Question 1: Take your loan document and assume that you would have to pay-off the loan 2 year

before the maturity date. What would be the amount you have to pay at the time of closing the loan? How would the amount change if inflation rate increases, and what would happen if you have pre-paid Rs.50, 000 at the end of the 2year of the loan? Question 2: Assume that you would need Rs.50, 000 per month 30 year from now, when you retire. To meet this financial need you have decided to invest in a pension fund regularly every month. The pension fund promised you to provide 8% yield on your investment. What would be your monthly out-flow? How would your monthly outflow change if the yield increases and decreases (show it with hypothetical examples). If the inflation rate decreases over the years, how would your financial plan change? Question 3: What is the difference between fixed rate and variable rate loans? Under what circumstances a variable loan would be preferred. Explain this with a hypothetical example? Question 4: Assume that you have taken a housing loan, when would you like to refinance your loan? What problems the loan provider would face when you refinance the loan? Explain this with the help of an example. Question 5: Imagine that you have taken a housing loan for Rs.50Lakhs to be paid over next 20 years with annual installment with a balloon payment of Rs.5Lakh at the end. If the annual interest rate is 10%, what is the amount you have to pay every year? What would happen if you have to pay monthly and quarterly installments? Question 6: What happens to the present value of cash flow stream when the discount rate increases? Explain this with the help of an example. Place this in the context of an investment. If the required rate of an investment goes up but the expected cash flow do not change, would you be willing to pay the same price for the investment or would you pay more or less for this investment than before interest rate changed. Question 7: If you assume interest rate are expected to increase, would you prefer a loan with fixed interest rate for the life of the loan or a loan with a variable rate that would increase with interest rates throughout the life of the loan (assume both loans start with same interest rate)? Would your answer change if the variable rate loan started at a much lower rate (consider two situation of interest rate rising slowly and quickly in your answer). Explain this with help of an example.

Question 8: Assume you wish to establish a college scholarship fund that would provide scholarship of Rs.5, 000 per month to 12 deserving students of the college. You would like to make a lump-sum gift to the college to fund the scholarship into the perpetuity. The college treasurer assures you that they would earn 8% per annum. a. How much you must given the college today to fund the perpetuity scholarship program? b. If you wanted to allow the amount of scholarship per student to increase annually by 5% at the end of each year, how would your gift amount going to change? c. How is answer going to change if you pay the scholarship semiannually for case a and case b.? Question 9: Assume that you deposited Rs.50, 000 into an account which is paying 9% interest rate per annum and you would not like to withdraw any amount from the account for the next 15 years. a. How much money will be there in the account at the end of eight years if the interest is compounded, annually, semiannually, monthly, and continuously? b. Calculate the effective interest rate for all the cases mentioned above c. Based on your findings in case a and case b, what is the general relationship between the frequency of compounding and effecting interest rate Question 10: Let us assume that you have a future liability of Rs.75, 000 per year starting from 10 years from now, which would last for 6 years from that period of time. You would like to fund these liabilities over the next 7 years, and you would like to contribute every moth certain amount that would help you to fund your liabilities in the future. Let us assume that you would get 10% compounded (semiannually) on your contribution. What is the amount you would have to contribute every month? Question 11: You would like to buy a house, which would cost you 2 crs. You approached a housing finance company, which charges 12% variable interest rate. Depending on your income you could pay maximum of Rs.100, 000 per month. What would be minimum maturity period of the loan? If interest rate increased and your income has remained same, how would your finance company approach the problem (explore all the options)? Question 12: As a winner of competition, you can choose one of the following prizes; a. Rs. 5Lkhs now b. Rs. 10Laks 7 years from now c. Rs. 60, 000 per year for ever d. Rs. 100, 000 for next 15 years e. Rs. 35, 000 next year and rising at 5% per year for ever What would be your choice (you can assume the interest rate)? How sensitive is your decision to your interest rate assumption?

