Financial Derivatives

Time Value of money

compounding
standard annaul contracts FV= PV(1+r)^n r= rate, n=time

multiple coupon pymts FV=PV(1+r/m)^nm r=rate, n=time, m=months

continious compounding method FV= Pve^rn r= rate, n=time

discounting
FV= 50000
PV= FV/(1+r)^n r=.1
n= 2
PV= FV/(1+r/m)^nm

PV= FV e^-rn

1) what is the present value of Rs 50000 that is to be received by you after two years? Assume 10% as interest rate.
a) interest compounding is done on annual basis
b) interest compounding is done on quarterly basis
c) interest compounding is done on continious basis

2) what is the future value of Rs 50000 deposited for 3 years at a bank assume 10% as interest rate
a) interest compounding is done on annual basis
b) interest compounding is done on quarterly basis
c) interest compounding is done on continious basis

Day count convention Bond

Coupon
A/360 Days
A/365
A/A
30/360

Forwards
Fo= Po e^rt Fo= forward price of the asset on day '0'
Po= spot price of the asset on day'0'
 r= rate of interest
t= life of forward contract

1) Assume the spot price of the asset is Rs 1200 and the only carrying cost is borrowing the money at 11%, what is the fair p

Fo= 1200 e^.11*1 0.11

1200 1.11627807045887
1339.53368

2) A stock is expected to pay dividend of Re.1 per share in 2 months and again in 5 months.
the stock price is currently Rs 50 and risk free interest rate is 6% per annum. An investor takes a short position in a six month f
what is the stock's forward price?

Fo= (Po-I)e^rt I= income(dividend/interest

PV= 1/e^rt r
0.06
0.06
Option Pricing

Implied repo rate

the agreement is made for a one time period, assume the price recevied by Abhishek
and that the price paid by Abhishek one period from now is Rs.108

IRR= (F-P)/P x 365/n

F=Future price
P=spot price
n=number of days

108 108-100/100
100

3) In march the following prices are observed for a specific asset. Compute the implied spot rate and march forward repo ra

Spot= 153.25
April=154.75
May=155.25
the implied repo rate is equal to:

(f-p)/p x 365/n April (154.75-153.25)/153.25

0.00978792822186
 May May 0.003231017770598

4) sivam securities will need to purchase a security in 75 days, it expects the security prices to rise by that time, so it decides to
the spot price of the asset is Rs 5000. if the interest rate is 7.5% pa (A/360).
calculate the price of the 75 day and 90 days forward for the security. Which contract should it use for its purpose?

Fo= Po e^rt
90 days Fo = 5000 e^ .075*90/360

75 days

Hedging with futures and forwards

future
4.5 Lakhs 800x500 4lakhs

10
70000 10 700000
35000
735000

100 105 in the money<

100 100 at the money=
100 95 out of the m >
spot price intrensic pricextrensic value
90 0 10
95 0 5
100 0 0
105 5 0
110 10 0
115 15 0
120 20 0

Eg: S= 550, E= 490, t= 6months, r= 10%pa, N(d1)= 0.8592, N(d2)= 0.7245 C=?

.1*.5
0.05
1.051271096376 466.102418 337.691201844876

Eg2: calculate the value of call option and put option Step1= Given
Current market price of stock= Rs 165 So= 165
Exercise price = Rs 150 E= 150
Riskfree rate of interest= 6%pa r= 6% pa
Period= 2 years t=2 years
Standard deviation= 15% pa SD= 15%
C= ?
P=?

step5= calcualtion of n(d1)

Eg3: calculate the value of call option Step1= Given

Current market price of the stock = 380 So= 380
exercise price= Rs 400 E= 400
r= 5% 0.05 0.0125 r= 5% pa
t= 3months 0.25 t=3 months
Sd= 22% SD= 22%
C= ?
P=?

Eg4: calculate the value of call option Step1= Given

spot price of the stock = 80 So= 80
strike price= Rs 75 E= 75
r=12% r= 12% pa
t= 6months t=6 months
Sd= 0.4 SD= 0.4
 0.4 C= ?
P=?
1.125 d2=

d2=

3
0.23 0.23 (.23x.23)/2 N(d1)

0.0529
0.02645
0.08 4
0.10645

0.5 0.707106781187

0.10645 0.5 0.053225 0.171008035656383

0.162634559672906
1.05148644913061

1-0.8130 0.1465 d1
1-0.8535 0.187 d2

14.37341 -

1
a Ln(s/x)
Ln(42/40)
0.048790164169432

b (r+o^2)/2

0.1
 0.11
c o√t
0.2

0.14142135623731

d 0.048790164169432

0.108790164169432
0.769262628106032

0.779131290942669

u= e^o√t/n

-0.25
1
3
0.333333333333
0.57735026919 0.25 0.144337567297406
u 1.15527402544014

-0.25 0.577350269189626
d

p 0.05
1.01680633038626

0.151210828384894

0.289678523438777

Swaps
1. Suppose company A entered into a 3 year fixed to floating interest rate swap on a principal of Rs.100mn where in it agreed
and receive 6-month MIFOR cosider that the first effective date is 23/3/2000 and the maturity date is 23/3/2002.
on the trade date the MIFOR is observed as 8.3% and on susequest dates assume MIFOR is as given below. Assuming 30/360 d

Effective date MIFOR fixed leg for A

Mar 23.2000 8.3
Sep 23.2000 8.7 4.25
Mar 23.2000 9 4.25
sep 23.2001 8 4.25
mar 23,2002 8.2 4.25
sep 23.2002 - 4.25

Interest rate forwards

Yield= (100-price)/price x 365/days to maturity

A 91 days T-bill issued on Jan1 at price of Rs 96.75 what is the forward interest yield?
3.25
0.03359173126615 4.010989010989
0.134736064969
13.47360649686

2. A trader has sold 5 march t-bill contracts at a price of 95.3 and subsequently the furtures fell to 95, did he gain or loss?

100/1+(yxd/365)
100
0.011717808219 1.01171781 98.8417908507706

0.012465753425 1.01246575 98.7687728318225

0.073018018948076

Fo=Po e^(r-y)t
The futures contract on IndIndex(a braod-based stock index) will expire in 180 days, and the continiously compounded rate of
The expected dividend rate on the underlying stock for the same period is 2% on a continious basis, ignoring the interest that
find the fair value for the futures if the current value of the index is 2945.00
Fo= 2945
r=11%
y=2% Fo= 2945 e^(.11-.02)x.5 0.09
t=.5 0.5
0.045
3080.552047431 1.04602785990872

Assume that nifty stands at 1775 on March 1 and market interest rate is 9.53% continously compounding, the futures contract

0.0953
0.068493150684932
0.006527397260274
1.00654874714555 1775 1786.62403

You are contemplating to buy a futures(with a 3month maturity) contract on a stock that is currently trading at Rs.135.
if the stock does not pay any dividends, how much will you pay for it if the t-bill yield is 6%

n= (S/fx200)xbeta

S= 380 S=80
E= 400 E=75
r= 5% r=12%
t=3months t=6months
sd=22% sd=40%
call=? call=?

