Corporate Finance End Term: 10 May 2026, Set 1 (January 2026 term)

If the nominal interest rate is 15.5% and the expected inflation rate is 10.2%, the real interest rate is 27.3%.

An upward-sloping yield curve indicates that long-term interest rates are lower than short-term interest rates.

If the exchange rate changes from 90 Rupees per Dollar to 95 Rupees per Dollar, then the Rupee has depreciated, and it buys fewer American goods.

An American call option gives the holder the right to sell the underlying asset at the strike price only on the expiry date.

A bank’s leverage ratio is defined as the ratio of its liabilities to its total assets.

Reserve requirements and deposit insurance are governance tools to develop safeguards against banking collapse.

If an investor writes a call option, her maximum potential loss is the strike price minus the premium received.

Suppose the current market price of a stock is Rs. 82. If a call option on this stock has a strike price of Rs. 80, then the option is in-the-money.

The Efficient Market Hypothesis asserts that an experienced trader can consistently achieve higher returns than the market average.

The risk-free rate is 2%. The expected market rate of return is 8%, and the standard deviation of the market return is 12%. Then, the slope of the Security Market Line (SML) is 0.5.

In the Black-Scholes pricing formula, the stock prices are considered to be normally distributed.

A long position in an option describes holding an option contract with a maturity of more than 5 years.

A put option decreases in value when the stock price increases, with all else remaining the same.

A long straddle strategy requires buying both a call and a put option, each with the same strike price and the same expiration date.

The part of the minimum variance set that lies above the global minimum variance portfolio is called the efficient frontier.

Suppose you purchased a call option 26 days ago for Rs. 4.50. The call option has a strike price of Rs. 84, and the stock is now trading for Rs. 92. If you exercise the call option today, what will be your holding period return?

OPQ Inc. has an expected rate of return of 25% and a standard deviation of the rate of return of 20%. The expected market return is 12%, and the standard deviation of market return is 12%. OPQ Inc. has a correlation coefficient with the market of 0.6. Then, what is the market beta of OPQ Inc.?

Suppose that the interest rate at a point in time in the domestic economy is 4%, and the interest rate in the foreign economy at that point in time is 9%. What is the expected rate of appreciation of the domestic exchange rate at that point in time?

A trader buys a call option on a stock with a strike price of Rs 48 when the option price is Rs 4. The trader makes a profit when the stock price is

A firm has three divisions: sales division, accounting division and logistics division. The sales division has a beta of 2.7, the accounting division has a beta of 0.6, and the logistics division has a beta of 1.5. The sales division has 50% of the company’s assets, the accounting division has 20%, and the logistics division has 30%. What is the company’s overall beta?

A stock currently trading at Rs 20 can either rise to Rs 25 or fall to Rs 16 in three months. The three-month risk-free rate is 2%. Using the risk-neutral approach, what is the risk-neutral probability that the stock price increases?

Your expected return on a stock is 16%. The stock has a beta of 1.8. If the risk-free rate is 4% and the expected market return is 12%, what is the stock's alpha (in percent)?

A risky asset has an expected rate of return of 16%, and the Sharpe ratio of this risky asset is 0.75. If the risk-free rate of return is 6%, then what is the standard deviation of the rate of return of the risky asset?

Lokesh is considering investing in an opportunity that promises to pay Rs 3,000 in one year, Rs 2,500 in two years and Rs 2,000 in three years. If the prevailing constant rate of return is 8%, then what is the maximum price that Lokesh should agree to pay for the opportunity? (Round off to the nearest integer)

The price of a six-month European put option on a non-dividend-paying stock with a strike price of Rs 450 is Rs 35. The stock price is Rs 430, and the annual risk-free rate is 10% (continuously compounded). What is the price of a six-month European call option on the same stock with a strike price of Rs 450? (Round off to the nearest integer)

The current price of a non-dividend-paying stock is Rs 60. Over the next six months, it is expected to rise to Rs 75 or fall to Rs 50. Assume the risk-free rate is zero. A six-month call option with a strike price of Rs 70 is trading at Rs 3. How many options are required to hedge the purchase of 50 stocks? (Round off to the nearest integer)

An employee contributes 100 rupees per year to a retirement account with 5% average annual returns. She starts contributing after age 25 and continues until retirement at 60 (a total of 35 years of contributions). How much would the employee have in her retirement account at the age of 60 (in rupees)? (Round off to the nearest integer)

A stock is trading at Rs 80 today. In six months, the stock price can either increase to Rs 100 or decrease to Rs 70. The six-month risk-free rate is 5%. A six-month call option has an exercise price of Rs 90. What would it cost (in Rs) to buy 100 such call options? (Round off to the nearest integer)

A one-year European call option with a strike price of Rs 80 is selling at a call price of Rs 6. A one-year European put option with a strike price of Rs 80 is selling at a put price of Rs 4. The current share price is Rs 75. One year later, the share price increases to Rs 96. If you purchase two call options and one put option today, then how much profit do you make in one year? (Round off to the nearest integer)

An investor purchases one call option and two put options with the same strike price of Rs 65 and maturity of three months. The three-month risk-free rate is 4%. The price of the call option is Rs 7, and the price of the put option is Rs 5. What is the maximum loss (in Rs) the investor may incur on her portfolio with this strategy? (Round off to the nearest integer)

A project is expected to have a payoff of Rs 5,000 in one year. The beta for the project is 1.5. If the risk-free rate is 4% and the expected market return is 10%, what should be the price (in Rs) for the project according to CAPM? (Round off to the nearest integer)