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1. Aman kabir is the CEO of a public limited company which is facing threats of a hostile
takeover. As a tactic, he issues a large number of bonds that must be redeemed at a
greater value if his company is taken over. What is this tactic known as?

2. Ameerchand associates & company issued $50 million preferred shares. The shares are
mandatory redeemable type and carry a face value of $1000 each. The dividend
applicable is 7%. If the maturity of issue is reached in 5 years, which of the following
statements is least likely correct?

A. Improvement of Debt/Total capital ratio.

B. ranking of preferred shareholders below debt holders should the company file for
bankruptcy.
C. Deterioration of the interest coverage ratio

3. The difference between the forward premium and the spot exchange rate is roughly
double the cost of hedging.(True/False)

4. Identify the gentleman in the picture below

5. Durga owns a company. The company owns a lot or short term securities and money
instruments, has huge liabilities with small equity base with its net worth impacted by
movements in short term interest rates. What sector is the company in?
a. Petrochemicals
b. Banking
c. Shipping
d. Telecom
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6. Which of the options given below best represent Continuing value of a company?
Terminology : NOLAT – Net operating profits less adjusted taxes
FCF - free cash flows
g - growth rate in NOLAT
WACC - weighted average cost of capital

7. Which of the following may be used to derive the probability of default in Merton
model?
a. a call option
b. a call and a put option
c. two put options and a call option
d. a put option

8. Determine the strike price K, for put call option using the following information
a. Risk free interest rate, compounded continuously , is 6%
b. Current price of one share of Alpha ltd. Is Rs 500
c. No dividends are paid
d. A European put option on one share of alpha ltd with a strike price of K that
expires in a year costs Rs 18.64
e. A European call option on one share of alpha ltd with a strike price of K that
expires in a year costs Rs 66.59

9. What is the time period between retirement (usually from a govt. job) and the next
assignment (usually in the private sector) called?
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10. Which of the following companies would you expect to have a low dividend-payout
ratio?
I. A company with a large proportion of inside ownership , all of whom are high-
income individuals
II. A growth company with an abundance of good investment opportunities
III. A company experiencing ordinary growth that has high liquidity and much
unused borrowing capacity
IV. A dividend-paying company that experiences an unexpected drop in earnings
from a trend
V. A company with volatile earnings and high business risk

a. I, II and IV
b. I, II, III and V
c. I, II and V
d. All five

11. Sa-Re-Ga-Ma Corporation makes musical instruments and expects only moderate
growth. The company has just paid a dividend and is contemplating a dividend of $1.35
per share 1 year hence. The present market price per share is $15, and stock price
appreciation of 5% per annum is expected. If required return on equity were 14% and we
lived in a no-tax world, what would be the market price per share at the end of the year if
dividend was paid and if no dividend was paid respectively?

a. $17.1 and $15.75

b. $15.75 and $17.1
c. $17.75 and $15.1
d. $15.1 and $17.75

12. Which is true about the Green Shoe Provision after an actual company?
I. The option for underwriters lasts for a few weeks only
II. The maximum allowed security offering is 15%
III. It benefits only to the issuer

a. I and II only
b. I and III only
c. All the three
d. Only II
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13. In 2001, some 1, 26,280 employees of a particular profession opted for VRS (Voluntary
Retirement Scheme) in India. Which profession was it?

14. Who argues that profit is a payment for rental ability?

15. Which type of option reduces uncertainties associated with the timing of market entry?

a. Chooser options.
b. Barrier options.
c. Binary options.
d. Lookback options

16. The famous WorldCom scam resulted in plummeting of its stock price

a. From $60 to $0.2

b. From $80 to $0.8
c. From $70 to $0.5
17. From $90 to $1.0

17. Identify this American businessman and investor and the chairman and co-founder of
an private-equity and financial advisory firm.

18. An Indian steel manufacturer enters into a contract of exporting 10K tonnes of saleable
steel and is likely to get a payment after 6 months in US Dollars. His risk is

a. When INR weakens, he makes a loss

b. When INR weakens, he makes a profit
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c. When INR strengthens, he makes a profit

d. When INR strengthens, he makes a loss

19. Bond 1 priced at $1000 and pays $100 at the end of year 1 and $1100 at the end of year 2
Bond 2 priced at $800 and pays $1000 at the end of year 2.If a risk free party pays you
10% for use of funds you get at the end of year 1. What arbitrage opportunities do you
have and subsequently which investment are you likely to go for to get maximum return
at the end of year 2. (Assuming you have very small but equal no. of bonds of both)

a. Sell bonds of 1 and invest all in bond 2

b. Sell bonds of 2 and invest all in bond 1
c. Sell bonds of 1 at the end of year 1 and invest everything in bonds of 2
d. Do not sell any bond.

20. You are suggested that the volatility of a stock is higher than indicated by market prices
for options on that stock, and you want to make speculations on basis of this by buying or
selling money options, what would you do?

a. Buy a strangle
b. Buy a straddle
c. Sell a straddle
d. Buy a butterfly spread
e. Sell a butterfly spread

21. Given below are some statements about zero-cost purchased collars. Which among these
is false?
a. these can be created by setting both the put and call strike prices at the forward price.
b. the number of zero-cost collars is infinite.
c. The put option can be at-the-money.
d. The call option can be at-the-money.
e. The strike price on the put option must be at or below the forward price.

22. This economic philosophy has believers in bill Clinton and Tony Blair among others.
Earlier used to describe Sweden’s economic model, this philosophy advocates a way
other than capitalism and socialism. What is it?

23. How many of the following represent a free value problem?

1. When to pay the dividend on a stock
2. When to exercise an American style option
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3. When to convert a convertible bond into stock

a. One
b. Two
c. Three
d. Zero

24. Find the convexity of a six year 8% annual coupon bond selling at par
a. 12
b. 2.35
c. 28
d. Can’t be determined

25. Mortgage backed securities, callable corporate bonds and bond options share something
in common. What is it?

26. In option terminology, the dollar duration of zero is equivalent to _____ portfolio.

27. The exchange of 3month LIBOR for 10-year swap rate is an example of
a. Basis swap
b. Differential swap
c. Quanto swap
d. Constant maturity swap

28. Why does a business man indulge into the formation of a corporate entity instead of a
sole proprietorship?
a. Lower taxes
b. Less regulations to abide to
c. Ease in raising funds
d. Liability is restricted

29. Recession and high interest rates are economic phenomena characterized by:
a. Diversifiable risk
b. Risk pertaining to a sector
c. Unsystematic risk
d. Market risk
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30. Which option will maximize your effective return?

a. 10% interest on 1000 bucks compounded quarterly
b. 10.2% interest on 1000 bucks compounded annually
c. 9.6% interest on 1000 bucks compounded daily (not a leap year)
d. 10.1% interest on 1000 bucks compounded half yearly

31. In a hostile acquisition which is not a barrier?

a. Shareholder voting right
b. purchase of shares targeted
c. Poision pill
d. non pecuniary benefits

32. If the earning per share is maximized then the stockholders wealth is maximized?
a. Yes
b. No

33. In the US, stock of most US based companies is traded in

a. New York Stock Exchange
b. American Stock Exchange
c. Over the counter market
d. None of the above

34. Naya Ujala bonds were issued in the market recently. But due to some market sentiments
it has lost its rating from AAA-BBB to a BB grade. What is the name given to such
bonds?

35. Pick the odd one out

a. 1857
b. 1797
c. 1839
d. 1849