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SAPMPrelim
N.B. (1) All questions are compulsory with each question having internal options except Q.1. (2) Figures in the brackets to
the right indicate the marks
Q.1(A) Fill in the Blanks
(8 marks)
1. ______________ measures the systematic or non-diversifiable risk of a securit y
2. 90 days Treasury Bills of Rs. 100 are sold for Rs. 97 per bill and redeemed at par. The annualized rate of return on this
investment is_____________
3. The approach towards investment decision which involve the price movements of the securit ies and drawing inferences from
the price movement in the market is known as _________________
4. _________ Model defines the intrinsic value of a share as the present value of future dividend
5. Firm A has a margin of 12%, sales of Rs. 600000 and ROI of 18%. Its average total assets are_______
6. A speculat or on the stock exchange who expects a rise in the price of a certain securit y is described as __________
7. A special contract in which the owner enjoys the right to buy or sell something without obligation to do so is called
_____________
8. Risk arising from the inabilit y to convert an investment quickly into cash is known as___________
Q.1(B) State whether the following are True or False with reasons:
(7 marks)
1. Yield curve considers only the relationship between the maturit y and its yield
2. Technical analyst believes that stock market movement is 90% logical and 10% psychological.
3. Buying & Selling electronic shares is called Physical shares trading
4. When compounding is done more frequently than annually, the effective rate of interest is lower than nominal rate of interest
5. The positive correlation of two securit ies indicates that risk of the portfolio will be miniminsed
6. When a trader transacts in the market for price risk management, he is called as Broker
7. The strike price of an option contract changes with the change in market price of the stock under the option contract.
Q.2) (a) Define Investment and Distinguish between investment and speculation
(7)
Q.2(b) Enumerate and briefly explain t ax saving invest ment alternatives
(8)
OR
Q.2) (a) List down five investment alt ernatives which would generate stable returns from t he view point of middle aged risk neutral
investor who has a investible surplus of Rs. 20,00,000 stating its merits and demerits. One of his objectives is to minimise tax on his total
income.
(8)
Q.2) (b) Functions of SEBI
(7)

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Q.3) (a) Mr. Agarwal had purchased on 1/ 7/ 2003, 100 shares of ABC @ Rs. 150 per share including Brokerage and transaction tax of 1%.
The face value of the share is Rs. 10. Company declared dividend as under.
August 2003
Final Dividend of 40% for F.Y. 02-03
December 2003
Interim Dividend of 30%
August 2004
Final Dividend of 50% for F.Y. 03-04
December 2004
Interim Dividend of 20%
The company also declared Bonus shares in the ratio of 1:2 on 15th September 2004.
On 1/ 1/ 2005, he sold all his shares of ABC @
510 per share, net of Brokerage and Transaction Tax @ 1%. Calculate following for Mr. Agarwal: 1) Holding Period Return 2) Annual Rate
of Return.
(7)
Q.3) (b) (i) JMD Ltds share (Rs. 10) was quoting at Rs. 102 on 1/ 4/ 2000 and the price is expected to rise to Rs. 132 on 1/ 4/ 03. Dividends
were received at 10% on 31st March each year. Cost of funds was 10%. Is it worthwhile investment considering the time value of money?
(Present value factor at 10% are 0.909, 0.826, 0.751)
(4 marks)
(ii) Jai is considering investment in one of the following Bonds:
(4 marks)
Bond
Coupon Rate
Maturit y
Price/ Rs. 100 par Value
Bond X
11%
10 years
Rs. 76
Bond Y
12%
7 years
Rs. 69
Recommend which bond should be purchased. Will your answer change if the required rate of return is 21%
OR
Q.3) (a) What will be the intrinsic value of equity shares of L ltd based on the following data. (7 marks)
Last dividend
Rs. 3 per share
Growth rate for 1-3 years
20% p.a.
Growth rate for 4-6 years
10% p.a.
Growth rate beyond 6 years
5% p.a.
The investors required rate of return is 14%.
Q.3) (b) (i) An Rs.5000 bond with a 12% coupon rate matures in 8 years and currently sells at 96%. Is this bond a desirable investment
for an inverter whose required rate of return is 10%?
PVAF @ 10% for 7 years = 4.868 and PVF @ 10% for 8th year = 0.467
(4 marks)
(ii) Krishnamurthy has inherited Rs. 1000 a year for the next 20 years. First payment being made in one year
s time. However, he is in
need of money immediately and would like to sell his income to any buyer who would pay him the right price. Assume that the current
market rate of interest is 9%.
a) What should be the right price he should accept?

