CWA ICWA Final - Group III : Capital Market Analysis and Corporate Laws - December 2011

CWA ICWA Final - Group III • Capital Market Analysis and Corporate Laws • December 2011

This Paper has 43 answerable questions with 0 answered.

F—P11(CMC) Syllabus 2008
Time Allowed : 3 Hours	Full Marks : 100

The figures in the margin on the right side indicate full marks.

Working notes should form part of the answer.

Please:

(1)
(2)
(3)

Answer all bits of a question at one place.
Open a new page for answer to a new question.
Attempt the required number of questions only.

SECTION I (60 Marks)

(Capital Market Analysis)

Answer Question No. 1 which is compulsory and answer any two from the rest in this section.

(a)

In each of the cases given below, one out of four is correct. Indicate the correct answer and give workings/reasons briefly in support of your answer:

2x5=10

(i)

The Market Price of Stock of ATCO Ltd. Is Rs.102 and its Alpha is-1.3%. The realized return on the Stock is 16% p.a. and the Risk–free rate of return is 7.02% p.a. Market Risk premium is 7% p.a. What would be the Required rate of return on the Stock of ATCO Ltd . if its co–variance with the market portfolio declines by 50%?

A.	14.235%
B.	13.125%
C.	12.165%
D.	None of the above

(0)

(ii)

The buy and sell value of two securities in stock exchange are as under:

Security

L
M

Buy value
(Rs.)
5,00,000
3,00,000

Sell value
(Rs.)
2,00,000
7,00,000

The Gross Exposure Margin is

A.	Rs.17,00,000
B.	Rs.7,00,000
C.	Rs.12,00,000
D.	Insufficient information

(0)

(iii)

The Stock of VENTEX LTD (FV Rs. 10) quotes Rs. 920 on NSE and the 3 months futures price quotes at Rs. 950 and borrowing rate is given as 8% p.a. If the expected annual dividend yield is 15% p.a. payable before expiry, then the theoretical price of 3 month Ventex Ltd. Futures would be

A.	Rs. 948.80
B.	Rs. 939.90
C.	Rs. 936.90
D.	Rs. 928.40

(0)

(iv)

The following two types of securities are available in the market for investment:

Security	Return %	Standard Deviation (%)
Gilt–edged security	7	0
Equity	25	30

Using the above two securities, if you are planning to invest Rs. 1,00,000 to construct a portfolio with a standard deviation of 24%, the return of such portfolio is

A.	Rs.10,900
B.	Rs.15,600
C.	Rs.21,400
D.	None of the above

(0)

(v)

MS. VASUDA is considering an investment in a Mutual Fund with a 2% load. As another alternative, she can also invest in a Bank deposit paying 10% interest. Her investment planning period is 3 years. What should be the annual rate of return on Mutual Fund so that she prefers the investment in the fund to the investment in Bank Deposit?

A.	10.743%
B.	11.282%
C.	11.884%
D.	None of the above

(0)

(b)

Choose the most appropriate one from the stated options and write it down.(Only indicate A, B, C or D as you think correct):

1x5

(i)

Green shoe option denotes an option

A.	of allocating shares in excess of the shares included in the public issue
B.	of allocating of shares lower than the shares included in the public issue
C.	to buy shares at a specified price in the stock exchange
D.	none of the above.

(0)

(ii)

An appeal against the order of the Banking ombudsman can be made to

A.	No appeal is possible
B.	The Finance Ministry
C.	The Deputy Governor’s Office of the RBI
D.	The Central Government

(0)

(iii)

The conversion of existing assets into marketable securities is known as

A.	Future flows securitisation
B.	Asset–backed securitisation
C.	Venture funds
D.	None of the above

(0)

(iv)

Which of the following statements is true?

A.	If market price = face value, then coupon rate > YTM > current yield
B.	If marker price =face value, then coupon rate < current yield < YTM
C.	If market price > face value, then coupon rate > current yield >YTM
D.	If market price < face value, then coupon rate = current yield = YTM

(0)

(v)

A portfolio holding 90 percent of its assets in CNX Nifty Stocks in proportion to their market capitalization and 10 percent in Treasury bills is more sensitive to

A.	Index Risk
B.	Systematic Risk
C.	Unsystematic Risk
D.	Both (A) and (B) of above

(0)

(c)

Fill in the blanks in the following sentences by using appropriate words/phrases/numbers:

1x5

(i)

Inter–bank market for deposits of maturity beyond_______ is covered in money market instruments.

(0)

(ii)

SEBI was constituted in the year_________.

(0)

(iii)

A prospectus is said to be a________ prospectus which contains all information as per prospectus contents but does not have information on price of securities offered and number of securities (quantum)offered through document.

(0)

(iv)

The RBI performs the financial supervision function under the guidance of _______.

(0)

(v)

Buying and selling call or put option with same strike price but different expiration dates is called ____ spread.

(0)

(a)

What is "money market"?
Explain the terms "Treasury bills" and "Certificate of Deposits" in this context.

