Professional Documents
Culture Documents
com
∑ P( x ( y x y
Co Variance (x,y)
Correlation(x,y) =
Portfolio Risk
2 Securities:
3 Securities:
Free One day last minute Revision Class of SFM for May 2014 Exam will be held at
HBA, Himayat Nagar, Hyderabad on 11th may 2014 from 7:00 Am to 7:00PM.
All Final Students are welcome
Characteristic Line =
Single Factor Model/Sharpe Return Risk
Index Model
Stock
Portfolio
Exponential Moving Average(EMA) = EMA of Previous Day + Smoothing Factor [ Sensex Current close-Previous EMA]
Theory of Constant Mix Portfolio fixed weight will be given for equity value of the investment and Rf Value and
portfolio will be rebalanced at regular intervals to bring it back to the desired level.
Theory of portfolio proportional insurance Amount for Equity = m (Portfolio value – floor value)
m= 1/ Maximum Change in stock price.
Equity Derivatives
Call option Put Options Put-Call Parity Theorem: Theoretical value of
S0>E.P - In the Money S0>E.P - Out of the Money For Put = P.V of E.P + Call Premium – S0
S0=E.P - At the Money S0=E.P - At the Money For Call = S0 + Put Prem. – P.V of E.P
S0<E.P - Out of the Money S0<E.P - In the Money S0 = P.V of RF + Call Premium – Put Prem.
No. of shares =
Futures Valuations
CA Final SFM Batch III
1. Schedule : 05-Aug-14 to 25-sep-14
Timings : 6.15 am to 9.30 am
2. Venue: Ameerpet,Hyd
6. Long on Portfolio
No of Lots of Nifty to Short =
For full hedge
Long Portfolio
Decrease Increase
No. of Nifty Future No. of Nifty Future lots
Lots to sell = (Old - New )X Value of PF to buy = (New - Old )XValue of PF
Lot Size X Nifty Fut Price Lot Size X Nifty Fut Price
Commodity Derivatives
Convenience yield refers to Benefit holder of commodity receives if he held the stock in physical form rather
Than Future position
Present Value of Convenience yield = S0+ P.V. of Inventory cost – P.V of Future price
Bond Market
Value of Bond = P.V of future cash flows of bond (i.e. Coupon Rate & Redemption Value)
Current Yield = Current yield refers to the return investor gets in the current year
= Interest P.A
Current Market Price
Yield to Call Yield to call refers to return investor receives if he surrenders the bond when called back by the
company.
YTC = X 100
Yield to Maturity Yield to Maturity refers to return investor receives if he holds the bond till Maturity.
Duration of the Bond It refers to weighted average maturity of the cash flows of the bond.
Volatility of the Bond It refers to Sensitivity of the bond to Interest rates. In other words, Volatility shows
%Increase or % decrease in Bond price due to decrease or increase in interest rates in the economy.
Volatility% =
Portfolio Duration It refers to weighted average of duration’s of the bonds in the portfolio.
Straight Value of Bond Straight value of Bond means the Present value of Plain Vanilla Bond (Non-Convertible Bond)
Conversion Parity Price It means the value of Equity share at which it makes no difference for investor whether
converted or not.
Floor value of Bond It is the value of the convertible Bond, if the stock price falls drastically to even to zero.
Actual Interest > FRA Actual Interest < FRA Actual Int > FRA Actual Int < FRA
Diff Gain Diff Loss Diff Loss Diff Gain
Theoretical Forward Rate Theoretical forward rate refers to the FRA at which there is no Arbitrage Opportunity
available by borrowing and lending for different maturities. For example,
(1+1st Year Rate) = (1+6 Months Rate)(1+2nd 6m Rate)
(1+6m Rate) = (1+3m Rate) (1+2nd 3m Rate)
(1+2 Year Rate) = (1+1st Year Rate)(1+2nd Year Rate)
2
Immunization refers to buying a bond in such a way when interest rates rises fall in the bond prices will be exactly
compensated with rise in Reinvestment income and when interest rates falls fall in the reinvestment will be exactly
compensated with raise in the bond value. Immunization can be achieved by buying the bond now and holding it till
duration.