Question 13: An oil well presently produces 2lakhs barrel per year, and it would likely to last for next 25 years, but the production is likely to reduce by 3% per year for the next 15 years and by 5% there after. Currently the price of oil is $70 per barrel and is likely to increase by 5% per year for the next 5 years, and decrease by 4% per year from the 6th year till the 11th year, and then increase again by 2% per year till the 25th year. If you have to value the oil well, what would be price you would be ready to pay? Take a call on interest rate and show how sensitivity is your decision to your assumption of interest rate? Question 14: You are considering whether your saving will be enough to meet your retirement needs, you have 25 years of job is left and you currently do not have any saving. Your current house hold expenses are Rs.25, 000 per month and you would like to buy a house which would cost you Rs. 30Lakhs at the time of your retirement. You would like to maintain the same life style after the retirement. Let us assume that you saved Rs.150, 000 last year and your saving is expected to grow at 10% per year till you retire, and you would likely to earn 8% per annum on your saving. Is your saving enough to meet your retirement plans? What are the risks you see on your financial planning? How can you reduce these risks? Question 15: You are considering whether your saving will be enough to meet your retirement needs, you have 30 years of job is left and you currently have Rs. 10Lakhs as your saving. Your current house hold expenses are Rs.30, 000 per month and you would like to buy a house which would cost you Rs. 30Lakhs at the time of your retirement. And you need 20 Lakhs for your Childs education at the end of 15th year from now. You would like to maintain the same life style after the retirement. Let us assume that you saved Rs.100, 000 last year and your saving is expected to grow at 10% per year till you retire, and you would likely to earn 3% real interest rate per annum on your saving. Is your saving enough to meet your retirement plans? What are the risks you see on your financial planning? How can you reduce these risks? Question 16: You have decided to buy an insurance policy which would require you to pay Rs.20, 000 per month as premium for next 20 years, and from 25th year onwards you would get a monthly payment of Rs.100, 000 for your life. If you are expected to live for next 40 years, what is your yield from this investment? What is the risk LIC faces if your life span increases?

Question 17: Naveen have deposited Rs. 10Lakhs with HDFC at 10% for 15 years. What would be the terminal value if interest rates are compounded? a. Annually b. Bi-annually c. Quarterly d. Monthly e. Weekly f. Continuously If you are working with ICICI bank and you would like to have Naveens deposit at ICICI, then what would be your APR that would make Naveen indifferent between two banks for each of the cases mentioned above? Question 18: Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling some securities that call for payment of Rs.50 at the end of each year for next 3 years, plus a payment of Rs.1050 at the end of 4th year. Your friend says she can get you some of these securities at Rs.900. Your money is now invested in a bank that pays you 8% nominal interest rate with quarterly compounding. Where would you invest your money, and why? What are the issues that would drive your decision? Question 19: Your Company is considering either buying or leasing a Rs.120, 000 piece of equipment for the next 10 years. The company plans to use the equipment indefinitely. The annual lease payment of Rs.15, 000 begins today. The lease includes an option for your company to buy the equipment for Rs.25, 000 at the end of 10 years. If you have to make a decision to buy or lease the equipment, what would be you decision, and justify your decision? Question 20: You are saving for the college education of your two children. They are five years apart in age: one will begin college 10 years from now and other would do the same 15 years form now. You would need 25,000 per year per child, which would grow at 10% per year. Your child will be 7 years in college. How much you need to deposit every month so that you can meet expenses of your children? You can assume the interest rate you would get, how ever show the sensitivity of your decision to your assumption of the interest rate? Question 21: Price of a premium bond would decline over time and reach the face value at the maturity, show it with the help of an example (at least a 15 year bond)? How it is different from a par value bond and what would happen if the YTM of the bond keep changing? Question 22: Price of a discount bond would rise over time and reach the face value at the maturity, show it with the help of an example (at least a 15 year bond)? How it is different from a par value bond and what would happen if the YTM of the bond keep changing?