Binomial option pricing model

1. Risk Neutral probability approach
2. Delta Hedging/Risk free portfolio approach
3. Replicating portfolio approach
0.04
1.04081077419239
Eg2:
S= 1000 S= 500
Period= 6 months Period= 3months
E=1100 option= put?
Option= Call? Us= 600
Us=1300 ds=400
ds=900 R=12% compounded annualy
R= E=530
1. 8% compounded semi-annualy find out the value of put option
2. 8% compounded annualy
3. 8% compunded continiously

1. Vigilant company stock is currently selling at Rs 25 per share. The stock is expected to pay Rs 1 as dividend per share at the
available for Rs 29 at the end of year
a) If the forcasts about the dividend and price are accurate, is it advisable to buy at the present price? His required rate of retu
b)if the investor requreis 15% return when the dividend remain constant, what should be the prices at the end of the first yea

Ashish wants to buy wathful company stcok and hold on it for 5 years. He estimates that Rs 3.44 dividend would be paid by th
continiously for next 5 years. He hopes to sell the shares atr Rs 60 at the end of the 5th year. What is the present price?
his requried rate of return is 10%
 1 3.44 1.1
2 1.21
3 1.331
4 1.4641
5 1.61051
60

Antique arts company would pay Rs 2.5 as dividend per share for the next year and it is expected to grow indefinately at 12%.
what would be the equity value if the investor requires 20% return?

An Investor buys one December gold futures contract on 1 November at Rs 400/per gram where a Gold Future contra
and Maintenance margin is 75% of the initial margin.
Day Closing price of
gold/gm
1-Nov 400
2-Nov 403
3-Nov 398
4-Nov 390
5-Nov 392
6-Nov 387
7-Nov 394
8-Nov 401
9-Nov 405
10-Nov 410
Value of contract: Rs. 400x100 gm= Rs.40, 000
Initial Margin: 10 per cent (40000x10%=4000)and Maintenance margin is 75 per cent of Initial margin(4000)=3000

Mark-to-market: Buyer’s Margin account

Day Closing price of Daily Cumulative gain(loss)
gold/gm gain(loss)

Nov.1 400 - -
Nov.2 403 300 300
Nov.3 398 -500 -200
Nov.4 390 -800 -1000
Nov.5 392 200 -800
Nov.6 387 -500 -1300
Nov.7 394 700 -600
Nov.8 401 700 100
Nov.9 405 400 500
Nov.10 410 500 1000
 Mark-to-market: Seller’s Margin account
Day Closing price of Daily Cumulative gain(loss)
gold/gm gain(loss)

Nov.1 400 - -
Nov.2 403 -300 -300
Nov.3 398 500 200
Nov.4 390 800 1000
Nov.5 392 -200 800
Nov.6 387 500 1300
Nov.7 394 -700 600
Nov.8 401 -700 -100
Nov.9 405 -400 -500
Nov.10 410 -500 -1000

1)Assume the spot price of an asset is Rs 1200 and the only carrying cost is borrowing the money at 11%, What is the fair price

Fo= Poe^rt
F= 1200xe^.11(1) 0.11 3
1.11627807 1.39096812846378
1200 1200
1339.53368 1669.16175415654
t=2years

FRA
Ashish wants 60L after 3 months FRA Bank
A Ltd 10% pa if you take a loan today 10%
B Ltd 12% pa for 6 months then rate chages

A ltd borrwos Rs 60L after 3 months for 6 months by buying a FRA 3x9 @ 10%
calculate the net settlement with FRA bank if acutal interest rate after 3 months for 6 months is 12% and 7%

A Ltd FRA Bank

 FRA bank will recieve 2% from A ltd
Net amount= 6000000x(12-10)x 120000

Mrs Manjula goes to bank A and B and finds out that bank A is offering rate is 10% pa and bank B offering is 12% for 6 months
FRA bank offering is 6%-7%

Arbitrage process

Today: Borrow Rs 100000 @ 10% pa from bank A for 1 year

Invest Rs 100000 @12% pa in bank B for 6 months
contract to invest at FRA 6x12 @12%

After 1 year: cash in flow 100000 6000

106000 6360

cash outflow bank A@10%

Arbitrage profit

Mrs Manjula goes to bank A and B and finds out that bank A is offering rate is 10% pa and bank B offering is 12% for 6 months
by buying a FRA 6x12 @ 12% build a arbirage process for munjula with the settlements

Arbitrage process

Today: Borrow 100000@12% pa for 6 months from bank B

invest 100000@10% pa for 12 months in bank A
contract to borrow FRA 6x12 @ 7% pa

After 1 year cash inflow 100000@10% from bank A

cash outflow 106000
FRA 106000*1.035
Arbitrage
Black-sholes option pricing model
Eg1:
S=550
E/K=490
Swaps
1. Suppose company A entered into a 3 year fixed to floating interest rate swap on a principal of Rs.100mn where in it agreed
and receive 6-month MIFOR cosider that the first effective date is 23/3/2000 and the maturity date is 23/3/2002.
on the trade date the MIFOR is observed as 8.3% and on susequest dates assume MIFOR is as given below. Assuming 30/360 d

Effective date MIFOR fixed leg for A

Mar 23.2001 8.17
Sep 23.2001 8.08 4.25
Mar 23.2001 7.99 4.25
sep 23.2002 7.9 4.25
mar 23,2003 7.81 4.25
sep 23.2003 - 4.25

Interest rate forwards

Yield= (100-price)/price x 365/days to maturity

A 91 days T-bill issued on Jan1 at price of Rs 96.75 what is the forward interest yield?
3.25
0.03359173126615 4.010989010989
0.134736064969
13.47360649686

2. A trader has sold 5 march t-bill contracts at a price of 95.3 and subsequently the furtures fell to 95, did he gain or loss?

100/1+(yxd/365)
101
0.011717808219 1.01171781 99.8302087592783

0.012465753425 1.01246575 99.7564605601407

0.073748199137569

Fo=Po e^(r-y)t
The futures contract on IndIndex(a braod-based stock index) will expire in 180 days, and the continiously compounded rate of
The expected dividend rate on the underlying stock for the same period is 2% on a continious basis, ignoring the interest that
find the fair value for the futures if the current value of the index is 2945.01
Fo= 2946
r=11%
y=2% Fo= 2945 e^(.11-.02)x.6 0.09
t=.6 1.5
0.135
3370.660829915 1.14453678435131

Assume that nifty stands at 1775 on March 1 and market interest rate is 9.53% continously compounding, the futures contract

0.0953
0.068493150684932
0.006527397260274
1.00654874714555 1776 1787.63057

You are contemplating to buy a futures(with a 3month maturity) contract on a stock that is currently trading at Rs.135.
if the stock does not pay any dividends, how much will you pay for it if the t-bill yield is 6%

n= (S/fx200)xbeta

S= 380 S=80
E= 400 E=75
r= 5% r=12%
t=3months t=6months
sd=22% sd=40%
call=? call=?

