Financial Management

Suggested Answers to Question — AFM  5

(v) (A) — ` 590

Margin = (Option premium × 100) + {100 × 0.20 (market value of the share)} – {100 × (Exercise

price – market price)}

= (2.50 × 100) + {100 × (0.20 × 37)} – 100 × (41 – 37) = ` 590

(vi) (C) — ` 36120 :

Gordon’s equity capitalisation model :

P = E (1–b)/(K–br) or 43 = E (0.6)/{0.09 – (0.4 × 0.12)}

or E = 3.01.

Net Profit = EPS × No. of shares = 3.01 × 12000 = 36120

(vii) (B) — ` 68.0420 :

` /US $ = 1/0.01962905 = ` 50.9449

Now, US $ / = 1.335603

 The direct quote of  in India will be —

` / = ` /US$US$/  = ` 50.9449 × 1.335603 = ` 68.0420

(viii) (A) — $ 0.01248 :

As per IRPT, the 90 day forward rate on the yen should be equal to —

$ 0.012067821 [(1+0.05/4) ÷ (1+0.015/4)]

= $ 0.012067821 [(1.05/4) ÷ (1.015/4)]

= $ 0.012067821 × 1.034482759 = $ 0.0124839

or $ 0.01248

(ix) (C) — ` 300 :

Assuming in call option, the total outgo = Premium + Exercise Price = ` 200 + (` 20×100)

= ` 2,200.

After 3 months, if the shareprice is ` 2,500, the net profit = ` 2,500 – ` 2,200 = ` 300.

Answer 1. (b)

(i) False. Net float is the total amount of float in a bank account. It is calculated by subtracting the

disbursement float money spent but not yet taken out of the account from the collection

float money deposited but not yet cleared. The net float, when added to or subtracted from

the previous balance, shows how much money is in the bank account. The net float is

important when an account holder deal primarily in cheques.

(ii) True. Annual capital charge provided basis of comparing projects whose life span are otherwise

different.

(iii) True. According to MM approach it is earning potentiality and investment policy of firm rather

than pattern of distribution of earning that affects value of firm.

(iv) True. Simulation is the imitation of the operation of a real-world process or system over time. The

act of simulating something first requires that a model be developed; this model represents...