STUDENT ROLL NUMBER ________________________

QP Code - AA

Total time to complete = 80 minutes

Total Marks = 50
July
2015
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General Instructions Do not write anything on the Question Paper. Attach
your question paper alongwith your answer paper.
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PART 1 Answer ANY 10 questions from the following LIST A and B. You
cannot choose more than five from each LIST. Answers have to be written
in one place only. A good answer should typically be between 4 to 8 lines
and be made of 3-4 sentences. One sentence answers and also those
more than 8 lines will not be evaluated. Answer all questions together in
one place.
You are tested for your ability to articulate an idea/concept crisply.
Estimated time to complete 20 minutes. Each question carries 2 marks.
2x10=20
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LIST A
1.
2.
3.
4.
5.
6.
7.
8.

Market Makers
Reverse Repo
Crowding Out
Multiple Price
Samurai Bonds
Impossible Trinity
Market Imperfections
Bond Convexity

LIST B
9.
10.

AAA
Fisher Hypothesis on Interest

rates

11. Primary Dealers

12. Financial Market
Intermediaries
13. Yield Curve
14. NDS

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PART 2 Interpretation of business news.
Webster definition of Headline a head of a newspaper story or article
usually printed in large type and giving the gist of the story or article that
follows. Below you find a few Headlines from business newspapers.
Interpret and expand on the Headlines, in your own words. Answers should
not exceed more than 10 lines. Answer all questions together in one place.

You are tested for your ability to relate class room discussions to financial
market events.
You may answer any numbers of questions. However, four
questions carry full marks for this Part.
Estimated time to complete 20 minutes. Each question carries 4 marks.
4x4=16

Q. 1: Fed proposes tweaks to stress test rules for banks : Source

Reuters; 18 Jul, 2015
Q 2 : Indian banks plan to slow purchase of government securities after
rise in yields : Source Reuters 17 Jul, 2015
Q. 3 : "I do not think that Greece will have lasting negative impact on the
emerging markets as a whole" - Teresa C Barger, Co-Founder & Sr MD,
Cartica Capital - Economic Times, July 17, 2015
Q. 4 : Companies line up non-convertible debentures to raise Rs 17,000
crore Source : Press Trust of India, 15 Jul, 2015
Q. 5 : RBI to sell bonds for Rs 10,000 crore next week to suck liquidity
Source : Economic Times Bureau, 11 Jul, 2015
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Part 3: Mini-Problems. Evidence your answers with proper workings.
Important Results derived directly from Financial Calculators will
earn ve marks
You may answer any numbers of questions. However, four
questions carry full marks for this Part. Answer all questions
together in one place.
Estimated time to complete 20 minutes. Each question carries 3 marks.
3x4=12
Q. 1 : Calculate the Current Yield and Simple Yield to Maturity for the

following security:

(Assume that the Interest payment dates are exactly coinciding with the
date of trading)
Q 2 : 9.5% Power Finance Corporation Bonds with FV of Rs.10 lakhs (INR 1
million) are trading at Rs.102.2345. Interest payment dates for the Bond
are March 01 and September 01. Calculate the dirty price of the bond to
the buyer. Assume Actual/Actual interest payment convention. Also find out
what is the amount the buyer of the bond will have to cut his cheque for.
Q 3 : Given below are the details of two TBs traded on 15/07/2015:
Maturity date
LTP

182 days TB
15/10/2015
98.1234

364 days TB
15/01/2016
96.1234

Calculate the implicit yield for three months, three months from now
(Hint : Calculate the Treasury Bill Yields first)
Q 4 : Govt. of India had called for a Bond
Auction through RBI on 01/01/2025 for
some security for FV of Rs.2000 crores
under Uniform Price Auction. Only four
Primary Dealers (PDs) had responded to the
auction. The details are given alongside.
What is the total amount of money raised by the Government? Also identify
the allotment amounts for each PD.
Q 5 : Assume you just deposited Rs.10,000 into a bank account. The
current real interest rate is 2% and inflation is expected to be 6% over the
next year. What minimum nominal interest rate would you require from the
bank over the next year so that you do not lose out on this investment? If
the bank pays you the minimum nominal interest rate as per your
expectation, how much money will you have at the end of one year? If you
are saving to buy a washing machine that currently sells for Rs10,500, how
much money will you have surplus in the bank after the purchase of the
washing machine or will you need more money to buy it?
(if you are making any specific assumptions, state them clearly).
Q. 6 : The duration of a $100 million portfolio is 10 years. $40 million in
new securities are added to the portfolio and as a consequence, the
duration of the portfolio increases to 12.5 years. What is the duration of the
$40 million in new securities?
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Part 4: Evidence your answers with proper workings.

Important Results derived directly from Financial Calculators will
earn ve marks
PVIF Calculations and Price values have to be to the fourth
decimal
Estimated time to complete 25 minutes.
18 marks
Calculate the required measures in parts (a) through (d) for bonds A and B.
Needed details are below.
Bond A G-Sec
Bond B Corp.
Bond
Coupon
7%
9%
Yield to maturity
8%
9%
Maturity (years)
2
4
(a)
Compute the Macaulay duration and Modified duration for the
two bonds
(b)
Calculate the actual price of the bonds for a (i) 10 bps increase
and (ii) 100 bps decrease in interest rates.
(c)Using duration, estimate the prices of the bonds for (i) 10 bps
increase and (ii) 100 bps decrease in interest rates.
(d)
Comment on the accuracy of your results in part c, and state
why your estimates in (c) are not as good as that in (b).
(e)
Translate your comment in (d) with a pictorial representation in
a Chart.

Part 5 : Bonus Questions

1. I belong to Team Number ________ and my Team Name is
_________________ (1 mark)
2. What is the total called out by RBI for auction on July 17, 2015? What
is the total amount for which your Team bid under the auction?
(2 marks)
3. There was a news item circulated to the students as reading material
on July 18, 2015 (the last one before this exam). Write a brief note on
its contents
(3 marks)
4. Greece Contagion Vs. China Contagion
(4 marks)