Binomial option pricing model

1. Risk Neutral probability approach
2. Delta Hedging/Risk free portfolio approach
3. Replicating portfolio approach
1.04
2.82921701435156
Eg2:
S= 1000 S= 500
Period= 6 months Period= 3months
E=1101 option= put?
Option= Call? Us= 601
Us=1301 ds=401
ds=901 R=12% compounded annualy
R= E=531
1. 8% compounded semi-annualy find out the value of put option
2. 8% compounded annualy
3. 8% compunded continiously

1. Vigilant company stock is currently selling at Rs 25 per share. The stock is expected to pay Rs 1 as dividend per share at the
available for Rs 29 at the end of year
a) If the forcasts about the dividend and price are accurate, is it advisable to buy at the present price? His required rate of retu
b)if the investor requreis 15% return when the dividend remain constant, what should be the prices at the end of the first yea

Ashish wants to buy wathful company stcok and hold on it for 5 years. He estimates that Rs 3.44 dividend would be paid by th
continiously for next 5 years. He hopes to sell the shares atr Rs 60 at the end of the 5th year. What is the present price?
his requried rate of return is 10%

6 116.56 1.1
7 1.21
8 1.331
9 1.4641
10 1.61051
173.12

Antique arts company would pay Rs 2.5 as dividend per share for the next year and it is expected to grow indefinately at 12%.
what would be the equity value if the investor requires 20% return?

An Investor buys one December gold futures contract on 1 November at Rs 400/per gram where a Gold Future
Day Closing price of
gold/gm
1-Nov 400
2-Nov 403
3-Nov 398
4-Nov 390
5-Nov 392
6-Nov 387
7-Nov 394
8-Nov 401
9-Nov 405
10-Nov 410
Value of contract: Rs. 400x100 gm= Rs.40, 000
Initial Margin: 10 per cent (40000x10%=4000)and Maintenance margin is 75 per cent of Initial margin

Prepare the buyers margin account

and sellers
Mark-to-market: Buyer’s Margin account
Day Closing price of Daily Cumulative gain(loss)
gold/gm gain(loss)

1-Nov 400 - -
2-Nov 403 300 300
3-Nov 398 -500 -200
4-Nov 390 -800 -1000
5-Nov 392 200 -800
6-Nov 387 -500 -1300
7-Nov 394 700 -600
8-Nov 401 700 100
9-Nov 405 400 500
10-Nov 410 500 1000

Mark-to-market: Seller’s Margin account

Day Closing price of Daily Cumulative gain(loss)
gold/gm gain(loss)

1-Nov 400 - -
2-Nov 403 -300 -300
3-Nov 398 500 200
4-Nov 390 800 1000
5-Nov 392 -200 800
6-Nov 387 500 1300
7-Nov 394 -700 600
8-Nov 401 -700 -100
9-Nov 405 -400 -500
10-Nov 410 -500 -1000
-795.00575 -915.502072232095
-829.93121 -971.572528123145
-864.85668 -1027.6429840142
1)Assume the spot price of an asset is Rs 1200 and the only -899.78214 -1083.71343990526
-934.70761 -1139.78389579632
Fo= Poe^rt -969.63307 -1195.85435168738
F= 1200xe^.11(1) -1004.5585 -1251.92480757844
0 #NUM!
1200 1200
0 #NUM!
t=2years

FRA
Ashish wants 60L after 3 months FRA Bank
A Ltd 10% pa if you take a loan today 110%
B Ltd 12% pa for 6 months then rate chages

A ltd borrwos Rs 60L after 3 months for 6 months by buying a FRA 3x9 @ 10%
calculate the net settlement with FRA bank if acutal interest rate after 3 months for 6 months is 8%

A Ltd FRA Bank

FRA bank will recieve 2% from A ltd

Net amount= 6000000x(12-10)x 120000

Black-sholes option pricing model

Eg1:
S=551
E/K=491

Binomial pricing model

Step 1: Given
Eg: Current market price(s)= 500 So= 500
Exercise price= 510 E= 510
Period= 1year Rf= 1.1
Riskfree rate= 10%pa u= 600/500= 1.1
Option= Call d= 400/500=0.8
Price on maturity
upper side = 600
lower side= 400
calculate the valye of option as per binomial model

1)
Step1: Given
Eg: S= 1000 Rate 8% pa annually
E= 1100 S= 1000
T= 6months E= 1100
Us= 1300 Us= 1300/1000= 1.3
Ds=900 ds= 900/1000= 0.9
R= R= 8x6/12= 4% 1.04
1) 8% compounded semi-annually
2) 8% compouded annually
3) 8% continious compounding

Eg: S= 500 step 1:

period= 3 months S= 500
option= put? E= 530
on maturity= us 600 u= 600/500= 1.20
ds= 400 d= 400/500= 0.8
Rate is 12% pa compounded annually R= 12% pa
E= 530
(1.12)^3/12 0.25
1.02873734

Step 1: Step2: Calcualtion of Delta Step 3: Binomial tree

Eg:
Spot price= 450 D= (Cu-Cd)/(us-ud) E= 485
Max price= 585
Min price= 385 us= 585 200 450
strike price= 485 ds= 385 100
period= 1y 0.5
Rf= 10% Cu= 100
option= Call? Cd=0

Delta call 0.5 means we write 1 call option and buy 0.5 share to hedge

Step4 : calculation of payoff on maturity

Price= 585 exercise the call option = 100

sell share = 585x0.5 292.5
192.5

Price= 385 option will be lapsed= 0

sell share =385x0.5 192.5
eg2:

S0= 500
Us= 650
Ds= 450
t= 3m
E= 550
r= 10% pa
if the investor wants perfect hedge what combination of the share and option should he buy?

eg3:
Mr Dayal is interest in purchasing equity shares of ABC ltd which are currently selling at Rs 600 each, he expects that price of s
in 3 months. The chances of occuring variation are 60% and 40% respectively. A call option on the share of ABC ltd can be exc
1) what combination of sahres and options should mr dayal select if he wants a pefect hedge
2) what should be ther value of option today( risk free rate is 10%pa)
3) what is the expected rate of retrun on the option
option= call
E= 630
r= 10%
0.25
1.1
1.02411368908445 Step4: pay offs
Price goes up

call exercise option

 sell the share
0.5x780
net pay off
PV of payoff

Eg4:
So= 500
Us=650 70%
Ds=450 30%
t=3m
E=550
r=5%
if the investor wants the perfect hedge what combination of the shares and option should he buy?
calculate the expected return of option

Put call parity

put call parity is a combiantion of european call option and put options at same exercise price on same asset for same maturit

equation of put call praity

So+Po= Co+PV of E S= current market price of the stock

Po= value of the put option/put premium
Co=value of call option /premium
E= exercise price

1. protective put
2. fiduciary call

protective put
So= 560
Po=575
stock @800 stock @300

sell share 800 sell share

put lapse 0 exercise the put
800 575-300
 (1+r) (1+r)^n
50000 1.1 1.21
1+r/m
50000 2.5 (1+r/m)^nm
0.025
1.025 8
1.21840289750992
-0.2
0.818730753077982
me 10% as interest rate.

