Case study 1
Everything was going well until recently when a Public Interest Litigation from NGO accused the 80,000 outlets throughout India. The company's business is good with an annual turnover exceeding three billion rupees. Profits are good and shareholders are often rewarded with lucrative dividends and bonuses. Four years back the company diversified into the alcoholic drinks industry and took- over two small breweries located in western India. The company has also diversified into hotels with the purchase of twenty-five hotels in the three/four-star categories across the country. To its advantage, the company has been able to obtain a monopoly for the sale of its soft drinks in its hotels and is beginning to establish itself as a brand name in the brewery industry. Part of the strategy of the company is to continue to purchase hotels, particular by targeting the National Capital Region of Delhi where tourism is likely to pick up with the forthcoming Commonwealth Games. The company also intends to construct a five-star hotel in Gurgoan to take the tax advantage announced recently by the finance ministers. Everything was going well until recently when a Public Interest Litigation from NGO accused the company of indulging in surrogate advertising of its brewery products. In fact, the company has similar brand names for its soft drinks and brewery products. This triggered a lot of protests and demonstrations against the company. Newspapers were flooded with articles against the company. There were also some demonstrations and some small incidents of stone pelting in a few of its hotels.
a. Discuss the factors related to SWOT analyses for the company?
b. Explain how Sweet Drinks Ltd is achieving synergy?
c. Explain the nature of diversification adopted by the company.
In 2013-14
PTC Food division
decided to enter the fast growing (20-30% annually) snacks segment, an altogether new to it. It had only one national competitor-Trepsico's Trito. After a year, its wafer snack brand-Ringo, fetched 20% market share across the country. Ringo's introduction was coincided with the cricket
world cup. The wafer snacks market is estimated to be around Rs. 250 crores. The company could take the advantage of its existing distribution network and source potatoes
from farmers easily. Before the PTC could enter the market a cross-functional team made a customer survey through a marketing research
group in fourteen cities of the country to know about the snacks of eating habits of people. The result showed that the customers
within the age-group
of 15-24 years were the most promising
for the product as
they were quite enthusiastic about experimenting new snack taste. The company
reported to its chefs and the chefs came out with sixteen flavours with varying tastes suiting to the targeted
age-group. The company decided to target the youngsters as primary target on the assumption that once they are lured in, it was easier to reach the whole family. Advertising in this category
was extremely crowded.
Every week two-three local products in new names were launched, sometimes with
similar names. To break through this clutter
the company decided to bank upon humour appeal.
The industry sources reveal that PTC spent about Rs. Fifty crores on advertisement and used all possible
media-print and electronic, both including the creation of its own
website, Ringoringoyoungo.com with offers of online games, contests etc. Mobile phone tone downloading was also planned
which proved highly effective among teenagers. The site
was advertised on all dotcom networks. Em TV, Shine TV, Bee TV and other important channels
were also used for its advertisement along with FM radio channels
in about sixty cities with large hoardings
at strategic places.
Analysts believes that Ringo's success story owes a lot to PTC's widespread distribution channels and aggressive advertisements. Humour appeal was an immense success. The `Ringo' was made visible by painting
the Railway bogies passing across the States. It has also been successful to induce Lovely Brothers'
Future Group to replace Trito in their Big-Bazaar and chain of food Bazaars.
PTC is paying 4% higher
margin than Trepsico
to Future group and other
retailers. Ringo to giving Trepsico a run for its money. Trito's share has already
been reduced considerably. Retail tie-ups, regional flavours, regional humour
appeals have helped PTC. But PTC still wants a bigger share in the market and in foreign markets also, if possible.
Answer the following questions:
1.Do SWOT analysis for the company.
2.Frame good strategies for the expansion and diversification of the company
3.What kind of marketing strategy was formulated and implemented for Ringo?
4.What else need to be done by Ringo so as to enlarge its market?