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b) How much of his income should he sell if he wants only Rs. 2500 at present?
c) If you were interested in buying the income but, if you had only Rs. 5000 to invest, what would be your proposal?
(4 marks)
Q.4) The information below is taken from the records of two companies in the same industry (in 000). (15)
Particulars
X
Y
Cash
210
320
Debtors-net
330
630
Stock
1,230
950
Plant and equipments
1,695
2,400
Total assets
3,465
4,300
Sundry creditors
900
1,050
8% Debentures
500
1,000
Equity share capital
1,100
1,750
Retained earnings
965
500
Total liabilities
3,465
4,300
Sales
5,600
8,200
Cost of goods sold
4,000
6,480
Other operating expenses
800
860
Interest expenses
40
80
Income taxes
266
273
Dividends
100
180
MPS
100
75
Answer each of the following questions by making a comparison of one or more relevant ratios.
1. Which company is using the ordinary shareholders' money more profitably?
2. Which company is better able to meet its current debts?
3. If you were to purchase the debentures of one company, which company's debentures would you buy?
4. Which company collects its receivables faster, assuming all sales to be credit sales?
5. Which company is extended credit for a longer period by the creditors, assuming all purchases to be credit purchases?
6. How long does it take the company to convert an investment in stock to cash?
7. Which company retains the larger proportion of income in the business?
8. If you were to purchase shares of one company, which company
s shares would you buy?
OR
Q.4) (a) Distinguish between Fundamental and Technical Analysis
Q.4) (b) Du Pont Chart Analysis

(7)
(8)

Q.5) (a) The current price of stock 'A" is Rs. 50. The future prices with probabilities are given below: (7 marks)
Future price (Rs.)
40
50
60
70
80
Probability
0.1
0.2
0.4
0.2
0.1
Calculate the expected rate of return and standard deviation. You are considering diversifying your investment by selling 25% of the
shares you own in stock 'A' and purchasing stock 'C' stock with that. 'C' has an expected rate of return of 20% and a standard deviation
of 22 %. If the returns from stock 'A' and stock 'C' have a Covariance of 241%. Is there any advantage of diversifying by owning two
stocks rather than one?
Q.5) (b) (i) The following information is available in respect of certain securit ies:
(3)
Security
Beta
Actual Return of the portfolio
I
1.4
22%
II
1.2
18%
III
1.1
14%
The market return is 16% and the risk free return is 6%. Find out whether these securit ies are correctly priced or not. What would be
your strategy
(ii) Returns on X Ltd. were 12%, 13%, 12% and 11% in the last four years. Returns on Y Ltd. were 12%, 13%, 9% and 10% in the last four
years. While average market returns were 14%, 15%, 14% and 13% in the last four years, return on Government Securit ies was 6.5%.
You are required to compute beta factors and expected returns for X Ltd. and YLtd. (using CAPM) and offer your comments.
(5)
OR
Q.5) (a) Explain Random Walk Theory and its t hree forms
(7)
Q.5) (b) (i) What are the Inputs for CAPM
(4)
(ii) Difference between SML and CLM
(4)

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JMDTUTORIAL
s - FRAPrelims
Q.1) (a) Fillin the blanks and complete the following sentences
1.
Anon-banking asset should be disposed off within ___________ years from the date of acquisition
2. Interest income on NPAis recognized in Banks P &L account on _________________ basis
3. Insurance contract between two insurance companies is known as _____________
4. Debit Balance of Profit and Loss is deducted from ___________ in Reserves and Surplus Schedule
5. Balance Sheet of Company FinalAccounts incorporated under Companies Act 1956 is prepared as per Revised Schedule _________ Part I
6. Accounting Standard (AS)_______ relates to Cash Flow Statements

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Closing Rebate on Bills discounted is shown under Schedule number __________ of Form Aof Banking Company FinalAccounts
_____ % provision is required to be made for unexpired risk in case of Marine insurance

Q.1) (B) State whether the following statements are True or False:

1.
2.
3.
4.
5.
6.
7.