10/23/21
10/15/21
-8 -0.022222222222222
-0.021917808219178
-0.021857923497268 Lean year
45 0.125

the asset on day '0'

asset on day'0'
 money at 11%, what is the fair price of the one-year forward contract?

es a short position in a six month forward contract on the stock.

t
0.166666666666667 2months
0.416666666666667 5months

me the price recevied by Abhishek today is Rs.100

now is Rs.108

8
0.08
IRR 29.2

t rate and march forward repo rate with the following data:

11.7741935483871
0.115244961321897
11.5244961321897
 12.1666666666667
0.039310716208939
3.93107162089391

o rise by that time, so it decides to hedge this risk by buying the secuirty forward.

d it use for its purpose?

0.075 0.25 0.01875

0.208333333333333 0.015625

case1 10 70000
case2 12 70000
case3 15 70000
case4 7 70000
case5 20 70000

option pricing models

1. Black sholes model(BSM)

2. Binomial model
a) Risk neutral probability approach
 b) Risk free portfolio approach/Delta hedging method
c) Replication portfolio approach

3. put call partiy appraoch

C= S n(d1)- Ee^-rt n(d2) C= Value of call option using BSM

S= Current market price/spot price
E= Exercise price/strike price
n(d1)= Delta of option/hedge ratio
n(d2)= probability of exercise of option
r= rate of interest
t= tenure of the contract
1. Frictionless markets
2. the asset pays zero dividend
3.the option is european style
4.asset prices follow a geometric brownian motion

Step2= Ln(S/E) Step3= Calculation of d1 step4= calcualtion of d2

S/E d1= 1.1210 d2= 0.9089

165/150
1.1
0.095310179804325

step6= calcualtion of n(d2) step7= calcualtion of call optionstep8= calcualtion of put option

Step2= Ln(S/E) Step3= Calculation of d1

380/400
0.95
-0.051293294387551

0.05
0.22 0.0484

Step2= Ln(S/E)

1.06666666666667
0.064538521137571
d1- o√t
1.0517 0.1626
0.8891

N(1.0517)

c=S.N(d1)-X.e^-rt . N(d2)
90x0.8535 -80 e^.08x.5
76.815 -80 0.960789439152323
76.8631551321859
-3.185

0.171008
0.1626
1.05170971709717

13.185
1.18841000971876

1.05

(r+(.5xo^2)/2)
0.2
0.5 0.04
0.01
 0.5
0.707106781186548

+ 0.11 0.5
0.12 0.5
0.055

115.527402544014

-0.144337567297406
0.865595502001366 86.5595502001366

0.333333333333333 0.016666666666667
0.865595502001366

0.521995302205594

al of Rs.100mn where in it agreed to pay a fixed rate of 8.5%

ty date is 23/3/2002.
s given below. Assuming 30/360 day count basis, summarize the cash flows

floating leg net amount

- -
4.15 0.1
4.35 -0.1
 4.5 -0.25
4 0.25
4.1 0.15
0.15

fell to 95, did he gain or loss?

y 4.7 0.047
0.249315068493151

1000000 73018.0189480762
7.30180189480762

continiously compounded rate of interest is 11%

s basis, ignoring the interest that it might be possible to earn on the divident payments

ompounding, the futures contract expring on march 25 would be ?

currently trading at Rs.135.

 Rs 1 as dividend per share at the end of next year. It is reliably estimated that the stock will be

ent price? His required rate of return is 20%

e prices at the end of the first year?

3.44 dividend would be paid by the company

. What is the present price?
 3.12727272727273
2.84297520661157
2.58452291510143
2.34956628645584
2.13596935132349
37.2552793835493
50.2955858703144
ected to grow indefinately at 12%.

ram where a Gold Future contract size= 100 grams. Initial margin to be maintained is 10%

al margin(4000)=3000

Margin balance Variation margin

4000
4300
3800
3000
3200
2700 1300
4700
5400
5800
6300
 Margin balance Variation margin

4000
3700
4200
5000
4800
5300
4600
3900
3500
3000

oney at 11%, What is the fair price of a one-year forward contract?

0.33

start period loan period

FRA 3 6
FRA 6 3
4 9

ths is 12% and 7%

 60000 FV= PV(1+r)
56603.7735849057

ank B offering is 12% for 6 months and she see a opportunity for a arbitrage process

7.54%

106000
6360
112360

110000
2360

ank B offering is 12% for 6 months and she see a opportunity for a arbitrage process

110000

109710
290.000000000015
al of Rs.100mn where in it agreed to pay a fixed rate of 8.5%
ty date is 23/3/2002.
s given below. Assuming 30/360 day count basis, summarize the cash flows

floating leg net amount

- -
4.085 0.165
4.04 0.21
3.995 0.255
3.95 0.3
3.905 0.345
1.275

fell to 95, did he gain or loss?

y 4.7 0.047
0.249315068493151

1000000 73748.1991375688
7.37481991375688

continiously compounded rate of interest is 11%

s basis, ignoring the interest that it might be possible to earn on the divident payments
ompounding, the futures contract expring on march 25 would be ?

currently trading at Rs.135.

 Rs 1 as dividend per share at the end of next year. It is reliably estimated that the stock will be

ent price? His required rate of return is 20%

e prices at the end of the first year?

3.44 dividend would be paid by the company

. What is the present price?

105.963636363636
96.3305785123967
87.5732531930879
79.6120483573526
72.3745894157751
107.493899448001
549.34800529025
ected to grow indefinately at 12%.

