PGDM (2021-2023)

Paper Code: C-206

Financial Management (FM)
Online Mid Term Examination; Term-II
Full Marks: 20; Time: 90 minutes
(Instructions: Attempt all three questions, question 1 carries8 marks and other questions carry 6
marks each.)

1. The Sunrise and Sunset companies have their following probability distribution of returns:

Returns (%)
Economic Condition Probability
Sunrise Sunset
High growth 0.1 32 30
Normal growth 0.2 20 17
Slow growth 0.4 14 6
Stagnation 0.2 -5 -12
Decline 0.1 -10 -16

The investor is considering it to construct a portfolio using these two stocks. Calculate the
covariance and correlation between the Sunrise and Sunset companies and advise the investor
whether he is doing it right by selecting both the companies for his portfolio.

2. During this pandemic the stock returns have become volatile. The volatility in the prices made the
market riskier. In this regard how do you categorize the different types of risks? Give some
examples.

3. Your grandfather is 75 years old. He has total savings of Rs. 8,00,000. He expects that he will live
for another 10 years, and will like to spend his savings by then. He places his savings into a bank
account earning 10% annually. He will draw equal amount each year – the first withdrawal
occurring one year from now – in such a way that his account balance becomes zero at the end of
10 years. How much will be his annual withdrawal?
.
4. How does the “modern” financial manager differ from the “traditional” financial manager? Does
the modern financial manager’s role differ for the large diversified firm and the small to medium
size firm?
Time Value Table

Factor Years @10% Factor Years @10%

PVA 10 6.145 FVA 10 15.937
PV 10 0.386 FV 10 1.685

Wish you good luck