1+2+3=6

(0)

(b)

MR. VASANTSHAH an analyst of REVAMP SECURITIES LTD has made risk and return projections for the securities of SPARX LTD and DEPROTIV LTD which are as follows:

Scenario	Probability	Returns % associated with
Scenario	Probability	SPARX LTD	DEPROTIV Ltd.	Market Index
Recession & High Interest Rate	0.20	−13	−4	−9
Recession & Low Interest rate	0.15	16	−2	8
Boom & High Interest rate	0.40	32	21	16
Boom & Low Interest rate	0.25	12	20	20

It is felt that the interest rate of 7 per cent on the 91-day T-Bill is a good approximation of the risk–free rate.
Assume that CAPM holds good in the market.

You are required to:

(i)	Calculate the ex–ante Betas for Sparx Ltd a Deprotiv Ltd,

(ii)	Comment on the proportions of systematic and unsystematic Risk in the two stocks

(iii)

Recommend for fresh investment in any of these two stocks.

—Show all the necessary ,calculations.

6+4+
(2+2)=14

(0)

(a)

Briefly State the objective behind issuance of SEBI (Disclosure and Investor Protection) Guidelines, 2000.

(i)	To whom are the said guidelines applicable?

(ii)	Two whom are the said guidelines not applicable?

1+1+2=4

(0)

(b)

For an important business offer made by your client BEAUTIFUL LTD, the offeree is ready to send a digitally signed email, accepting the offer .Your client wants to know if the same is legally binding. Advise the client suitably.

(0)

(c)

The Stock of GREENENVIRON LID. (G.L.) is currently trading at Rs. 796.17 and Put Option exercisable in three months time has an exercise rate of Rs. 800. The annual standard deviation of its continuously compounded rate of return is 20 per cent.
The annualised Treasury Bill rate corresponding to this option life is 6 per cent.

Requirement:

Calculate the value of a three month PUT OPTION on the stock of GREENENVIRON LTD. (Using Black and Scholes Model)

Note: Extracted from the Tables:

1.	In (0.99521) = -0.00480, In (1.0048) = 0.004788
2.	Value of e^−x:e^−0.01 = 0.99005,e^−0.015 = 0.98511
3.	Cumulative standardized normal probability distribution: NCX

When X ≥ 0 : N(0.152) = 0.5604, N(0.052) = 0.5207
When X ≤ 0 : N(O − 0.152) = 0.4396, N(− 0.052) = 0.4793

2+1+
1+3=7

(0)

(d)

The following table gives an analyst's expected return on two stocks for particular market returns:

Market Return
8%
18

Bulls Ltd.
4%
25

Bears Ltd.
7%
15

Required:

(i)	Compute the Beta of the two stocks.

(ii)	If the risk–free rate is 6% and the market return is equally likely to be 8% or 18%, what are the required Rate of Returns of the two Stocks?

2+2=4

(0)

(a)

Explain in brief the differences between futures and option.

2+2=4

(0)

(b)

SUN MUTUAL FUND LTD promoted an open-ended equity oriented scheme in 2004 with two plans–Dividend Re–investment Plan (Plan–D) and a Bonus Plan (Plan–B). The face value of the units was Rs. 10 each. MS. ADITA invested Rs. 2,00,000 each on 1.4.2006 in Plan–D and Plan–B respectively, when the NAV was Rs. 38.20 for Plan–D and Rs.35.60 for Plan-B. MS. ADITA redeemed her units in Plan-D and Plan–B respectively on 31.3.2011.

Particulars of dividend and bonus declared over the period were as follows:

Date	Dividend (%)	Bonus Ratio	Net Asset Value (Rs.)
			Plan–D	Plan–B
30.9.2006	10	–	39.10	35.60
30.6.2007	–	1:5	41.15	36.25
31.3.2008	15	–	44.20	33.10
15.9.2009	13	–	45.05	37.25
30.10.2009	–	1:8	42.70	38.30
27.3.2010	16	–	44.80	39.10
11.4.2010	–	1:10	40.25	38.90
31.3.2011	–	–	40.40	39.70

Required:
Calculate the Annual rate of return in respect of Plan–D and Plan–B for Ms. Adita.

Note: Ignore:

(i)	Income tax of Capital gains
(ii)	Security Transaction Tax (STT)

4+4=8

(0)

(c)

The settlement price of a NIFTY FUTURES contract, on a particular day in a particular month of the year 2011 on NSE was 8288.4. The multiple associated with the contract is 50. The initial margin for the contract is Rs. 30,000 and the maintenance margin is set at Rs. 20,000. The settlement prices on subsequent 8 (eight) days were as follows:

Day	Settlement Price (Rs.)
1	7968.40
2	8429.70
3	8580.00
4	8307.70
5	7754.60
6	8143.00
7	8231.00
8	8444.00

Required:
Calculate the Mark to Market (MTM) cash flows, the daily Closing Balances and Net-Profit (or loss) in the Account of MR. S. BAKSHI an investor who has gone:

(i)	Long at 8288.40

(ii)	Short at 8288.40

4+4=8

(0)

SECTION II (40 Marks)
(Corporate Laws)
Answer Question No. 1 which is compulsory and answer any two from the rest in this Section.