0/per gram where a Gold Future contract size= 100 grams. Initial margin to be maintained is 10% and Maintenance margin is 75

argin is 75 per cent of Initial margin(4000)=3000

Margin balance Variation margin

4000
4300
3800
3000
3200
2700 1300
4700
5400
5800
6300

Margin balance Variation margin

4000
3700
4200
5000
4800
5300
4600
3900
3500
3000

1257631.75388141
 start period loan period
FRA 5.33333333333333 9
FRA 5.83333333333333 10.5
6.33333333333333 12

60000 FV= PV(1+r)

29126.213592233

Step2:

P=( R-d)/ u-d

2) 3)
Step1: Given
Rate 8% pa compounded semi-annually
 s=1000 R= e^rt
e=1100 .8x6/12
Us= 1.3 0.08
ds= 0.9 0.04
R = (1.08)^6/12 1.04081077419239
(1.08)^0.5
1.03923048454133

step 2:

p=( r-d)/u-d

Cu= Us-E
585 Cu= 100

385 Cd= 0

0.5 share to hedge

Step5: calcuation of option

[(0.5*450)-x]1.10=192.5
00 each, he expects that price of shares may go upto Rs 780 or may go down to Rs 480
on the share of ABC ltd can be excercised at the end of 3 months with a strike price of 630
40%

480 Cd=0

price goes down

780 480
call option lapse 0
 -150
sell share
390 0.5x480 240
240 net pay off 240
234.348981522315 234.348981522315

ce on same asset for same maturity

ice of the stock

option/put premium
on /premium

300
275
575
41322.3140495868

41037.3285406546

40936.5376538991

10 2
0.1
0.2
1.22140275816017
40936.5376538991

8
9
 0.01 1.01005017 1 1.0100501671
0.025 1.02531512 1 1.0253151205
2.0353652876
1.01892688505203 5094.63443

1.01574770858669 5078.73854

700000 735000 -35000

840000 735000 105000
1050000 735000 315000
490000 735000 -245000
1400000 735000 665000
ll option using BSM
rket price/spot price
ce/strike price
f option/hedge ratio
ility of exercise of option

tion of put option

s= 90
 x=80
o`=.23
t=6months 0. 0.5

N(d1) N(d2)
1.0517 0.8891
0.853531394494043 0.81302533

-0.04
0.813
-0.04
0.9607894
0.7811218
76.8178255044638 62.489745
14.3280803819967

0.11
divide 0.14142136
0.06

4.25 4.15
 5 0.05

730.180189480762
 0.11 1 0.11
2 0.22
3 0.33

9 FRA 3x9
9 FRA 6x9
13 FRA 4x13
 0.12
1.06 0.06
 4.25 4.15

5 0.05

737.481991375688
intained is 10% and Maintenance margin is 75% of the initial margin.

Initial margin
maintenance margin
mark to market
variation margin
margin call
0.11 4 0.44
5 0.55
6 0.66
14.3333333333333 FRA 3x10
16.3333333333333 FRA 6x10
18.3333333333333 FRA 4x14

0.12
2.06 0.06
write 1 call option and buy 0.5 share of ABC today for perfect hedge

step 5: value of option

600x.05 1.024 234.35

 x 65.65

Step6: expected return

150*.06 0*.04
90

(90-65.65)/65.65
0.37090632
37.0906321

2. fiduciary call

stock @800 stock @300

call option
800-575 225 lapse
stock 575 ZCB 575
575/1.10 800 575 522.7273
Module-1

Deposits 8688
Real Esta 18608 Assets
Life insu 1203
Pension 13950 Real assets
Coporate 9288 Real estate
Equity in 7443 consumer durables
Mortigag 9907 other real assets
consumer 2495
bank and 195
secuirty c 268
other liab 568 Financial Assets
mutual f 5191 Deposits
debt secu 5120 Life insurance reserves
other fin 1641 Pension schemes
consumer 4821 Coporate equity
other rea 345 Equity in non corp busienss
mutual fund shares
Net worth debt securities
other financial assets

B/S of FDIC commercial bank Assets

Real assets
Deposits 10260.3 Equipment and p
Equipmen 121.3 other real estate
Debt and 743.5
other rea 44.8
federal f 478.8 Financial assets
other liab 855.8 cash
cash 1335.9 investment secur
intangibl 371.4 other financial as
other int 732.8 loans and leases
investmen 2930.6
other fin 1161.5
loans and 7227.7 other assets
intangible assets
calculate the networth along with classifing the balancesheet other intangible
Real assets
financial assets
intangible assets total assets
liabilities

1. A Vigilant company stock is currently selling at Rs 25/share. The stock is expected to pay Rs 1 as dividend per share at the
it is reliably estimated that the stock will be available for Rs 29/share at the end of one year
a) if the forecasts about the dividend and price are accurate, is it advisable to buy at the present price? His required rate of
b) if the investor requries 15% return when the dividned remains constant, what should be the price at the end of first year?

P0= D1
P1= P0(1.15)-D1
25 1.15 1
28.75 27.75

2. Ashok wants to buy watchful company stock and hold on it for 5 years. He estimates that 3.44Rs dividend would be paid
he hopes to sell the shares at Rs 60 at the end of fifth year, what is the present price? His requried rate of return is 10%

P0= D1/(1+R)+ D2/(1+r)^2….

3. As investor purchases a bond at Rs 900 with Rs 100 as coupon payment and sells it at Rs 1000. a) what is his holding perio
b) if the bond is sold for RS 750 after receiving Rs 100 as coupon what is the holding period return?

HPR= (100+100)/900
HPR= 22.22%

-5.50%

4. Returns of the company is given below

calculat % TR
1 5 0.05 1
2 7 0.07 1
3 3 0.03 1
4 2 0.02 1
5 10 0.1 1

27 2100
5.4
2100
4.61789292741589
0.782107072584116
what is the yield for a bond trading at Rs 100 with a 8% coupon pa?
FV is same as MP

CY= 8/10 8 no change

what is the yied if the mp goes up to 120 and comes down 80?

120 6.66666666666667 down

80 10 up

double/tribple

n= Lnt/Ln(1+r)

1) At an annual rate of compounding of 9%, how long would it take for a given sum to become double and triple its original va

8.04323 0.693147180559945
0.086177696241053

5. A four year bond with 7 % coupon and maturity value of RS 1000 is currently selling at Rs 905, what is the yield to maturit
A B A/B
Cf PV of 10%
70 1.1 63.6363636363636
70 1.21 57.8512396694215
70 1.331 52.5920360631104
1070 1.4641 730.824397240625
904.904036609521

Y= 70+(95/4)/(905+1000)/2
~9.8%

6. Determine the price of Rs 1000 zero coupon bond with ytm of 18% and 10 years to maturity?
b) what is the YTM of this bond if its price is Rs 220?