Cash Flow is compulsory for all listed Companies

Stock Turnover is a Revenue Ratio
The term surrenders is used in General Insurance Companies
Dividend Received on investments is shown under Cash from Financing Activities of Cash Flow statement
RDD is not required to be provided in case of Performing assets in Banking Company Final Accounts.
Investments that are principally for resale within a short period are classified as Held for Maturity (HTM)
An advance is classified as NPA if it remains overdue for more than 180 days

Q.2) From the foll information, prepare Profit and loss account of JMDBank Ltd. for the year 31March 2007.
Rs
Interest on Investments
3,00,000
Interest on Balance with RBI
2,00,000
Interest on Loans
25,95,000
Interest on fixed deposits
27,50,000
Rebate on Bills discounted (1-4-2007)
4,90,000
Commission
82,000
Establishment Charges
5,40,000
Discount on Bills discounted
14,60,000
Interest on Cash Credit
22,30,000
Interest on Current Accounts
4,20,000
Salaries
80,000
Contribution to Provident fund
20,000
Rent and Rates
80,000
Interest on Overdraft
15,40,000
Directors' fees
30,000
Auditor's Fees
12,000
Interest on Savings Bank Deposits
6,80,000
Postage and Telegram
14,000
Printing and Stationery
29,000
Sundry Charges
17,000
Profit and Loss Account (1-4-2007)
2,00,000
Share Capital
20,00,000
Dividend on shares
2,00,000
Income from Joint ventures
1,00,000
Interest on Borrowings
2,00,000
1.
Acustomer to whom a sum of Rs. 10,00,000 has been advanced has become insolvent and it is expected only 60% can be recovered from his estate & there were
also other debts for which a provision of Rs. 1,00,000 was found necessary by the auditors
2. Provision for taxation to be made at 55%.
3. Unexpired Discount on bills discounted (31-3-2008) Rs. 5,00,000.
4. Interest accrued on doubtful loans is included in interest on loans above Rs. 5,000.
5. Directors proposed dividend of 10%.
6. Transfer 30% of the profits to statutory reserve and 5% to revenue reserves.
OR
Q.2) Write Short Notes on any Three
a) Rule for valuation of investments by Banks b)Rebate on BillDiscounted
c) Non Performing Assets
d) Acceptances Endorsements and other Obligations
e) Money at Call&Short Notice
Q.3) The following balances relate to the Sea Blessed Insurance Co. Ltd.
31-3-2003
31.3.2004
Premiums
5,00,000
6,00,000
Commission on Direct Business
22,500
30,000
Commission on Re-insurance Accepted
17,500
25,000
Commission on Re-insurance ceded
4,000
24,000
Claims under Policies (paid during the year)
86,250
1,62,250
Depreciation on Furniture, car etc.
12,750
15,750
Profit on Sale of Motor Car
6,000
nil
Loss on Sale of old furniture
nil
2,000
Interest on Income Tax Refund
14,000
7,000
Audit Fees
10,000
10,000
Salaries to staff
1,25,000
1,35,000
Printing, Postage and Stationery
46,500
57,500
Legal Expenses
5,000
4,000
Miscellaneous Expenses
15,500
22,500
Bad Debts
750
22,200
Recoveries in respect of claimunder re-insurance
10,000
20,000
Re-insurance Premium
50,000
1,00,000
Total amounts of estimated liability in respect of outstanding claims as at 31-3-2002; 31-3-2003; 31-3 -2004 were Rs.34,250, Rs.44,750 and Rs.55,550 respectively. Reserve
for unexpired risks as at 31-3-2002 was Rs.3, 20,000 and the Additional Reserve was 32,000. Reserve for unexpired was to be provided for at 100% and AdditionalReserve
at 10% of net Premium income for the year ending 31 -3-2003 and 31-3-2004. Prepare marine revenue Amounts of Sea Blessed Insurance Co. Ltd. for the year ending 31-3
-2003 and 31.3.2004 in the prescribed form.
OR
Q.3) a)Explain surrender value and how is it different from paid-up value.
b)Life Insurance Fund.