SECTION II (40 Marks)

(Corporate Laws)

Answer Question No. 1 which is compulsory and answer any two from the rest in this Section.

(a)

Choose the most appropriate one from the stated options and write it down (only indicate A, B, C or D as you think correct):

1x4=4

(i)

In a Public Limited Company there are 10 directors including Managing Director and a nominee of ICICI. How many directors are liable to retire by rotation? .

A.	Four
B.	Five
C.	Six
D.	Seven

(0)

(ii)

MR. RAJESH, a director of GROW WELL LTD died in a train accident. The Board of directors would like to appoint MR. ARUN KUMAR in place of MR. RAJESH. Which of the following statements is true?

A.	The company has to call for extra–ordinary general meeting
B.	The company has to continue with the existing number of Directors till the next Annual General Meeting
C.	The Board can fill up the vacancy at the Board Meeting
D.	None of the above

(0)

(iii)

Buy–back of equity shares in a financial year shall not exceed

A.	25% of total authorised equity capital of the company
B.	25% of total paid-up equity capital of the company
C.	25% of total called up equity capital of the company
D.	None of the above

(0)

(iv)

In the context of classification of Risks war risks will fall under

A.	Political Risks
B.	Credit Risks
C.	Disaster Risks
D.	Systems Risks

(0)

(b)

Fill in the Blanks in the following sentences by using appropriate words/phrases:

1x6=6

(i)

As per clause–49 of the listing agreement where chairman is a Non–executive director, at least ____ of Board should consist of independent directors.

(0)

(ii)

After the commencement fo the Companies (Amendment) Act, 2011, no person, shall, save as otherwise provided in section 276, hold office at the same time as director in more than _________________ companies.

(0)

(iii)

Section________ to __________of the Companies Act, 1956 contain elaborate provisions for regulating payment of compensation to directors for loss of office.

(0)

(iv)

In the case of a public limited company, the director must obtain qualification shares within ______ from the date of appointment.

(0)

(v)

To examine how a result will change if the predicted financial outcomes are not achieved or if an underlying assumption changes, managers can use ______analysis.

(0)

(vi)

Related party disclosure requirements are spelt out in IAS_______ .

(0)

(a)

MS. SUCHANDA has entered into a transaction with GLAMOUR LTD for a contract value of Rs. 40 lacs.The Articles of Association enjoin that contracts above Rs. 10 lacs should be approved in Board Meeting. Mr. Dhuruv, an officer of the company, produces forged documents to her, which show a resolution having been passed in a Board Meeting approving the contract. Later, the forgery comes to light. MS. Suchanda pleads that she is protected by the Doctrine of Indoor Management.–Discuss.

3+2=5

(0)

(b)

Can any fine or penalty be imposed on the Public Information Officer of a Government Department, where he has deliberately delayed the furnishing of information sought for properly, under the RTI Act, 2004?
Is such Levy automatic?
How can the fine or penalty imposed, be recovered from him?

1+2+2=5

(0)

(c)

"Corporate governance is merely the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled". Critically examine this statement.

(0)

(a)

Discuss the role, membership and operations of a Nomination Committee.

(0)

(b)

In the context of management audit, what is meant by "control risk" vis–a–vis detection of material misstatements in the financial statements?

In this regard, what is "Control Risk at the maximum" and "Control Risk at less than the maximum"?

(0)

(c)

An understanding has been reached among the manufacturers of cotton to control the price of cotton, but the understanding is not in writing and it is also not intended to be enforced by legal proceedings.
—Examine whether the above understanding can be considered as an 'agreement' within the meaning of section 2(b) of the Competition Act, 2002.

(0)

(a)

VAIBHAV POLYMERS LTD has an authorised capital of Rs.250 lacs. Its paid up capital is Rs 200 lacs. The free reserves are to the tune of Rs. 120 lacs. The company has advanced to other companies to the tune of Rs. 180 lacs, as on 30th November, 2011. On this date, the Board of directors of the company wants to advance Rs. 35 lacs to Vasudha Textiles Ltd., without the prior permission of the shareholders in a general meeting.
—Discuss the correctness of the proposal.

(0)

(b)

MR. JYOTJRMAYEE has supplied goods worth Rs. 3,000 to TWINKLE LTD. The company proposes to appoint him as an independent director in the Board. The total annual purchases of the company amount to . Rs. 4 crores.—
Discuss about the appropriateness and correctness of this proposal, in the light of provisions of the Companies Act, 1956.

(0)

(c)

A group of shareholders of DECEPTIVE TECHNO LTD. filed an application before the Company Laws Board (CLB) alleging various acts of frauds and mismanagement by MR NAVIN, the Managing Director & his associates. During the course of hearing before the CLB, the authorized representatives of the said company contended that the alleged transactions had taken place several years ago and the company has already removed the Managing director, who was responsible for such transactions and hence there is no case before the CLB to interfere in the working of the company. Against the submiussions on behalf of the company, the applicants submitted that although the fraudulent transactions were done in the past and the Managing Director has been removed, but the company is still controlled by the person, who are in leage with the erstwhile Managing Director and are working as his Henchman.
—State the merits of the applicants’ arguments and power of the CLB.

(0)

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