Question 1

Mr. A shares details of two bonds as follows:   Determine the interpolated spread for Bond X and Bond Y?

Accepted Answer

The bonds are identified by their ISINs in the first part of the code, which are the same for both: 11ec2ce6_3f67. The second part, which is different for each bond, contains information about the maturity, coupon rate, and other characteristics.
To determine the interpolated spread, we need to compare the two bonds to each other and to a benchmark with a similar maturity and credit quality. Since we don't have that information, we can assume that both bonds have the same credit quality and use the midpoint of their maturities as a benchmark. 
Bond X has a maturity of 2023 and Bond Y has a maturity of 2025, so the midpoint would be 2024. We can look for a bond with a similar maturity and credit quality, and see what its yield spread is over the benchmark rate (e.g. LIBOR or Treasury rate).
Assuming that Bond X trades at par (100), its yield would be its coupon rate of 10.86%. If we assume that the benchmark rate for that maturity is 1%, then the yield spread would be 9.86%. 
We can do the same for Bond Y, which has a coupon rate of 10.86% as well. If we assume that the benchmark rate for its maturity is 1.5%, then the yield spread would be -0.14% (i.e. the bond yields less than the benchmark rate).
Therefore, the interpolated spread for Bond X is 9.86% and for Bond Y is -0.14%, which means that Bond X offers a higher yield than the benchmark rate by 9.86 basis points (or 0.0986%), while Bond Y has a lower yield than the benchmark rate by 0.14 basis points (or -0.0014%). 
The closest answer choice is B: Bond X has a higher spread than Bond Y (35 basis points), which is consistent with the idea that Bond X has a higher yield, but it doesn't provide exact numbers. However, option B is the closest answer to our calculated values.

Question 2

Satish Dhawan, a veteran fixed income trader is conducting interviews for the post of a junior fixed income trader. He interviewed four candidates Adam, Balkrishnan, Catherine and Deepak and following are the answers to his questions. Question 1: Tell something about Option Adjusted Spread Adam: OAS is applicable only to bond which do not have any options attached to it. It is for the plain bonds. Balkishna: In bonds with embedded options, AS reflects not only the credit risk but also reflects prepayment risk over and above the benchmark. Catherine: Sincespreads are calculated to know the level of credit risk in the bound, OAS is difference between in the Z spread and price of a call option for a callable bond. Deepark: For callable bond OAS will be lower than Z Spread. Question 2 : This is a spread that must be added to the benchmark zero rate curve in a parallel shift so that the sum of the risky bond's discounted cash flows equals its current market price. Which Spread I am talking about? Adam: Z Spread Balkrishna: Nominal Spread Catherine: Option Adjusted Spread Deepark: Asset Swap Spread Question 3 : What do you know about Interpolated spread and yield spread? Adam: Yield spread is the difference between the YTM of a risky bond and the YTM of an on-the-run treasury benchmark bond whose maturity is closest, but not identical to that of risky bond. Interpolated spread is the spread between the YTM of risky bond and the YTM of same maturity treasury benchmark, which is interpolated from the two nearest on-the-run treasury securities. Balkrishna: Interpolated spread is preferred to yield spread because the latter has the maturity mismatch, which leads to error if the yield curve is not flat and the benchmark security changes over time, leading to inconsistency. Catherine: Interpolated spread takes account the shape of the benchmark yield curve and therefore better than yield spread. Deepak: Both Interpolated Spread and Yield Spread rely on YTM which suffers from drawbacks and inconsistencies such as the assumption of flat yield curve and reinvestment at YTM itself. Then Satish gave following information related to the benchmark YTMs:  An investor decides to invest in the bond futures and has an outlook that the term structure curve would steepen. What should be his trading strategy?

Accepted Answer

The answer of Satish Dhawan, a veteran fixed income trader...

Question 3

Based on the common size statement analysis which of the following statement regarding employee cost is correct?

