Risk 2840202 Jan 2021

Seat No.: ________ Enrolment No.
___________
GUJARAT TECHNOLOGICAL UNIVERSITY

MBA - SEMESTER– IV EXAMINATION – WINTER 2020
Subject Code:2840202 Date:05/01/2021
Subject Name:Risk Management
Time:02:00 PM TO 04.00 PM Total Marks: 47
Instructions:
1. Attempt any THREE questions from Q1 to Q6.
2. Q7 is compulsory.
3. Make suitable assumptions wherever necessary.
4. Figures to the right indicate full marks.
Q.1 Objective Questions 06

(A)
Which of the following technique will ensure that impact of risk will be less?
1. A. Risk contingency B. Risk Mitigation technique
technique
C. Risk avoidance technique D. All of the above
2. On which base company selected the risk technique?

A. Minimization the cost B. Maximization of profit
C. To secure the company D None of above
3. Standardized futures contracts exist for all of the following underlying assets
except
A. Common stocks. B. stock indexes
C. Treasury bonds D. gold

4. Which of the following is false?
A. Futures contracts allow B. Futures contracts trade on a
fewer delivery options financial exchange
than forward contracts
C. Futures contracts are D. Futures contracts are more liquid
marked to market than forward contracts
5. Which of the following does the most to reduce default risk for futures
contracts?
A. Marking to market B. High liquidity
C. Credit checks for both D. Flexible delivery arrangements

buyers and sellers
6. Using futures contracts to transfer price risk is called
A. hedging B. speculating
C. diversifying D. arbitrage
Q.1 Define intrinsic value and time value of an option with suitable example 06
(b)
Q.2 (A) Explain Various Factors affecting option pricing. 06
(B) Explain ITM, ATM and OTM with suitable example. 06
1
Q.3 (A) Explain what is meant by a perfect hedge. Does a perfect hedge always
lead to a better outcome then an imperfect hedge? 06
(B) “Options and futures are zero sum games”. Critically explain the 06
statement
Q.4 (A) What is Derivative? Define various types of instruments of it. 06

(B) If the minimum variance hedge ratio is 1, Does it mean that you can 06
completely eliminate price risk?
Q.5 (A) A stock is trading at Rs 105.00. You are willing to write a call on the 06
stock exercisable at the end of 3 months with strike price of Rs 110.00. If
the risk free rate of interest is 12% p.a. and stock has exhibited volatility of
30% based on the past data, what premium for the call would you like to
charge for writing the call?
(B) A stock is selling for Rs 75. Call option as well as put with strike of Rs 06
80 and maturity of 3 months are available on the stock.
a) What should the minimum price of these options must be if the risk
free rate of interest is 12% p.a. with monthly compounding?
b) If the stock is giving dividend of Rs 2.00 in one months' time, how
would it affect the minimum price arrived in a).
Q.6 (A) Find out the payoffs of the following positions on European options on 06
a stock whose price at maturity is Rs 100:
A. Long call with exercise price of Rs 90
B. Short call with exercise price of Rs 80
C. Long put with exercise price of Rs 110
D. Short put with exercise price of Rs 110
E. Long call with exercise price of Rs 100
F. Short put with exercise price of Rs 100
(B) A trader in gold hold stock of 1 Kg valued at Rs 15 lacs at the spot price 06
of Rs 15,000 per 10 gms. The 3-m futures contract for size of 100 gms on
gold is Rs 15,400 per 10 gms. In order to protect against the fall in value of
the gold the trader decides to sell 10 contracts in gold for 3-m delivery.
However after one month the trader is required to sell the stock of gold at
Rs 14,500 and therefore also cancels his position in futures at Rs 14,700.
Find out the price the trader realised.
Q.7 Case Study: Understanding Binomial Tree 11
You are required to value a 12-m option on an asset currently trading at Rs

100 using 4- stage binomial tree. The risk free rate is 8% p.a. with quarterly
compounding. The stock can take only two values at the end of each quarter
with either 10% up or 10% down. Answer the following:
A) How many end-values the asset can have?

B) Find out all the end values.
C) What is the probability of each end value?
OR
Q.7 Case Study: 11
A mutual fund is holding a portfolio worth Rs 120 crore replicating almost
the market portfolio. The current value of the NIFTY index is 4,800. Due
to uncertainty about the outcome of election results the market is expected
to fall for next three months. The mutual fund needs protection against the
likely erosion in the value of the portfolio not exceeding 5%.
2
The yields on the portfolio and index are 4% and 3% respectively and the
risk free rate is 8%.
Find out
a) Strike price of the put option
b) Number of contracts would you buy if each contract is for 50 indices and
each index point is worth Rs 1.
*************

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Seat No.: ________ Enrolment No.

GUJARAT TECHNOLOGICAL UNIVERSITY

Q.1 Objective Questions 06

2. On which base company selected the risk technique?

C. Treasury bonds D. gold

A. Marking to market B. High liquidity

C. Credit checks for both D. Flexible delivery arrangements

(B) Explain ITM, ATM and OTM with suitable example. 06

Q.4 (A) What is Derivative? Define various types of instruments of it. 06

You are required to value a 12-m option on an asset currently trading at Rs

A) How many end-values the asset can have?

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