SVKM’S NMIMS Academic Year: 2022-2023 Program: MBA Tech Year: V Semester: X inancial Engineering Time: _©2 hrs (o:coamtot2scones) Date:_02 / 05/2028. No. of Pages: 0 4t Marks: 100 Subject Final Examination Instructions: Candidates should read carefully the instructions printed on the question paper and on the cover of the Answer Book, which is provided for their use. 1) Question No. _1_ is compulsory. 2) Out of remaining questions, attempt any _4__ questions. 3) In all_5_questions to be attempted. 4) All questions carry equal marks. 5) Answer to each new question to be started on a fresh page (worksheet). 6) Figures in brackets on the right hand side indicate full marks. 7) Assume Suitable data if necessary. o Answer briefly: (20 Co1 80. |® __ | “Forward Rate Agreements” have defined milesiones and can be used aa 1; BL-2 effectively. Build upon the statement with an example. cor; so- | “Hedging and Arbitrage have different objectives”. Elaborate upon the aa 1;BL-1 statement with suitable examples. co1so1 | © “The 95% 10-day VaR for a multi-asset portfolio is INR 2.75 Crores”. What a BL do you infer from the statement? ® ‘d. | A lot of recent frauds in the Banking Sector are a classic offshoot of | aa ie Operational Risks”. Explain the statement in lieu of the recent frauds in the | [05] Banking Sector.Seema is an investment banker and is analyzing the following stocks with prices as under. Calculate the 95%, 10 Day VaR for an equal weighted portfolio of 5 stocks having the following prices at the end of each of the last 5 years: Q Years A B c D E €02,S01 ° 317 281400437277 [20] BL3 1 350 300370478. «310 2 300277457 526-347 3 280/256, 415|—S64| 386 4 325 31046012423 5 380 395 S10 6A4 458 Draw underlying inferences for the results you have achieved. Is there an advise you would like to give Seema? A) Estimate the Price of a Bond that has a FV of $1000, and carrying an annual coupon of 6%. The Bond Investors expect a YTM of 8% 03 (annually). The Bond has 5 years to maturity. Use the Excel Functions C03-;80- and the tabular approach to achieve the results. 7 8; BL-5 oe | B) Additionally, also use the Spin Change Form Controls to test the sensitivity of Yields to Bond Prices & establish the relation that exists. Use a range of 1% to 15% with a unit increment. Ca ‘ne hs vom i O20. |_| Te following information is presented to you for Bright Pharma per the mast | re recent financials:Revenues UsD Mn 5000 GPM soe Opex (incl Deprn) 20% of G/p 1cR 6x Taxes 40% NO of Shares 415 Million b 60% The dividend paid this year is expected to grow by 8% annually for the next 5 years and thereafter by 4% perpetually. . ‘The US-T-Bills yield 4%. The Stock estimated to be 12%. 1.25 and the Market Yields have been A) Estimate the Intrinsic Value of the Share. B) The share is currently trading at $374, what is your inference on the valuation and what position would you advise on the stock? Estimate the Mod Durn & Convexity of a Bond having FV $1000 ; carrying an annual coupon of 7% and 5 years to maturity. ‘The Bond is currently trading at $1049. Os CO3-; SO- [20] 8; Comment on how Convexity and Modified Duration is related to the Years to ime Maturity, should the analyst do a sensitivity test? Use the "spin change" to demonstrate the sensitivity to changing "years to maturity" -- range 1-5 years 06 ‘A company borrows USD 100m@ 2.4% pa., sells spot USD@ 70 and buys | co3;$0-| | Year forward USD @73 an & BLS The funds received by selling spot USD are invested at 7% p.a.If spot USD after I year is 73.5: a) Estimate the Zero-Arbitrage Forward Price, b)_ Explain the rationale behind the “strategy” so adopted. ©) Draw a flow diagram to explain the strategy and it’s execution. d) Est / Loss upon execution. Q CO3-; $O- 8; BLS ‘A “Credit Default Swap” is a transaction where a “not a high-quality investment” could be insured in exchange of a premium. Explain & build upon the statement in the context of: a) Participants involved. b) The payments (who pays to whom and when?) c) How could it prove to be a “win-win” for every entity, if'at all?