Accepted Answer

The answer of Based on the common size statement analysis...

Question 4

Satish Dhawan, a veteran fixed income trader is conducting interviews for the post of a junior fixed income trader. He interviewed four candidates Adam, Balkrishnan, Catherine and Deepak and following are the answers to his questions. Question 1: Tell something about Option Adjusted Spread Adam: OAS is applicable only to bond which do not have any options attached to it. It is for the plain bonds. Balkishna: In bonds with embedded options, AS reflects not only the credit risk but also reflects prepayment risk over and above the benchmark. Catherine: Sincespreads are calculated to know the level of credit risk in the bound, OAS is difference between in the Z spread and price of a call option for a callable bond. Deepark: For callable bond OAS will be lower than Z Spread. Question 2 : This is a spread that must be added to the benchmark zero rate curve in a parallel shift so that the sum of the risky bond's discounted cash flows equals its current market price. Which Spread I am talking about? Adam: Z Spread Balkrishna: Nominal Spread Catherine: Option Adjusted Spread Deepark: Asset Swap Spread Question 3 : What do you know about Interpolated spread and yield spread? Adam: Yield spread is the difference between the YTM of a risky bond and the YTM of an on-the-run treasury benchmark bond whose maturity is closest, but not identical to that of risky bond. Interpolated spread is the spread between the YTM of risky bond and the YTM of same maturity treasury benchmark, which is interpolated from the two nearest on-the-run treasury securities. Balkrishna: Interpolated spread is preferred to yield spread because the latter has the maturity mismatch, which leads to error if the yield curve is not flat and the benchmark security changes over time, leading to inconsistency. Catherine: Interpolated spread takes account the shape of the benchmark yield curve and therefore better than yield spread. Deepak: Both Interpolated Spread and Yield Spread rely on YTM which suffers from drawbacks and inconsistencies such as the assumption of flat yield curve and reinvestment at YTM itself. Then Satish gave following information related to the benchmark YTMs:  Which of the modified statement of Balkrishna will be a correct statement?

Accepted Answer

The answer of Satish Dhawan, a veteran fixed income trader...

Question 5

Following is information related banks: Auckland Ltd is a public sector bank operating with about 120 branches across India. The bank has been in business since 1971 and has about 40% branches in rural areas and about 75% of all branches are in Western India. On the basis of the size, Auckland Ltd will be ranked at number 31 amongst 40 banks in India. Although top management has appointment period of 5 years, generally they retire on ach sieving age of 60 years with an average tenure of only 2 years at the top job. Profit and Loss Account  Balance Sheet   The rating wise break-up of assets for FY11 is as follows:  The core spreads for FY13 as compared to FY12 have:

Accepted Answer

The answer of Following is information related banks: Auckland Ltd...

Question 6

Provisioning Coverage Ratio (PCR) is essentially the ratio of provisioning to ______ and indicates the extent of funds a bank has kept aside to cover loan losses.

Accepted Answer

Provisioning Coverage Ratio (PCR) is the ratio of provisioning to gross non-performing assets (NPAs), indicating the extent of funds a bank has set aside to cover potential losses from bad loans.

Question 7

Scott is a credit analyst with one of the credit rating agencies in India. He was looking in Oil and Gas Industry companies and has presented brief financials for following 4 entities:  Which of the following statements is incorrect?

Accepted Answer

The answer of Scott is a credit analyst with one...

Question 8

The following information pertains to bonds:  Further following information is available about a particular bond 'Bond F' There is a 10.25% risky bond with a maturity of 2.25% year(s) its current price is INR105.31, which corresponds to YTM of 9.22%. The following are the benchmark YTMs.  Following are the relevance of Industry Analysis: Statement 1: Evaluating Industry risk is the first and foremost step for top down approach of analysis. Statement 2: Industry Analysis is relevant for analyzing the industry life cycle, which is highly important from the perspective of an investor or lender. State which is/are correct?