India’s economic growth for the financial year 2016 has been estimated at
7.6 per cent as compared with the revised estimate
of 7.2 per cent in the previous
year, aided by growth in the manufacturing sector. If the new projection materialises, India will be the fastest growing
major economy in the world, overtaking China. The
latest projection is a shade better than the finance ministry’s earlier estimate
of seven to 7.5 per cent.
However, the GDP growth for the third quarter of this financial year
slowed to a four-quarter low at 7.3 per
cent. In the second quarter, it had grown by 7.7 per cent. Growth in gross
fixed capital formation, a proxy for investment, fell significantly in the third quarter, compared
to the second, because of lacklustre private investments. According to data,
growth figures were revised sharply upwards for the second quarter
from 7.4 per cent; and from seven per cent to 7.6
per cent for the first
quarter.
To meet the revised figure of 7.6 per cent growth in the entire current year, the GDP has to increase by 7.8 per cent in the last quarter. Economic Affairs Secretary Shaktikanta Das attributed the estimated higher growth to reforms initiated by the government. However, very few economists and market experts were ready to take the official data at face value, which they said was at odds with weak exports, railway freight, cement production, investment and flat order books that pointed to weakness in the economy. “All our qualitative and quantitative data checks suggest that GDP growth decisively decelerated in FY16 as compared to FY15, whilst the GDP data is suggesting that growth accelerated in FY16,” said Ritika Mankar Mukherjee, economist, Ambit Capital.
In nominal terms, however, GDP would grow just 8.6 per cent in the current financial year, which would make
the fiscal consolidation exercise of the government a tad challenging. At Rs
135.67 lakh crore GDP, fiscal
deficit at 3.9 per cent means Rs 5.29 lakh crore. This is over 26,000 crore
less than Rs 5.55 lakh crore estimated
at the time of the Budget. The Budget had assumed the nominal GDP growth at 11.5 per cent.
The Centre’s fiscal deficit already
stood at Rs 4.88 lakh crore till December of the current
financial year. The government will have to restrict it within Rs 41,000 crore (Rs 5.29 lakh crore minus Rs 4.88 lakh crore) in the January-March period. For the next
financial year, the government will have to just narrow the gap between
the expenditure and the revenue,
by over Rs 13,000 crore to retain the target of 3.5 per cent of GDP on the assumption that, in nominal
terms, it would also grow the same 8.6 per cent in 2016-17. This should not have been a problem for the government, caught in a dilemma of sticking to the fiscal consolidation
road map or deferring it by a year more. However, the government will have to bear the extra burden of Rs 1.1 lakh crore to implement One Rank One Pension for retired Army personnel and the
Seventh Pay Commission recommendations. If the government sticks to the plan,
the Reserve Bank of India will find
it easier to cut the policy rate to spur economic growth. Chief Economic Adviser Arvind Subramanian said agriculture has to be a focus for policy action.
Answer the following questions
1. Elaborate your views on growth of India and its related
factors.
2. Do a SWOT analysis
of the present economic situation of India.
3. Suggest suitable solutions to achieve the prospective growth.
Case study 4
|
Machine |
Time per unit (minutes) |
Machine capacity
(Minutes/day) |
|
|
Product 1 |
Product 2 |
||
|
M1 |
7 |
6 |
42 |
|
M2 |
4 |
8 |
32 |
Case study 5
After preparing the work breakdown structure (WBS) and creating the network diagram with their immediate predecessors for activity sequencing based on the WBS, Mr. John estimated the duration of each activity based on expert judgment and historical information of process chart to construct a new plant for a major manufacturer. The activities to be performed, their immediate predecessors, and their estimated durations are as follows:
|
Activity |
Description |
Immediate Predecessors |
Estimated Duration (Weeks) |
|
A |
Lay the foundation |
– |
3 |
|
B |
Put up the rough wall |
A |
8 |
|
C |
Put up the roof |
A |
12 |
|
D |
Install the interior and exterior plumbing |
B |
6 |
|
E |
Put up the exterior siding |
B |
3 |
|
F |
Do the exterior painting |
C |
3 |
|
G |
Do the electrical work |
C |
8 |
|
H |
Put up the
wallboard |
D, F |
5 |
|
I |
Install the flooring |
E |
3 |
|
J |
Do the interior painting |
G |
8 |
|
K |
Install the exterior and interior fixtures |
H, I, J |
3 |
Questions:
i. Construct the project network
ii.
