May 2011,SFM Solution


shaishav soni (CA final)     30 June 2011

shaishav soni
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Here is SFM May 2011 solution asked by someone,i also find it earlier on Caclubindia.find attachment.


Attached File : 559642 754532 30161 717095 ca final sfm may 11.pdf downloaded: 149 times
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shailaja samant (Manager)     05 July 2011

shailaja samant
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Reply from prof NK Jain:

I differ on solution given in the attachment for question 1(a) & (b). According to me answer should be :

Answer 1 (a)

Return of the share E (R) as under

E (Rf ) = Rf +B1F1+B2F2+……..+BnFn

Where B1 is firm j’s factor -1 Beta

F1 is surprise in factor-1 and so on……….

E (Rf ) = 9.25+1.2(7.70-7.70) +1.75(7-5.50)+1.3(9-0.75)+1.70(12-10)+1(7.50-7)

E (Rf ) =9.25+0+2.625+1.624+3.4+0.50

E (Rf ) = 17.40%

Answer 1 (b)

                                                         3 Month        Value of Call         Expected

@ E =450             Vc

                             P = 0.285          St =500           50                   14.25=50 X  0.285

                                 

So =420

                          1-P = 0.715    

                                                St = 400                    0                     0 = (0X0.715)     

Expected Vc      = 14.25      

Expected share price at 32 month

E(st) = 500 p + 400 (1- p)

As per risk –neutral method,

E (st) = Future value of So= 420

So, 500 p + 400 (1- p) = 420 X e0.02

or, 500 p + 400 - 400p = 420 X 1.0202 = 428.484

or, 100 p = 28.484

or, p = 0.285

1- p = 0.715

 

Expected Vc = 50 X 0.285 + 0 X 0.715 = 14.25

Co= pv of call = 14.25 X e -0.08X3/12

= 14.25/1.0202

=13.97


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