BV= FV/(1+YTM)^n
1000 1.18
191.064466914
 (Fv/BV)^1/n-1 1000 220

7
at an annual rate of compounding of 9% how long would it take for a given sum to become double and triple its original value?

n= LnT/ln(1+r)
Ln(1+r) 1.09 0.08617769624
Lnt 3 1.09861228867

n 12.748220671798

8. calculate the duration for bond A and B with 7 and 8% coupons having a maturity of 4 years, The face value of Rs 1000. bo

Bond A
A B A/B
Year Cf 1+Y C
1 70 1.06 66.0377358491
2 70 1.1236 62.299750801
3 70 1.191016 58.7733498123
4 1070 1.26247696 847.540219665
P0 1034.65105613

NAV=( Assets-Liabilities)/ outstanding units

There are two securities P and Q having values of beta as 0.7 and 1.6 respetively. The risk free rate is assumed to be 6% and th

Ri= Rf+b(Rm-Rf)
6 0.7 9
6.3 12.3
Analysis of constraints 2.Determination of objectives
Income needs Current income
need for current income growth in income
need for constant income capital appreciation
Liquidity preservation of capital
safety of capital
time horizon
Tax considaration
temperment

ERR=Wi AM

Varience= ∑(x-x~)^2/n

Below is the return of company x over x x-x~

calculate the return, varience, SD wit 2 -4
4 -2
6 0
8 2
10 4
0
x~ 6V
n 5
30
6

cov(x,y)

co-relation co-efficient(x,y)=cov(x,y)/(sdx)(sdy)
ERR=Wi AM
11 0.5
17 0.5
14

ABC
x x-x`
11 -3
17 3
x` 14

cov= (11-14)(20-14)+(17-14)(8-14)
1/2(-18)+(-18)
cov -18

3 6

x
year returns x-x`
1 10 -5.2
2 12 -3.2
3 16 0.8
4 18 2.8
5 20 4.8

mean 15.2
varience
sd

corelation co-eff
 Security Estimated return
A 30
B 24
C 18
D 15
E 15
F 12

the risk free rate of return is 10%, while the market return is expected to be 18%
determine which of these securities are correctly priced using CAPM model

Era= 10+1.6(18-1

10
10
10
100 10
20 10
10

The following data are available to you as portfolio manager

security estimated return(%) Beta

A 30 2
B 25 1.5
C 20 1
D 11.5 0.8
E 10 0.5
Market index 15 1
Govt. Security 7 0

a) In terms of the secuirty market line, which of the securities listed above are undepriced?
b) Assuming that a portfolio is constructed using equal proporations of the five securities listed above, calculate th

CAPM
ER Rf B
ER A 7 2
7 2
23 7 16

Wi
A 0.2
B 0.2
C 0.2
D 0.2
E 0.2

1 70 1.06
2 70 1.1236
3 70 1.191016
4 1070 1.26247696

Stock ABC Stock XYZ

Return(%) 11 or 17 20 or 8
Probability 0.5 0.5

calculate the expected return, varience and standard deviation

Year(N) x X-X'
1 2 -4
2 4 -2
3 6 0
4 8 2
5 10 4
 30 ∑(X-X')^2
X' 6N
Varience
SD

x x-x"
1 11 -3
2 17 3

28
X' 14 Varience
SD

1. Stocks L and M have yielded the following returns for the past two years.

Year Return(%) Return(%)

L M
2011 12 14
2012 18 12
2013 16 13
2014 20 14
2015 14 15

a) What is the expected retrun on a portfolio made up of 60% of L and 40% of M?

b)Find out the standard deviation of each stock?
c)What is the covarience ad co-efficeint of correlation between stocks L and M?
d) What is the portfolio risk of portfolio made up of 60% of L and 40% of M?

Solution:

a) expected rate of return ∑R/n

ER(L) (12+18)/2
30/2
ER(L) 15

L(60%) 9 R(p) 14.2

M(40%) 5.2
14.2
b) standard deviation of eacL L-L`
2011 12 -4
2012 18 2
2013 16 0
2014 20 4
 2015 14 -2

L` 16
Varience
SD

calculate the portfolio return using the below inputs? Assume the market return is 15%

Security Weightage(wi)
A 0.2
B 0.1
C 0.4
D 0.3

Rp= a(p)+BpRm

how many inputs are requried for a portfolio analysis involving 40 securities in the sharpe and markowitz models?
Sharpe index= 3N+2
122
Markowitz index=[ N(N+3)]/2

1720
860

Eg: An investor is considaring adding a hedge fund allocation to their existing portfolio tha
and has returned 15% over the last year. The current risk free rate is 3.5% and volatality o
calcualte the sharpe ratio?

Swati ltd returns for last 5 years are shown below calculate the returns using arithamatic

Year
1996
1997
1998
1999
 2000
2001
2002
2003
2004
2005

AM
GM

if Rs 1000 is invested in a bank for three years at 10% per annuam, the amount to be recevied after 3 years would be

if Rs 500 would be received after 2 years and if the discount rate is 10% the present value is?

1. At an annual rate of compunding of 9%, how long would it take for a given sum to become double and triple its ori

of the following which amount is worth more at 16%, 1000 today or 1500 after 5 years?

a)if an investor purchases a bond at Rs 900 with Rs 100 as coupon payment and sells at Rs 1000. what is the holiding
b)if the bond is sold for Rs 750 after receiving Rs 100 as coupon payment. What is the hodling period return?

A four year bond with a 7% coupon rate and maturity value of Rs 1000 is currently selling at rs 905 what is the yield t

1 70
2 70
3 70
4 1070

A Rs 100 par value bond bearing a coupon rate of 11% matures after 5 years. The expected yield to maturity is 15%.
The present market price is Rs 82. can the investor buy it?

1 110
2 110
3 110
4 110
 5 1110

a) Determine the price of RS 1000 zero coupon bond with ytm of 18% and 10 years to maturity?
b) what is the YTM of this bond if its price is RS 220?

4. Aravind is considaring buying a Rs 1000 par value bond bearing a coupon rate of 11% that matures after 5 years.
he wants a minimum yield to maturity of 15%. The bond is currently sold at Rs 870. should he buy the bond?

1. calculate the duration for bond A and bond B with 8% and 9% coupons respectively having a maturity period of five
The face value is Rs 1000. both bonds currently yield 6%
Bond A
Year Coupon (1+y)^n
1 80 1.06
2 80 1.1236
3 80 1.191016
4 80 1.26247696
5 1080 1.3382255776
Po

Y coupon
1
2
3
4
5

security Wi Alpha beta

A 0.2 2 1.7
B 0.1 3.5 0.5
C 0.4 1.5 0.7
D 0.3 0.75 1.3

1. how many inputs are needed for a portfolio analysis lnvolving 40 securities in the sharp and markowitz models?

sharp 3n+2
120
 2
122

Rp=∑Wi(a+BRm)

Sensex 3 100 1000

RIL 10 100 150
TCS 6
HDFC Ban 5

sun phar 0.5 100 200

How many inputs are needed for a portofolio analysis involving 50 securities in the sharpe and markowitz models?