Find all the paths and path lengths through
this project network.
Which of these paths is a critical
path?
iii.
Find the earliest
start time and earliest finish time for each activity.
iv. Find the latest start time and latest finish time for each activity.
v. Find the slack for each activity. Which
of the paths is a critical path?
Case study 6
FINANCIAL MANAGEMENT
|
Year |
Project X |
Project Y |
Discount rate 12% |
|
1 |
9000 |
8000 |
0.893 |
|
2 |
7000 |
10000 |
0.797 |
|
3 |
6000 |
12000 |
0.712 |
|
4 |
5000 |
14000 |
0.636 |
|
5 |
4000 |
8000 |
0.567 |
|
6 |
4000 |
2000 |
0.507 |
|
7 |
3000 |
16000 |
0.452 |
|
8 |
3000 |
|
0.404 |
|
9 |
3000 |
|
0.361 |
|
10 |
3000 |
|
0.322 |
|
|
Project A (Rs.) |
Project B (Rs.) |
Discount rate 10% |
|
Cash inflows |
|
|
|
|
1 |
80,000 |
20,000 |
0.909 |
|
2 |
60,000 |
40,000 |
0.826 |
|
3 |
40,000 |
60,000 |
0.751 |
|
4 |
20,000 |
80,000 |
0.683 |
|
5 |
- |
1,00,000 |
0.621 |
a.
(a) Compute the value of two firms using NI approach
of Capital structure theory.
b. (b) Compute the value of two firms using NOI approach of Capital structure theory.
Case study :9
A pro forma cost sheet of a company provides the following data;
|
Costs(per unit): |
|
|
Raw material |
60 |
|
Direct labor |
20 |
|
Overheads |
40 |
|
Total costs(per unit) |
120 |
|
Profit |
30 |
|
Selling price |
150 |
The following is the additional information available:
Average raw material in
stock: one month, average materials in process: half a month. Credit allowed by suppliers - one month. Credit
allowed to debtors - two months. Time lag in payment of wages - 2 weeks
and for overhead - one month. Cash balance is expected to be Rs. 200000.
You are required to prepare a statement showing
the working capital
needed to finance
a level of activity
of 50,000 units of output. You may assume that production is carried out on evenly throughout the year and wages and overheads accrue similarly.
Case study 10
The profit & loss account for Modern electronics Ltd is given below for 2017 and 2018.Forecast for 2019 based on percent of sales method.(Rs. In cr)
|
Particulars |
Mar '17 |
Mar '18 |
|
Net Sales |
800 |
890 |
|
Cost of goods sold |
610 |
680 |
|
Gross profit |
190 |
210 |
|
Selling expenses |
60 |
65 |
|
General &
Administration expenses |
60 |
52 |
|
Depreciation |
50 |
64 |
|
Operating profit |
20 |
29 |
|
Non operating surplus or deficit |
8 |
10 |
|
PBIT |
28 |
39 |
|
Interest on bank borrowings |
10 |
11 |
|
PBT |
18 |
28 |
|
Tax |
7 |
10 |
|
Profit after tax |
11 |
8 |
Case study 12
The present
share capital of A Ltd consists of 1000 shares selling at Rs. 100 each.
The company is contemplating a
dividend of Rs. 10 per share at the end of the current financial year. The company belongs to a risk class
for which appropriate capitalization rate is 20%. The company expects
to have a net income of Rs. 25000. What will be the price of the share at the
end of the year if (i) dividend is not declared (ii) if dividend is declared?
