Name:

Sec:

IAPM ET

Time: 1.5 Hrs

Date: 8th Jul 2014

Attempt all questions. Write your answers only in the separate answer sheet provided. Untidy work will be
penalized for descriptive answers. Use ONLY ball pen for writing your answers. Calculators are allowed.
Max Marks 50

1. Quotes from a dealer are given the table A below and the trades by an investor following these quotes
are given in table B.
Table A
Bid
Time
12.00pm
01.00pm
02.00pm

Time
12.00pm
01.00pm
02.00pm

Quote
846.69
844.92
839.95

Qty.
1000
3000
6000

Ask
Size
30000
30000
30000

Table B
Price (avg.)
846.72
844.98
839.65

Quote
846.81
845.01
840.06

Size
40000
40000
40000

Buy/sell
Buy
Buy
Sell

Estimate the following:

a. Quoted spreads for the three trades.

b. Effective spreads for all the three trades.

2. Exhibit 1 shows typical contract specifications of Gold petal at MCX (India). If an investor took short
positions in 7 such contracts at a contract price of Rs. 2788 (ignoring any difference for purity), calculate
the following:
a. Notional contract value at contract initiation

b. Total Initial Margin in Rs.

c. Total Maintenance margin in Rs.

d. Balance amount in the account (assuming initial balance is equal to initial margin) at the end of Day 1, 2
and 3 when there is an increase of Rs. 34 in Day 1, decrease of Rs. 67 in Day 2 and an increase of Rs. 28
in Day 3.
3
e. Variation margin applicable on each day.

3. For ABC Fund, Net asset value in Rs. is 7800 million while number of units as on 30th June 2014 is 130
million. If the fund has made a capital gain of 12% in a period while it has paid total dividends of 2.5% of
their initial net assets, assuming dividends are paid at the end of the period, calculate the following:
a. Net asset value per unit (NAV), number of units outstanding and total dividend received per unit in Rs. by
the investors for the Growth option at the end of the period.
3
b. Net asset value per unit (NAV), number of units outstanding and total dividend received per unit in Rs. by
the investors for the Dividend repayment option at the end of the period.
3
c. Net asset value per unit (NAV), number of units outstanding and total dividend received per unit in Rs. by
the investors for the Dividend payout option at the end of the period.
3
4. Tom, Dick and Harry each contributes Rs. 300 million towards an ETF in the form of their shareholding in
their own firms stock. The share prices were Rs. 150, 300 and 60 for each of their stocks at the initiation
respectively. A total of 30 million ETF units were created by the trust overseeing this ETF at the initiation.
After a year the share prices are Rs. 175, 280 and 85 respectively for these three stocks. Calculate the
following:
a. Number of shares of their own stock contributed by each of these investors to the ETF.

b. Unit price of the ETF at the initiation.

c. Number of shares of each stock in each ETF unit created.

d. Unit price of the ETF after one year.

e. If Tom wants to submit all the units he has back to the trust, what will be the value of each stock he will
posses after submission at the end of the year.
2
f. Assuming there is a capital gain tax applicable for the sale of securities, which stock Tom will sale for
avoiding any taxations and to realize immediate cash.
1
5. Three factors, F1, F2 and F3 were found significant in explaining returns for six stocks mentioned in table
C with their respective exposures for each stock.

A
B
C
D
E
F
Average
Stdev

Table C
F1
F2
28
177
11
102
15
105
20
194
21
123
7
85
17
131
7.56
44.23

F3
26
49
20
28
73
65
43.5
22.19

Estimate the following:

a. Z-scores for all the stocks and for all the factors.

b. Following more-the-better scheme for Z-scores and eliminating negative z-scores, stocks are to be
ranked for factors F1 and F2 in that order sequentially. The remaining stocks are then to be screened for
F3. The best stock will be the stock with higher z-score. Identify the best stock after this sequential screen.
3
c. In a panel regression of returns on these stocks with the Z-scores of the three factors for a period of time,
the betas identified are 0.59, 0.87 and 0.13 respectively for the three factors. Conduct a simultaneous
screen to identify the best stock.
3
6. A two year treasury principal strip with a face value of Rs. 1000 is now trading at Rs. 870. One year
forward rate one year from now is 8.10%. Estimate the value of a two year 5% annual coupon treasury
bond with a face value of Rs. 1000.
3
7. A two year 5% annual coupon treasury bond with a face value of Rs. 1000 is currently yielding 9%. For a
change of +/- 0.25% in the yield estimate the following:
a. Effective duration

b. Effective Convexity

c. Price of the bond at both the changed yields using Effective duration

d. Price of the bond at both the changed yields using Effective duration and convexity

Exhibit 1
Contract Specifications
Contract Months
Expiry Date
Trading Unit
Quotation
Price quote

Maximum order size

Tick size
Daily Price Limit/maintenance
margin
Initial Margin
Tender period
Delivery Period
Delivery period margin
Delivery/contract Unit
Delivery logic
Delivery Center

Quality Specification

Due Date Rate Calculation

Making charges for taking delivery

GOLD petal (1gram)

January to December (monthly contract)
Last day of the contract expiry month
1 Gram
1 Gram
Ex-Mumbai excluding Sales Tax / VAT, any other additional tax or
surcharge on mumbai (inclusive of all taxes and levies relating to import
duty, customs,sales tax, local taxes and octroi)
10 kg
Re. 1
3%
4%
5 preceding days before the contract expiry month.
1st working day after the contract expiry
25% on marked quantity.
In multiples of 8 grams
Compulsory
Group 4 Securitas at Mumbai and at additional delivery centers at
Ahmedabad ,New Delhi,Hyderabad, Bangalore, Chennai and Kolkata.
999 purity, It should be serially numbered Gold Guinea supplied by LBMA
approved suppliers or other suppliers as may be approved by MCX, to be
submitted along with suppliers quality certificate
Exchange shall announce the DDR based on the Mumbai Spot price for
Gold (10gms) 995 purity, which shall be converted to 999 purity (Gold
Spot price 995 purity * 999/995), polled on the last day of the expiry of
this Gold Petal contract by around 5.00pm. The arrived spot price will be
converted for 1 gms Gold Petal (Gold spot price per 10 gms X 1/10). No
trading shall be allowed after the declaration of DDR
Buyer shall have to pay Rs. 200/- (over and above the DDR) per Gold
Guinea as a making charges, which shall be paid to the seller.