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c) Reserve for Unexpired Risk. d) What is meant by Reinsurance & How is it helpfulto Insurance Companies.
Q.4) (a) TrialBalance of Ajay Ltd shows the following figures relating to Fixed Assets as on 31-3-2009
Particulars
Plant & Machinery
Land
Goodwill
Motor Vehicles
Opening Depreciation Provision
On Plant and Machinery
On Motor Vehicles
Sale proceeds of old machinery
Additional Information:
1.
Depreciation to be provided during the year at 10% on Straight line method
2. There was an addition to Plant and Machinery on 30-6-2008 for Rs. 1,20,000
3. AMachinery costing Rs. 160,000 was sold on 30-6-2008, depreciation provided on it was Rs. 80,000
Prepare schedule of Fixed Assets.

Rs.
4,20,000
1,60,000
1,00,000
80,000
1,78,000
44,000
60,000

Q.4) (b) Show how you willdeal with the foll adjustments at the time of preparation of finalaccounts of a ltd. company (any 5 out of 6)
1.
Sundry Debtors include dues for more than six months Rs.60000. TotalDebtors amounte d to Rs.460000.
2. Issued CapitalRs.1000000 includes 10000 Equity Shares of Rs.10 each issued to vendors in pursuance of an agreement entered into with them.
3. Market Value of Investments
4. Fixed Asset offered as security for 8% Debentures issued by the company
5. Dividend on Preference shares is in arrears for four years.
OR
Q.4) Write Short Notes on
a) Directors Report b)Importance and items to listed in Corporate Governance Report c)Management Discussion and Analysis d) Contingent Liabilities and
Commitments e) Section 212: Accounts of Holding and Subsidiary Companies
Q.5) Following is the Balance Sheet of P Ltd.
LIABILITIES

2000

2001

ASSETS

2000

2001

Equity Share Capital

30,000
40,000 Goodwill
10,000
8,000
7% Redem. Pref. Shares
15,000
10,000 Land
20,000
17,000
CapitalReserve

2,000 Plant
8,000
20,000
GeneralReserve
4,000
5,000 Investments
2,000
3,000
P&L A/c
3,000
4,800 Debtors
14,000
17,000
Sundry Creditors
2,500
4,700 Stock
7,700
10,900
Bills Payable
2,000
1,600 Bills Receivable
2,000
3,000
Liability for Expenses
3,000
3,600 Cash in hand
1,500
1,000
Proposed Dividend
4,200
5,000 Cash at bank
1,000
800
Provision for taxation
4,000
5,000 Misc Expenses
1,500
1,000
Total (Rs)
67,700
81,700 Total (Rs)
67,700
81,700
Additional information:
1.
Aplot of land was sold in 2001and profit on its sale was transferred to capitalreserve.
2. Amachine has been sold for Rs.3,600 on 1.1.2001. It was originally purchased for Rs.10000/- on 1.1.1998 and its WDVas on the date of sale was Rs. 5,120.
3. Depreciation of Rs.4,000 is charged on plant account in 2001.
4. Income tax Rs.3,500 was paid during the year and charged against provision for taxation.
5. An interim dividend of Rs.2,000 has been paid in 2001.
6. Investments costing Rs.500 were sold on 10.5.2001for Rs.800.
Prepare Cash flow statement as per AS-3 for the year ended 31st December 2001
OR
Q.5) The following ratios and other data pertain, to the financialstatements of JMDLtd. for the year ended 31st March 2014.
Working CapitalRatio
1.75:1 Gross Profit Ratio
40 %
Acid Test Ratio
1.27:1 Earnings per share
Re. 0.50
Working Capital
Rs. 33,000 Average Collection Period (based on 365 days)
73days
Fixed Assets to Shareholders' Equity
0.625:1 Number of Equity Shares
26000
Inventory Turnover (based on cost of closing inventory)
4 times Reserves and Surplusto Share Capital
0.2:1
There are no prepaid expenses, deferred expenses, intangible assets, Preference Share capital, long term liabilities and no bank overdraft. Prepare a Profit & Loss A/c &
balance sheet with as much details as possible for the year 31st March 2014.
Solutions:
SAPM:
Q.1)(A)FIB:
1.
Beta;
2. Annualised yield = 12.54% (HPR = 3.0928, pb = 97, pe=100);
3. TechnicalAnalysis;
4. Dividend Discounting Model;
5. As per Du Pont Analysis:
Return of Total Assets (ROTA) or Return on Investment (ROI) = Net Profit Margin XTotalAsset Turnover ratio
Net profit margin = 12%; ROI = 18%
Therefore, Total Asset turnover ratio = 18/12 = 1.5 times
TotalAsset turnover ratio = Net sales/ average total assets
1.5 = 600000/ Average total assets; Therefore average total assets = 400000
6. Bull;
7. Options Contract;