Consider two securities P and Q with expected returns of 15 percent and 24 percent respectively, and standard deviation of 35
Calcualte the standard deviation of a portofolio weighted equally between the two securities if their correlation is -0.9

Co-varience Problem

Year Returns(X) in percentage X-X` E(x-x`)^2

2014 10 -4 16
2015 12 -2 4
2016 16 2 4
2017 18 4 16
56 40
X` 14 V 10
SD 3.16227766017

Year Returns(Y) in percentage y-y` E(y-y`)^2

2014 17 5 25
2015 13 1 1
2016 10 -2 4
2017 8 -4 16
48 46
y` 12 V 11.5
 SD 3.39116499156

calculate the return, varience, standard deviation, covarience and corelation coefficeint of stock x&Y

1. Security J has the beta of 0.75 while security K has the beta of 1.45. Calculate the expected return for these securities, assum

ER= Rf+ B(Rm-Rf)

Rf= 5 5+0.75(14-5) 9 6.75
B= 0.75 5+ 6.75
Rm=14 11.75
 B/S
Assets

18608
umer durables 4821
r real assets 345

23774

8688
nsurance reserves 1203
on schemes 13950
9288
y in non corp busienss 7443
ual fund shares 5191
5120
r financial assets 1641
52524

76298

Liabilities
Deposits 10260.3
121.3 Debt and o 743.5
44.8 federal fu 478.8
166.1 1.2% other liabil 855.8
12338.4

1335.9
2930.6
1161.5 Networth 1587.6
7227.7
12655.7 90.9%

371.4
732.8
1104.2 0.08
 13926 100.00% 13926

stock is expected to pay Rs 1 as dividend per share at the end of the next year.
are at the end of one year
dvisable to buy at the present price? His required rate of return is 20%
constant, what should be the price at the end of first year?

5 years. He estimates that 3.44Rs dividend would be paid by the company continiously for next five years.
s the present price? His requried rate of return is 10%
P0= D1/(1+ 1+r
D1 3.44 1.1
D2 3.44 1.1
D3 3.44 1.1
ayment and sells it at Rs 1000. a) what is his holding period retrun? D4 3.44 1.1
hat is the holding period return? D5 3.44 1.1
P5 60 1.1

1.05
1.07
1.03
1.02
1.1

1.29838401
0.2
1.05361181403049
1
0.053611814030487
5.36118140304867
 Current yield = Annual coupon payment/current market price

for a given sum to become double and triple its original value?

0 is currently selling at Rs 905, what is the yield to maturity?

% and 10 years to maturity?

5.23383555379857
 10

a given sum to become double and triple its original value?

having a maturity of 4 years, The face value of Rs 1000. both the bonds yeield 6%

D
C/P0 Dxt
0.063826094274001 0.0638260943
0.060213296484907 0.120426593
0.056804996683874 0.1704149901
0.819155612557218 3.2766224502
D 3.6312901275 years

6 respetively. The risk free rate is assumed to be 6% and the market premium is expected to be 15%. Calculate the return using CAPM
termination of objectives

th in income
al appreciation
ervation of capital

nce= ∑(x-x~)^2/n

(x-x`)^2 (x-x`)^2/n y
16 1
4 3
0 5
4 7
16 9
40 8
8 8 y`
2.82842712474619 2.8284271247 n

v(x,y)/(sdx)(sdy)

5.5
8.5
14

XYZ
(x-x`)^2 y
9 20
9 8
 18 9 varience
3 sd

co-relatiom co-eff -1
18

(x-x`)^2
27.04
10.24
0.640000000000001
7.84
23.04

68.8
13.76
3.70944739819828

cov(x,y)/sdxy -11.28

12.09985

Security Retursn(%) Proportionexpected return of portfolio

A 12 0.2 2.4
B 17 0.3 5.1
C 23 0.1 2.3
D 20 0.4 8

17.8
 CAPM

ER=Rf + ₿(Rm-Rf)

Rf= 6% 6 1.2 (10-6)

Rm=10% 10.8 4.8
b=1.2

Beta Expected return(CAPM)

1.6 22.8 underpriced
1.4 21.2 underpriced
1.2 19.6 overpriced
0.9 17.2 overpriced
1.1 18.8 overpriced
0.7 15.6 overpriced

n is expected to be 18%
sing CAPM model

12.8 22.8

1.6 8 22.8
1.4 8 21.2
1.2 8 19.6
0.9 8 17.2
1.1 8 18.8
0.7 8 15.6

standard deviation RF Beta

50 7 2
40 7 1.5
30 7 1
25 7 0.8
20 7 0.5
18
0

ities listed above are undepriced?

roporations of the five securities listed above, calculate the expected return and risk of such portfolio

(RM-Rf)
(15-7)
8
underpriced

Bi Bp
2 0.4
1.5 0.3
1 0.2
0.8 0.16
0.5 0.1
Bp 1.16
Bp 1.16

Rp`=Rf+Bp(Rm-Rf)
Rf Bp Rm-Rf Bp(Rm-Rf)
7 1.16 8 9.28

1.06 0.06

0.943396226415094 66.037735849 0.063826 0.063826

0.88999644001424 62.299750801 0.060213 0.120427
0.839619283032302 58.773349812 0.056805 0.170415
0.792093663238021 847.54021966 0.819156 3.276622
1034.6510561 of bond A 3.63129

(X-X')^2 Year
16 1
4 2
0 3
4 4
16 5
 40
5 Y'
8
2.82842712474619

(x-x')^2
9 1 20
9 2 8

18
9 28
3 14

e past two years.

60% of L and 40% of M?

ween stocks L and M?

f L and 40% of M?

∑R/n
80 ER(M) (14+12)/2 68
16 26/2 13.6
ER(M) 13
15.04

(L-L`)^2 M M-M` (M-M~)^2

16 14 0.4 1
4 12 -1.6 2.56
0 13 -0.6
16 14 0.4
 4 15 1.4

40 13.6
8 2
2.82842712474619 Var 1
SD 1
ume the market return is 15%

Alpha(ai) Beta(Bi) Alpha(P) Beta(P)

2 1.7 0.4 0.34
3.5 0.5 0.35 0.05
1.5 0.7 0.6 0.28
0.75 1.3 0.225 0.39
1.575 1.06

1.15
4.045558 1000
247.1847

ving 40 securities in the sharpe and markowitz models?

adding a hedge fund allocation to their existing portfolio that is currently split between stock and bonds.
e last year. The current risk free rate is 3.5% and volatality of the portfolio return is 12%

rs are shown below calculate the returns using arithamatic and geometric methods

retunrs(%) RR
-3.14 -0.0314 1 0.9686
30 0.3 1 1.3
7.43 0.0743 1 1.0743
9.94 0.0994 1 1.0994
 1.29 0.0129 1 1.0129
37.11 0.3711 1 1.3711
22.68 0.2268 1 1.2268
33.1 0.331 1 1.331
28.34 0.2834 1 1.2834
20.88 0.2088 1 1.2088
187.63 5.232065

18.763
17.996

annuam, the amount to be recevied after 3 years would be?

nt rate is 10% the present value is?

d it take for a given sum to become double and triple its original value?

0 today or 1500 after 5 years?

coupon payment and sells at Rs 1000. what is the holiding period return?
upon payment. What is the hodling period return?

e of Rs 1000 is currently selling at rs 905 what is the yield to maturity?

