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1. If a project has an annual cost saving of ₹4,00,000, a useful life of 4 years, and a total project cost of ₹11,42,000, what is the Payback Period?

2 years 8 months 2 years 11 months 3 years 1 year 10 months

2. Given the standard deviations of four investments, which investment has the highest risk?

Statistic	X	Y	Z	U
Standard Deviation (SD)	37,947	44,497	42,163	41,997
Expected Net Present Value (₹)	90,000	1,06,000	1,00,000	90,000

X Y Z U

3. The spot rate of USD is ₹65.00/USD, and the four-month forward rate is ₹65.90/USD. The annualized premium is:

4.2% 5.1% 6.0% 6.4%

4. A stock currently sells for ₹350. A put option to sell the stock at ₹380 is available with a premium of ₹20. What is the time value of the option?

₹10 ₹-10 ₹20 ₹0

5. An investor owns a stock portfolio equally invested in a risk-free asset and two stocks. If one stock has a beta of 0.75 and the portfolio is as risky as the market, what is the beta of the other stock?

2.12 2.25 2.56 2.89

6. Given that the required return on a risk-free security is 7%, the required return on a market portfolio is 12%, and the firm's beta is 1.7, what is the cost of equity as per the CAPM approach?

16.3% 18.0% 18.6% 19%

7. Which statement is true regarding the rupee-dollar exchange rate, given that r_i is the interest rate in India and r_u is the interest rate in the US?

Rupee will be at forward discount if r_i > r_u Rupee will be at forward premium if r_u > r_i Rupee will be at forward premium if r_i > r_u Rupee will be at par with the dollar if r_i = r_u

8. Which of the following is NOT a systematic risk?

Market Risk Interest Rate Risk Business Risk Purchasing Power Risk

9. Which of the following statements is true regarding correlation coefficient (r) in portfolio diversification?

r = +1 implies full diversification of securities in a portfolio r = -1 implies full diversification of securities in a portfolio r = 0 implies an ideal situation of zero risk r is independent of diversification; nothing can be inferred based on r

10. Which of the following is NOT a feature of the Capital Market Line (CML)?

There is no unsystematic risk The individual portfolio exactly replicates the market portfolio in terms of risk and reward Estimates portfolio return based on market return Diversification can minimize the individual portfolio risk

June 2017 SFM Paper