Assume the company pays the dividend
and has to make new investment of Rs. 48000 in the coming period, how many new shares to be issued
to finance the investment programme. Use MM approach
of dividend
Case study 13
HUMAN RESOURCE MANAGEMENT
The organization that partnered with Saigun in the case study is one of the largest
retail store chains
in the world.
They have around
100 retail stores
in India in different locations and were looking
to expand further
to more than 200 stores.
The client had a centralized Human Resource Department located in its head office..
However, although HR processes were managed centrally, many HR tasks, policies
and procedures were controlled by retail store managers or regional offices.
The client used excel sheets
to exchange and compile reports from various regional offices and store. This was performed
by a team of HR executives in the main head office.
Challenges Faced by the Retail Industry
The senior HR Manager at the client side revealed that there were many administrative and HR issues with the retail store sites. Due to high focus on sales, the Retail
Store Managers has no time to focus on issues like attendance, discipline and
critical HR practices. The problem areas that were identified during the discussions were:
·
Challenge
1. Irregularities in the attendance data of the staff at retail
stores and other regional offices. Sometimes many of the staff did not sign the attendance register or signed
intermittently. During HR audits it
was found that some staff signed the attendance register only at the end of the day. Further, sometimes
staff signed the register and then left their post.
·
Challenge 2. There was no
mechanism to track the leave data of employees. Employees did not know their exact leave data. At the end of
the year it was revealed that some employees have taken excess leave while
some employees worked
incessantly, creating frustration among staff.
·
Challenge 3. Salary
discrepancies: HR
and attendance data was used to generate
data for payroll. As there were many discrepancies in HR data, these also found
their way into payroll data. This created several salary
discrepancies and caused numerous
issues among the employees, thus lowering employee
satisfaction rate and affecting the employee morale.
·
Challenge 4. Training and communication issues: As the company was growing at a fast pace, training employees on various HR
procedures and policies was becoming increasingly difficult. Thus employees took decisions based on their previous experience or personal insights
and created unnecessary hassles that required
HR intervention.
Questions
1. How do you analyze the problem
has a HR manager
?
2. Give 4 solutions to the existing problem & solve them
Case study 14
Cadbury Pvt . Ltd :Cadbury Schweppes, one of the largest international beverage and confectionary companies, manages a diverse product
portfolio with some of world's
most recognizable consumer
packaged goods including Cadbury chocolates, Dr Pepper, 7Up, Snapple, Dentyne
and Trident.
When Ilyce Eley, compliance specialist for Cadbury
Schweppes joined the company, she quickly identified a number of ways to improve the
affirmative action program. She found inefficiencies in the affirmative action plan reporting
processes and a lack of communication and decision support for the management team around the company's
diversity initiatives.
And so began the search for
a scalable software system that could not only handle a large and ever growing volume of data for AAP and other
government required reports, but also one that could make that information relevant to the managers
enabling them to really make a difference in the company's affirmative action and diversity
initiatives.
Said Eley, "Our company
has grown with recent acquisitions and the needs of our business are ever- changing,
so I wanted to help build a talent base that will grow with us. With Cadbury's strong commitment
to a diverse workforce, we have a team that is not only dedicated to the great
products we have, but to the overall community
as well."
Questions :
1. Analyse the problem .
2. Explain the benefits of talent management .
Case study 15
SELECTION : Hindustan
Lever Limited is a reputed multinational company. It considers selection
as an event in the total process of
acquiring and developing managers. The company believes that the selection process must be consistent with other events
in the total process for it to be effective. Hindustan lever has
been one of the most favoured companies by the prospective candidates for
managerial position. The selection
process of the company can be broken into three steps: such as- Screening of application forms, preliminary interview, and final selection.
ScreeningofApplicationsForms :
In the first step the company usually
receives a large number of applications for the positions advertised or through
campus interview. Thereafter such applications are screened. Such applications usually
contain brief information about the
candidates. The selected candidates are then required to fill in a detailed
application form. This form is quite elaborate and seeks factual
information about the candidate and also about his attitudes and personality. A more strict
screening of applications is made in this step. The
company believes that to select a candidate it will not be enough to see the
application forms only which may not be very reliable
measure to select or reject the candidate. This calls for a brief preliminary interview to be held by company
to get the best talents.
