is no instructions kindly follow the
format provided below:

<JGU ID>_<Name>_<Surname>_<Course Name>_<Programme>_<Batch>

For Example:

20172291_Ram_Khandelwal_Introduction_to_Sociology_BBA_2017

 Kindly adhere to the duration/timelines of the examinations. Submission outside the

permitted time-window may attract marks-based penalty, grade drop or non-
evaluation.
 This question paper comprises of two (2) pages only.

Q1. Please download and refer to the last two-year daily stock prices (daily closing price data
from 1st October 2020 to 30th September 2022) of any three NIFTY 50 stocks (Say, Stock A,
Stock B and Stock C) and NIFTY 50 index and answer the following questions:

a. Calculate the annualized stock returns and standard deviations of the three stocks
using the downloaded closing price data and comment on their risk and return
behavior.

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 (7
marks)
b. Estimate the systematic risk of all three stocks using regression method. Also, explain
which stock has higher systematic risk and why? (7
marks)
c. Which stock provides a higher reward to risk ratio? Assume a risk-free rate of 5%.
(6
marks)
d. Use Capital Asset Pricing Model (CAPM) to estimate the expected return of three
stocks. Which stock has generated higher than expected return during the mentioned
time period and why? (10 marks) (Assume a risk-free rate of 5%.)
e. Create a portfolio using Stock A, Stock B, and Stock C with weights of 30%, 40%
and 30% respectively. What is the portfolio risk and return? (6
marks)
f. In what proportion can we combine the three stocks to achieve maximum Sharpe
ratio? Calculate the portfolio return and risk in that scenario? (Hint: Use solver to
maximize the Sharpe ratio of the portfolio)
(14 marks)
2. Suppose the USD-sterling spot and forward exchange rates are as follows:

Spot Rate 1.4580

90 days forward 1.4666
180 days forward 1.4518

a. Assume a 180-day European call option to buy £ 1 for $ 1.42 costs 2 cents. What
opportunities are open to an arbitrageur in this situation? (10
Marks)
b. Assume a 90-day European put option to buy £ 1 for $ 1.49 costs 2 cents. What
opportunities are open to an arbitrageur in this situation? (10
Marks)
3. A 10-year 8% coupon bond is selling to yield 6%. The bond pays interest annually. The
redemption value of the bond is at par.
a. What is the price of the 10-year 8% coupon bond selling to yield 6%? (4
marks)
b. What is the price of this bond one year later assuming the yield is unchanged at 6%?
(6
marks)

Re-sit Examination –’2022, JGBS Page 2

c. What is the price of this bond if yield has increased from 6% to 10%? Also calculate the
price of this bond one year later assuming the yield is 10%. (8
marks)
d. Can you stablish a relationship between the price of the bond and the yield? Explain.
(6 marks) (Hint: use the calculation you have done in part a, b and
c)
e. Can you stablish a relationship among coupon rate, yield and price change of the bond?
Explain. (6 marks) (Hint: use the calculation you have done in part a, b and
c)

Re-sit Examination –’2022, JGBS Page 3