Here is SFM May 2011 solution asked by someone,i also find it earlier on Caclubindia.find attachment.
shaishav soni (CA final) (348 Points)
30 June 2011Here is SFM May 2011 solution asked by someone,i also find it earlier on Caclubindia.find attachment.
shailaja samant
(Manager)
(62 Points)
Replied 05 July 2011
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
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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