So such interviews are conducted to interview as many candidates
as is administrativelypossible.
Preliminaryinterview:
Preliminary interview is conducted
for about ten to twenty
minutes usually by one manager.
During this brief personal contract, some time is spent in discussing the nature of the job, the future
career possibility of the applicant and the company’s
policy in this regard. Often a second interview is conducted before the applicant is rejected
or selected for further consideration.
Final Selection:
Final selection process is quite elaborate. This stage consists
of two aspects-groups discussion and final interview. Group discussion is conducted in two stages.
In the first group discussion, the chairman of the panel of selectors
requests the group to select a subject which can be economic, political, social educational or even
a lighter subject. The subject is decided by the group itself out of the various
topics given to it. When the topic is finalized, the members of the group discuss it. In the second
group discussion, a case is given. The case is distributed in
advance. The evaluation of the group discussion
is done by a board consisting of the personnel
director, the director
of the division in which the applicants have to be absorbed, a senior manager of the same division,
and a senior manager of other division.
The board evaluates the candidates along the following factors: Style of self introduction by the candidate, his general knowledge
and knowledge of his subject,
clarity of thought
and logic, lucidity of expression, tolerance
of others views, persuasiveness and leadership qualities.
Each selector is given a blank sheet to evaluate
the candidates. He evaluates the candidates individually.
After
the group discussion, personal interview is conducted by the board.
On the completion of the individual
interviews, the board members held discussion among themselves and then arrive
at a consensus.
Questions:
1. What type of selection should
be adopted by the company?
2. What is considered in time of screening
the application forms?
3. What is the basic objective of the preliminary interview?
4. What should be the size of groups for final selection?
Case study 16
Berkely Investments is a reputed
finance company having
15 branches in different part of the country. In the home office there are more than 200
employees. This company has a performance rating under which the employees are rated at six months intervals by a
committee of two executives. Graphic scales have been used as means of appraisal. The qualities considered are responsibility, initiative, and interest in work, leadership potential,
co-operative attitude and community activity. After the performance is evaluated, the ratings
are discussed with the concerned
employees by their immediate boss who counsels
them. The ratings aroused to influence promotions and salary adjustments
the employees and also as a criterion for assigning further rating for them.
Recently three employees of the company called on the company’s president to express their dissatisfaction with the ratings they had received. Their scores and composite ratings had been discussed with them. Because their ratings were comparatively low, they had been denied annual increments in salary. Approximately, two thirds of all the employees received such increments. The aggrieved employees argued that their ratings did not accurately represent their qualifications or performance. They insisted that “community activity” was not actually a part of their job and that what they do off the job is none of the company’s business. They expressed their opinion that employees should organize union and insist that salary increase be automatic.
The threat of a union caused concern to the officers of the company. This particular experience convinced the top officers that ratings may represent a serious hazard to satisfactory relationship with employees. Even the chief executive finds that performance appraisal is a dangerous source of friction and its hazards outweigh its values; so it should be discontinued altogether.
Questions:
1. How far do you agree
with the management that performance appraisal
should be discontinued?
2. If you were the HR manager, how would you tackle the situation?
3. What modifications would you suggest
in the performance appraisal system
of the company
Case study 17
MARKETING MANAGEMENT
Six to Seven is a telecommunications company
marketing state of the art telecommunications equipment. The company is currently in the process
of developing a new generation type of mobile phones. When developed, this phone will enable users not
only to make standard
telephone calls and connect to the Web, but will have a small screen which will enable users to view the person at the other end of the line in high definition, unlike
competitors’ models whose definition characteristics leave a lot to be desired. Needless
to say, investment to develop the technology
and market the product is substantial. As part of the development process, the company is eager to find out more about potential
customers for this product. In particular, they are interested in finding out if there is a market for the product,
how big this market might be, and how customers
will respond to this concept.
