0804 fisav april 2008

Question Paper Fixed Income Securities: Analysis & Valuation (CFA620): April 2008 Section A : Basic Concepts (30 Marks) • This section consists of questions with serial number 1 - 30. • Answer all questions. • Each question carries one mark. • Maximum tim e for answering Section A is 30 Minutes. 1. A 6% GoI 2010 and a similar bond, with a credit rating of ‘C’ issued by Cisco Ltd. are available in the market. In case of both the bonds, interest is payable semiannually on January1 and July1. Yet it is observed that the prices of the government bond and the bond issued by Cisco Ltd. are not similar. With respect to this, which of the following statements is/are true? I. The probabil ity that the price of C isco’s bond is higher than that of g overnment bond is high. II. Since the C isco’s bond car ries a greater default ri sk, the require d rate of retu rn is hi gher in case of Cisco’s bond as compared to governmen t bond. III. The price of government bond excludes accrued in terest but the price of C isco’s bond includes accrued interest. (a) Only (I) above (b) Only (II) above (c) Only (III ) above (d) Bot h (I I) and (I II ) above (e) All (I) , (II ) and (II I) above. 2. Various bond features largely affect the degree of correlation between the bond’s prices and bond’s interest rates. The bond’s features that directly affect bond’s interest rate risk is/are I. Maturity period. II. Corporate takeover. III. Coupon rate. IV. Embedded options. (a ) Only (I I) above (b) Only (I II ) above (c) Bot h (I ) and (I II ) above (d) (I ), (III ) and (IV) above (e) All (I), (II), (II I) and (IV) above. 3. Which of the following statements is not correct with respect to Commercial Papers (CPs)? (a) All the expenses relat ed t o the iss ue of CPs are borne by the issu ers (b) For the corpor ates , th e di scoun t on issu e is trea ted as capit al expen ditu re (c) For th e i nvestors, profit on s ale of i nvestmen t i s t axed u nder the head ‘ Profits And L osses from Business and Profession’ (d) The broke rage vari es depen ding on the size of the issu e (e) The return earned by the corporate by investing in the CPs of other companies, would amount to ‘ Other Income/Interest Income’. 4. Mr. Sharma wishes to purchase a 91 day T -bill of face value Rs.100, maturing after 60 days. If, on maturity , he wishes to earn a y ield of 11.5% p.a., the purchase price of T-bill f or Mr. Sharma shoul d be (a) Rs.88.50 (b) Rs.9 2.2 1 (c) Rs.95.63 (d) Rs.9 7.2 2 (e) Rs.9 8.1 4.

0804 fisav april 2008

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