Question 23: Assume that you have bought a unit of bond at Rs.800, which has a face value of Rs.1000. The bond has a coupon rate of 10% paid semiannually, and has 20 years to maturity. What is the Yield to Maturity (YTM) of the bond and how does the YTM change if coupon is paid semiannually? What is the relationship between IRR and YTM? Question 24: You have taken a loan of Rs.500, 000 from a bank at 8% simple interest rate per annum for 10 years where your EMI is going to be 10807.26 (Approx). Your friend looks at your loan agreement and comments that you are paying too much for the loan, what is basis of your friends comment? Going forward how would you look at any installment loan interest rate? Question 25: Both bond A and bond B have a coupon of 10% and makes semiannual payments, and are priced at par value. Bond A has 5 years to maturity, where as bond B has 15 years to maturity. If the interest rate suddenly rises by 200 basis points, what is the percentage change in the price of the bond A and B? How would be different if the interest rate fall by 200 basis points? What would be your understanding from this example about the interest rate risk with respect to the term of the bond? Question 26: Suppose your company needs to raise $50MM for a project which would pay over a 25 years period and therefore you have decided to raise money through bonds with a 25 years maturity. However, you have not made decision with respect to whether you would like to issue bonds with coupon payment or bonds without coupon payments. Assume that your expenses on interest payment to the bond holders are tax deductible and your companys marginal tax rate is 20%. a. How many of the bonds you would have to issue to raise the amount of money for both the cases? b. What would be your repayment amount at the time of the maturity of the bonds for both the cases? c. Based on your answers to above questions justify when would you like to issue zero coupon bonds? Assume any required YTM and show how would your decision change if the required YTM changes? Question 27: The Corporation you are working has two different bonds currently outstanding. Bond A has a face value of Rs.25, 000 and matures in 30 years. This bond makes no payment for the first 10 years and makes Rs.2000 every six months over the subsequent 10 years, and finally pays Rs.2500 every six months for the rest of the life of the bond. Where as the bond B which has the same face value and maturity of 20 years, and it makes no coupon payment but pays Rs.50, 000 at the maturity per bond. If the required rates of return from these bonds are 12% compounded monthly, what is the price of both the bonds? How would price of bonds change if the rate changes, and where would you see higher percentage of change?

Question 28: Consider four different stocks (Stock A, Stock B, Stock C, and Stock D), beta of these stocks are 0.9, 1.2, 0.7, and 1.5. Currently the 1 year risky bonds are trading at a YTM of 13%. These risk bonds are demanding 5% risk premium and the stock market is demanding a 8% risk premium. Stock A and Stock D are growth stocks and the dividends are expected to grow at 10% for Stock A till the foreseeable future and Stock D is expected grow its dividend by 20% for the next 4 years and 12% for the foreseeable future there after. Stock C is not expected to grow its dividends, where are Stock B is expected to decelerate its dividend payment by 5% per year. If all the stocks are paying Rs.5 as dividends; a. What are the dividend yields of the stocks? b. What are the expected capital gains yields of the stocks? c. Discuss the relationship among various returns and risk associated with it and point out if there is any anomalies? Question 29: If a portfolio has a positive investment in every asset, can the expected return on the portfolio be greater than that on every asset in the portfolio? Can it be less that on every asset in the portfolio? Similarly if a portfolio has a positive investment in every asset, can the standard deviation on the portfolio be less than on every asset in the portfolio? You can justify your answers with help of some hypothetical examples? Question 30: You have Rs.100, 000 to invest in a portfolio containing Stock X, Stock Y, and risk-free assets. You must invest all your money, and your goal is to create portfolio that has an expected return of 13%, and has only 70% of the risk of the overall market. The Stock X has an expected return of 31% with a beta of 1.8, and Stock Y has an expected return of 20% with a beta of 1.3. If the risk free rate is 7%, how much money should you invest in Stock X and Y and how would interpret your answers?