They propose hiring a specialist market research agency with skills in the area of researching buyer behaviour, particularly for new product concepts.
QUESTIONS
1. What areas of buyer behaviour should this proposed research encompass, and why?
2. What types of research techniques might be useful in researching these areas?
Case study 18
DERIVATIVES AND FINANCIAL RISK MANAGEMENT
1.
Calculate the optimal hedge ratio from the following
data. The spot and futures prices of certain commodity are given below.
|
Month |
Spot price |
Nearby Futures price |
Distant futures price |
|
Jan |
603 |
617.2 Mar |
624.6 Jun |
|
Feb |
609 |
619.5 Mar |
627.8 Jun |
|
Mar |
601 |
603.2 Mar |
614.7 Jun |
|
Apr |
587 |
599.0 Jun |
606.3 Sep |
|
May |
598 |
608.4 Jun |
612.7 Sep |
|
June |
596 |
597.1 Jun |
604.9 Sep |
|
July |
612 |
621.7 Sep |
627.3 Dec |
|
Aug |
616 |
623.3 Sep |
629.6 Dec |
|
Sep |
623 |
621.8 Sep |
623.7 Dec |
|
Oct |
614 |
622.4 Dec |
628.4 Mar |
|
Nov |
620 |
627.8 Dec |
631.1 Mar |
|
Dec |
615 |
623.7 Dec |
627.2 Mar |
|
Jan |
621 |
629.2 Mar |
632.8 Jun |
|
Feb |
618 |
627.2 Mar |
631.2 Jun |
|
Mar |
627 |
628.1 Mar |
632.4 Jun |
|
Apr |
624 |
629.2 Jun |
633.7 Sep |
|
May |
630 |
639.3 Jun |
642.1 Sep |
Case study 19
The Wheat
future contract prices of the month of Sep for 20 days was given. The starting
date of Sep 2 to Sep 21. The contract size is 100 quintals of wheat and price for one quintal
is Rs.600. The Settlement price of the contract From Sep 2 to Sep 21 is Rs. 600, Rs. 598.20,
Rs. 593.60, Rs. 594, Rs. 589.50,
Rs. 584. 80, Rs. 582.20, Rs. 583.70, Rs. 577.30, Rs. 577.10, Rs. 572.40, Rs.
570.10, Rs. 568.50, Rs. 569.80, Rs. 573.80, Rs. 573.60, Rs. 577.30, Rs.
576.80, Rs. 578.80.and Rs. 578 respectively.
Explain the concept of Marking to market if the initial margin Rs. 6000
and maintenance margin Rs. 4500. Find
out the payoff for long and short position.
Case study 20
|
Date |
Settle Price |
|
27-May-16 |
2619.05 |
|
30-May-16 |
2682.25 |
|
31-May-16 |
2613.55 |
|
01-Jun-16 |
2678.10 |
|
02-Jun-16 |
2694.55 |
|
03-Jun-16 |
2673.10 |
|
06-Jun-16 |
2654.20 |
|
07-Jun-16 |
2672.45 |
|
08-Jun-16 |
2653.45 |
|
09-Jun-16 |
2616.50 |
|
10-Jun-16 |
2594.10 |
|
13-Jun-16 |
2583.65 |
|
14-Jun-16 |
2571.10 |
|
15-Jun-16 |
2592.95 |
|
16-Jun-16 |
2593.80 |
Case study 20
Determine the value of call option and put option using B – S option pricing model. The share is currently selling at Rs. 124 and the standard deviation of the stock is 0.5. The option has an exercise price of Rs 130 and has 4 months to go for expiration. The risk free rate of interest is 12%.