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Liquidity or Marketability Risk

Q.1)(B) T or F:
True;False; False (electronic trading i.e Demat); False; False; False(Hedger); False
Q.2) Refer theory notes
Q.3)(a) Refer Q. 9 of Risk and return
Q.3(b)(i) refer Q. 7 of TVM
Q.3(b)(ii) refer Q.14 of VOB
Q.3(a)- Refer Q.24 VOE
Q.3(b)(i) Refer Q.2 of VOB
Q.3)(b)(ii) refer Q.21 of TVM
Q.4)Refer Q.18 of Ratios
Q.5)(a) Refer Q. 27 of Risk and Return it is modified: Calculate HPR 1st as returns not given in the question and instead of correlation the question has given covariance so
you have to calculate correlation by using formula and allfinalanswers are same as Q.27
Q.5)(b)(i) Refer Q.4 of Portfolio Performance evaluation
Q.5(b)(ii) Refer Q.3 of Beta and CAPM

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BAF/ BBI/ BMS/ BCOM/ BMM..

CHARNI ROAD (E): SAI STUDYCENTRE, OPP. GAIWADI BUS STOP, 1ST RIGHT FROMCENTRAL PLAZA
BANDRA ( W): 2 MIN FROM STATION. A/ 6, 1ST FLOOR, NUTAN NGRSTY, NEAR BANDRA TALAO
OTHER BRANCHES: DADAR/ VILEPARLE/ ANDHERI/ BORIVALI/ SION/ GHATKOPAR
Solution to FRA:
Q.1)(A) FIB:
1.
7 years;
2. Receipt basis or cash basis;
3. Reinsurance;
4. Surplus;
5. Revised Schedule VI;
6. AS-3;
7. Schedule 5 Other liabilities and provisions of Balance sheet;
8. 100%
Q.1)(B) T or F:
True;True (it is revenue as wellas combined ratio); False (life insurance); False (Investment activities); False (Performing assets is standard assets); False (Held for Trading
HFT); False (90 days)
Q.2) Refer Q.13 of Banking Modified: Last 3 adjustments are newly added; Adj 4 deduct 5 from interest on loans given in the table;Adj 5 : prop div in appropriation 10%
on the share capital: FinalBalance carried over to Balance Sheet is 971.1
Q.3) Refer Q.14 of Insurance
Q.4(a) Refer Q.10 of Company FinalAccounts Revised Schedule VI
Q.4(b) Refer Q.25 of Company FinalAccounts Revised Schedule VI
Q.5) Refer Q.5 of Cash Flow statement
Q.5) Refer Q. 26 of Ratios : Modified : Last point in the table is newly added: Reserves and Surplus to Share Capital0.2:1
R & S= 0.2
SC
1
Therefore R & S = 0.2 SC
SC+ R&S= SF
SC+ 0.2 SC= 88000
SC= 73333; R&S = 14667

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