10%
1.1 63.636363636
1.21 57.851239669
1.331 52.592036063
1.4641 730.82439724
904.90403661

tures after 5 years. The expected yield to maturity is 15%.

15%
1.15 95.652173913
1.3225 83.175803403
1.520875 72.326785568
1.74900625 62.892857015
 2.0113571875 551.86617618
865.91379608

ytm of 18% and 10 years to maturity?

4.545455
1.163477

bearing a coupon rate of 11% that matures after 5 years.

currently sold at Rs 870. should he buy the bond?

nd 9% coupons respectively having a maturity period of five years.

A B Bxt
coupon/(1+y)^n A/Po t
75.4716981132075 0.0696074593 1 0.069607
71.1997152011392 0.0656674144 2 0.131335
67.1695426425841 0.061950391 3 0.185851
63.3674930590416 0.0584437651 4 0.233775
807.038826695341 0.7443309702 5 3.721655
1084.24727571131 D 4.342223

market value of all the securities held in the fund= 2,05,00,000

cash and equityvalent holding in the fund= 30,00,000
fund liabilities= 6,00,000
total funds units outstanding= 20,00,000

Residual varience Wi^2 alpha (P)

370 0.04 0.4
240 0.01 0.35
410 0.16 0.6
285 0.09 0.225
1.575

securities in the sharp and markowitz models?

n(n+3)/2
 1600 1720
120
1720
860

150

100

0 securities in the sharpe and markowitz models?

t and 24 percent respectively, and standard deviation of 35% and 52% respectively.
etween the two securities if their correlation is -0.9

E (x-x`)(y-y`)
-20
-2
-4
-16
-42
-10.5
 10.7238052947636
-0.979130048652329
orelation coefficeint of stock x&Y

45. Calculate the expected return for these securities, assuming that the risk free rate is 5% and the expected retrun of the market is 14%.
 Liabilites 99866 61973

Mortigages 9907
consumer credit 2495
bank and other loans 195
secuirty credit 268
other liabilities 568
13433

Networth 62865

76298

88.6%

11.4%

30240
 100.0%

(1+r)^
1.1 3.127273
1.21 2.842975
1.331 2.584523
1.4641 2.349566
1.61051 2.135969
1.61051 37.25528
50.29559
Rule72
9 10
7.2
ate the return using CAPM
 y-y` (y-y`)^2
-4 16
-2 4
0 0
2 4
4 16
0 40
5 v
5 sd

cov
-29.12 -29.12
-5.12 -5.12
-1.12 -1.12
-9.52 -9.52
-11.52

-56.4
-11.28
 x-x` y-y`
2 -1 -2
4 -3 -12
-5 -6 30
16
y 5.333333
year returns y-y` (y-y`)^2
1 17 5.6 31.36
2 13 1.6 2.56
3 10 -1.4 1.96
4 8 -3.4 11.56
5 9 -2.4 5.76
53.2
mean 11.4 var 10.64
cov(x,y) -11.28
sd 3.261901

Rm-Rf B(Rm-Rf) ER(CAPM

-0.932243 12.09985 )
12 19.2 27.2 underpri
-0.932243 ced
12 16.8 24.8 underpri
ced
12 13.2 21.2 overprice
d
12 10.8 18.8 overprice
expected return of portfolio d
12 9 17 overprice
d
return(CAPM) GIVEN Rf
underpriced A 35 1.6 8
underpriced B 28 1.4 8
overpriced C 21 1.1 8
overpriced D 18 0.9 8
overpriced E 15 0.75 8
overpriced

Rf+B(Rm-Rf)
10 8 12.8

ER= Rf+Bp(Rm-Rf)

Rm-Rf b(Rm-Rf) ER(CAPM) Inference

8 16 23 underpriced
8 12 19 underpriced
8 8 15 underpriced
8 6.4 13.4 overpriced
8 4 11 overpriced
 ER
16.28

Y Y-Y' (Y-Y')^2
1 -4 16
3 -2 4
5 0 0
7 2 4
9 4 16
 25 40
5 5
Variennce 8
SD 2.828427

x-x' (x-x')^2
6 36
-6 36

72
Varience 36
SD 6

COV (L,M)
-1.6 4.8
-3.2 -28.8
0
1.6
 -2.8
-6
-1.2 -24
CovLM -12

15
15.9 17.475

Year Sensex TRs (%) Sensex Return Relative

1996 -3.14 0.9687
1997 30.00 1.30001
1998 7.43 1.30001
1999 9.94 1.09942
2000 1.29 1.01286
2001 37.11 1.37113
2002 22.68 1.22683
2003 33.10 1.33101
2004 28.34 1.28338
2005 20.88
 0.077348

0.1
1.17996
1
0.17996
17.99601
 0.1

Years

beta(p) residual var(p)

0.34 14.8
0.05 2.4
0.28 65.6
0.39 25.65
1.06 108.45
d retrun of the market is 14%.
Mandatory Presentations Topics-SAPM students Duration: 15mins/student

Capital markets study- overview of Indian

equity markets and its guidelines 1 Zara what are the rules and regul8th August,
overview of debt/bond market 1 Mujeeb brief about the products i 22nd Augus
mutual funds 1 Krithika types, market size 7th August,
fundamental analysis 1 Rahul 7th August,
Economic analysis 1 Manjula Porter's 5 force model 7th August,
industry analysis 1 bedanta 8th August,
company analysis 1 Priya bhat 22nd Augus
ratio analysis-with examples(numericals) 1 Santosh Hedge 8th August,
technical analysis 1 Sourav 22nd Augus
graphs 1 Faizan 22nd Augus
trends & comparitive study 1 Abhinandan 22nd Augus

Var(value at risk) 1 Rajat 7th August,

efficient fronties and SML, CML 1 Bharath 7th August,
GDP calcualtion 1 Nithin 7th August,
currency printing and valuation 1 Sujai 22nd Augus
Portfolio creation-Traditional apporach 1 Avinash 21st August

Mandatory Presentations Topics-FDRM

Evolution of Derivatives 2 priya bhat/mujeeb 22nd Augus

Regulation and trading framework of

Derivatives
contract size, multipliers, lot size, tick size
etc and traders in the drivative market 2 krithika/Rajat rajant pending 22nd Augus
Advantages and disadvantages 1 sujay 8th August,
Delivery and settlement of forward contracts 2 manjula 21st August
futures 2 nithin and bharath 21st August
swaps 2 avinash/bedanta 21st August
forwards 1 santosh 22nd Augus
options 2 rahul/zara 8th August,
option pricing models 1 Faizan 22nd Augus
option pricing models 1 Abinandhan 22nd Augus
4.5
4.5
4
4.5
4
4.5
4.5
4.5
3.5
3.5
4

3.5
4
3.5
4
4.5

10
8
8
9
8
8
9
7
7