Case study 21
Calculate the pay-off of long put from the following data and draw the pay -off diagram
|
Underlying asset |
Reliance stock |
|
Type of option |
Put option |
|
Style of option |
European |
|
Position |
long (Buyer) |
|
Exercise price |
Rs 150 Per share |
|
Option Premium |
Rs 10 Per Share |
Calculate the pay-off of long Call from the
following data and draw the pay -off diagram
|
Underlying asset |
Infosys stock |
|
Type of option |
Call option |
|
Style of option |
European |
|
Position |
long (Buyer) |
|
Exercise price |
Rs 130 Per share |
|
Option Premium |
Rs 10 Per Share |
Spot Price at expiration say: Rs 100 , Rs 110 , Rs 120 , Rs 130 ,
Rs 140 , Rs 150 Per share.
Case study 23
Calculate the pay-off of short call from the
following data and draw the pay -off diagram
|
Underlying |
Infosys stock |
|
Type of option |
Call option |
|
Style of options |
European |
|
Position
|
Short (seller) |
|
Exercise Price |
Rs 120 |
|
Option Premium |
Rs 2 per share |
Assume spot price at expiration is Rs 100, Rs 110, Rs 120, Rs 130, Rs 140 , Rs 150 Per share
Case study 24
The current market price of a share is Rs 155. the volatility of
the share is measured as 20 % the risk-free interest rate is currently 8 % per
annum. there is a call option and put option on the share. Time to expiration
is 6 months with exercise price Rs 150. calculate put option price using
put-call parity of call price is Rs 12.
CASE STUDY 25
Find
out put option price from the following data
|
Current
stock price |
Rs
160 |
|
Strike
price |
Rs
150 |
|
Call
option price |
18.73 |
|
Risk-Free
interest rate |
8
% p.a |
|
Time
to expiration |
6
months |
Use put -call parity
relation formula.
Case study 26
Companies
A and B face the following interest rates (adjusted for the differential impact
of taxes):
|
|
A |
B |
|
US
Dollars (floating rate) |
LIBOR+0.5% |
LIBOR+1.0% |
|
Canadian
dollars (fixed rate) |
5.0% |
6.5% |
Assume
that A wants to borrow U.S. dollars at a floating rate of interest and B wants
to borrow Canadian dollars at a fixed rate of interest. A financial institution
is planning to arrange a swap and requires a 50-basis-point spread. If the swap
is equally attractive to A and B, what rates of interest will A and B end up
paying?
Case study 26
Consider a three-month
futures contract on a particular stock Index. Further assume that the stock
Index provides a dividend yield of 3% p.a the current value of the stock index
is Rs 900 and the continuously compounded risk-free interest rate is 8% p.a
determine future price of Index.
Case study 27
From the following data, Calculate
the value of the Call option under Black -Scholes model
|
Current market price |
Rs 165. |
|
Exercise price |
Rs 150. |
|
Risk free rate |
6 % p.a |
|
Period |
2 years |
|
Standard deviation |
15% |
. Find the value of a
one-year option from the following data
|
Type of option |
Call Option |
|
Style of Option |
European |
|
Current Stock Price |
Rs 150 |
|
Exercise Price |
Rs 160 |
|
Up factor |
20% |
|
Down Factor |
10% |
|
Risk free interest rate |
9 % |
Find
the value of a one-year option from the following data
|
Type
of option |
Call
option |
|
Style
of option |
European |
|
Current
Stock Price |
Rs
150 |
|
Exercise
Price |
Rs160 |
|
Up
factor |
20
% |
|
Down
factor |
10
% |
|
Option
Period |
one
year |
|
Risk
free interest rate |
9
% p.a |
Use Replicating Portfolio strategy of Binominal
Model
Case study 30
From the following information, calculate call option value and put option value
|
Current market price
(S) |
Rs 100 Per share |
|
Exercise price (K) |
Rs 80 Per share |
|
Volatility of share
price |
30 % |
|
Risk- free interest
rate |
10 % p.a |
|
Time to expiration
(T) |
3 Months |
Use Black -Scholes
formula .
The stocks underlying
an index provide a dividend yield of 4% per annum, the current value of the
index is 520 and that the continuously compounded risk-free rate of interest is
10% per annum. Find the value of a 3-month forward contract.