Corporate Dividend Policy
Walter’s Model:
Dividend Discounting/Growth Model P0 = or (No growth)
Gordan Model:
P0 = or
G= Retention Ratio X IRR
Retention Ratio = 1 – Payout ratio.
Earnings Growth Model P0 =
Modiglani Miller Theory Dividend decision is irrelevant in determining the value of shares. In other words, whether the
company pays the dividend or not the stock price will not change.
Theoretical post Rights Price = (SoxM)+ Rights Proceeds Post Bonus Theoretical Price = SoxM
M+N M+N
Discounted Cash flows method The future cash flows of the target co. business will be estimated and discounted with
acquiring co.’s cost of capital.
FOREX Markets
When bank buys denominator
currency Bid Rate.
When bank sells denominator
Bid and Ask Value
currency Ask Rate
and =>
Fx Rates of Few Currencies
Cross Currency Bid/Ask Rs/$ - 60
and Rs/€ - 85
Rs/£ - 100
Conversions from
¥/$ - 103
Denominator to Numerator = Multiplication.
Numerator to Denominator = Division. Rs/AED - 16
SWAP Points
Ascending Order – Add SWAP From Spot Rate to find Forward rates.
Descending Order – Deduct SWAP
If Actual Rh < Theoretical Rh = Money is cheaper in Home Currency. Hence borrow in Home currency & Invest
in foreign currency.
As on 1/1/2014 As on 31/12/2014.
1. Borrow in H.C 5. Redeem Deposit + Interest.
2. Convert in F.C @ spot. 6. Reconvert to H.C @ Fwd Rate.
3. Deposit in F.C 7. Repay H.C loan + Interest.
4. Take Fwd Cover to sell F.C 8. 6-7 = Arbitrage gain.
Money Market Hedging refers to simultaneous creation of FX asset for existing FX liability in case of importer and
creation of FX liability for existing FX asset in case of exporter.
Pay Later
Int rate < Dollar Appreciation Int rate > Dollar App
Receive now
Int rate < Dollar Appreciation Int rate > Dollar App
Risk analysis
% of Sensitivity = X 100
Sensitive’s CFAT
LIFE
O/F
D/F
Hillier’s Model
Independent Dependent
C/F S C/F S
x
Z Value = =
SFM Praveen
Mr.SFM Praveen is a CA having 6 years of experience in financial markets. He has worked as Equity research
analyst in Bombay stock Exchange, Mumbai. He was chief consultant for LIC, ICICI, Kotak, FIIs, banks and
Investment bankers on Equity markets, Derivatives markets & currency markets. He has contributed various
articles to “Economic times”.
During his 3 years of working in Dubai with Toyota Motors Corp, he used to manage treasury of USD 7 Bln
specialised in Hedging tools for foreign currency imports and exports dealt with 11 currencies. After getting rich
experience in financial markets in financial markets, he took teaching career out of passion to lead young
Chartered Accountants to financial services Industry.
He can be reached at info@sfmpraveen.com
CA. Hariharan is a B.Com Gold Medalist and he has more than 10 Years of Experience
in Teaching CA Students. He is fondly known as Costing Guru by students. His 38 Hours
of continuous class for CA Final Students at ICAI Trivandrum branch stands evident for
his untiring commitment towards student fraternity.
Vikas Kumar Oswal is a qualified Chartered Accountant & Company Secretary, he also
hold a Diploma in Information System Audit.
He has Conducted various study circles, meetings, presentation on various topics on
auditing, company law and other related areas at ICAI, ICSI, SICASA, KPCL, HAL,
Honeywell & Tyco Electronics. He has been teaching Auditing for CA Final & IPCC
students at ICAI and other private Institutes. He has teaching experience of more than
10 years
CA.M.V. Ramachandra Rao
Prof. Rajeshwar is a reputed faculty for Information Technology & ISCA teaching at various
ICAI Branches and other reputed Institutes all over India. He has more than 22 years of
experience for teaching the CA students. He is known as Techno Pandit.
Dr. P.R. Vittal
Dr. P.R. Vittal is currently guiding the research scholars in the field of Mathematics in
Differential Equations, Probability & Statistics, Stochastic Processes and also being
Advisor to students for Ph.D at University of Madras, Statistics Dept. By his sheer
passion for the profession, he is also handling classes for CA CPT Students and CA
Final Students.