Hbc2301:Project Management Question Paper
Hbc2301:Project Management
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2013
QUESTION ONE (30 MARKS)
a) Explain four reasons why firms should devote careful attention to the risks facing them. (8 Marks) b) Explain the following types of risks: i. Business risk ii. Credit risk iii. Operational iv. Liquidity risk v. Market risk (10 Marks) c) Explain the meaning of the following terms as used in risk management; i. Triangular arbitrage ii. Locational arbitrage iii. Hedging (6 Marks) d) Economists and financial analysts use term structure of interest rates for a variety of applications. State six such applications. (6 Marks)
QUESTION TWO (20 MARKS)
Use relevant examples to discuss the risk management process phases. (20 Marks)
QUESTION THREE (20 MARKS)
a) Define a yield curve and use an illustration to show the same. (6 Marks) b) The following information was obtained from the books of XYZ Ltd.
2
State of economy Probability of risk occurrence
Possible rate of return A
Possible rate of return B 1 0.05 12% -3% 2 0.2 10% 6% 3 0.5 9% 11% 4 0.2 8.5% 14% 5 0.05 8% 19%
Required; i. Calculate the expected rate of return for securities A and B. ii. Calculate the variance of the assets iii. Calculate the coefficient of variation. (12 Marks)
QUESTION FOUR (20 MARKS)
a) Define the following terms as used in risk management. i. Leading and lagging ii. Netting iii. Swaps iv. Option v. Futures and forwards (10 Marks) b) The stock of Laare Company Ltd currently sells for sh.1,500 per share. The annual stock price volatility is 0.2 and the annual continuously compounded risk free rate is 0.05. The stocks annual continuously compounded dividend yield is 0.03. Find the value of d, in the Black scholes formulae for the price of a call option on Leave Co. Ltd with strike price of sh.1,600 and time to expiration of 3 years. (10 Marks)
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