A forward contract on a non-dividend paying
share which is available at Rs 70, to mature in 3 months’ time. If the
risk-free rate of interest be 8% per annum compounded continuously, find the
price of the contract.
Calculate the pay-off of Short Call from the
following data and draw the pay -off diagram
|
Underlying asset |
Infosys stock |
|
Type of option |
Call option |
|
Style of option |
European |
|
Position |
Short (Seller) |
|
Exercise price |
Rs 150 Per share |
|
Option Premium |
Rs 5 Per Share |
Spot Price at expiration say: Rs 130 , Rs 140 ,
Rs 150 , Rs 160 , Rs 170 , Rs 180 Per share
|
|
||||||||||||||
Calculate lower bound from the following data
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Probability of Occurrence |
Return on Alpha’s Scrip |
Return on Beta’s Scrip |
|
0.05 |
-2.0 |
-3.0 |
|
0.20 |
9.0 |
6.0 |
|
0.50 |
12.0 |
11.0 |
|
0.20 |
15.0 |
14.0 |
|
0.05 |
26.0 |
19.0 |
If the investor invests equally in both scrip, what would be the return to the investor.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Q |
P |
||
|
Return
% |
probability |
Return
% |
Probability |
|
20 |
0.1 |
13 |
0.1 |
|
16 |
0.4 |
16 |
0.2 |
|
10 |
0.3 |
22 |
0.3 |
|
3 |
0.2 |
25 |
0.4 |
Which is the better
security Q or P?
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Portfolio |
Average annual return |
Standard deviation |
Correlation co-efficient market |
|
A |
18 |
27 |
0.8 |
|
B |
14 |
18 |
0.6 |
|
C |
15 |
8 |
0.9 |
|
Market |
13 |
12 |
--- |
Risk free rate of interest is 9
Rank these portfolios using Sharpe’s and
Treynor’s method.
Vigilant
company stock is currently selling at ₹ 25
Per share. The stock is expected to pay ₹ 1
as dividend per share at the end of the next year. It is reliably estimated
that the stock will be available for ₹
29 at the end of one year.
a) If
the forecasts about the dividend and price is accurate, it is advisable to buy
at the present price his required rate of return is 20%
If
the investor requires 15 % return when the dividend remain constant what should
be price at the end of the first year?
Case study 38
You
are given the following historical performance information on the capital
market and a mutual fund
|
Year |
Mutual
fund beta |
Mutual
fund return (%) |
Return
on market index (%) |
Return
on Government securities (%) |
|
|
1 |
0.90 |
-3.00 |
-8.50 |
6.50 |
|
|
2 |
0.95 |
1.50 |
4.00 |
6.50 |
|
|
3 |
0.95 |
18.00 |
14.00 |
6.00 |
|
|
4 |
1.00 |
22.00 |
18.50 |
6.00 |
|
|
5 |
1.00 |
10.00 |
5.70 |
5.75 |
|
|
6 |
0.90 |
7.00 |
1.20 |
5.75 |
|
|
7 |
0.80 |
18.00 |
16.00 |
6.00 |
|
|
8 |
0.75 |
24.00 |
18.00 |
5.50 |
|
|
9 |
0.75 |
15.00 |
10.00 |
5.50 |
|
|
10 |
0.70 |
-2.00 |
8.00 |
6.00 |
|
Calculate
the following risk adjusted return measures for the mutual fund:
· Reward-to-variability
ratio
· Reward
–to-volatility ratio
Case study 40
If
the market price of the bond increases, the yield would decline and vice versa.
|
Example |
Bond A |
Bond B |
|
Par Value |
₹
1000 |
₹
1000 |
|
Coupon rate |
10% |
10% |
|
Maturity period |
2 years |
2 years |
|
Market price |
Rs. 874. 75 |
Rs. 1035. 66 |
· Calculate the yield value.
Check
whether the above statement is correct or not.