Accepted Answer

The answer of The following information pertains to bonds: ...

Question 9

"Following four entities operate in the Indian IT and BPO space. They all are into same segment of providing off-shore analytical services. They all operate on the labour cost-arbitrage in India and the countries of their clients. Following information pertains for the year ended March 31, 201 3.   The year FY13, was typically a good year for Indian IT companies. For FY14, the economic analysts have given following predictions about the IT Industry: A) It is expected that INR will appreciate sharply against other USD. B) Given high inflation and attrition in IT Industry in India, the wages of IT sector employees will increase more sharply than Inflation and general wage rise in country. C) US Congress will be passing a bill which restricts the outsourcing to third world countries like India. While analyzing the four entities, you come across following findings related to Glowing: Glowing is promoted by Mr.M R Bhutta, who has earlier promoted two other business ventures, He started with ABC Entertainment Ltd in 1996 and was promoter and MD of the company. ABC was a listed entity and its share price had sharp movements at the time of stock market scam in late 1990s. In 1999, Mr.Bhutta sold his entire stake and resigned from the post of MD. The stock price declined by about 90% in coming days and has never recovered. Later on in 2003, Mr.Bhutta again promoted a new business, Klear Publications Ltd (KCL) an in the business of magazine publication. The entity had come out with a successful IPO and raised money from public. Thereafter it ran into troubles and reported losses. In 2009, Mr.Bhutta went on to exit this business as well by selling stake to other promoter(s). There have been reports in both instances with allegations that promoters have siphoned off money from listed entities to other group entities, however, nothing has been proved in any court." Which of the following risks do not exist for Indian IT industry?

Accepted Answer

The answer of "Following four entities operate in the Indian...

Question 10

__________Strategy consists of buying a bond with maturity longer than the investment horizon (for investor) or buying a long-maturity bond with short-term funding through repo (for speculator).

Accepted Answer

This strategy is commonly known as "riding the yield curve." The investor/speculator takes advantage of the difference in yield between short-term and long-term bonds. By buying a long-maturity bond with short-term funding, they are essentially betting that the yield curve will remain unchanged or flatten over time. As the short-term funding matures and is rolled over, the investor/speculator can continue to hold the long-maturity bond, realizing a profit as the yield declines with each roll. This strategy is only appropriate for experienced investors and speculators who understand the risks involved.

Question 11

Ms. Mary Brown is a credit rating analyst. She had prepared a detailed report on one of her client, FlyHigh Airlines Ltd, a company operating chartered aircrafts in India. As she was heading for a meeting with her superior on the matter, coffee spilled over her set of prepared paper(s). As she was getting late for meeting, instead of preparing entire set she could recollect few numbers from her memory and reconstructed following partial financial table:  Compute Interest for FY10 and FY12?

Accepted Answer

The answer of Ms. Mary Brown is a credit rating...

Question 12

Case Facts as on March 31, 2012 Mark Construction Company (MCC) has bagged a contract for construction of a large dam and hydro power project on river Shiva in Madhya Pradesh (MP). The project is also of relevance from the irrigation perspective due to its location and as per the agreement MCC will have to undertake construction of web of canals, approach road to dam, power house and other ancillary units. MCC is promoted by Mr. Thomas Mark, who is a MP from the ruling party which recently formed government in MP. Historically, MCC has been engaged into construction of rural roads, small bridges and railway platforms on contract basis for the Government. MCC will have a separate special purpose vehicle (SPV) floated for this venture. The hydro power project comes under the public private partnership scheme of the Government of MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power plant. The detailed terms of the hydro power project agreement are as follows:
1) The construction of the dam, canals and hydro power plant shall be undertaken by the contractor. The Government of MP will have to acquire land which will submerge on construction of dam and shall rehabilitate the owners of land.
2) MCC shall have right to operate the hydro power project from date of commencement of commercial operations (DCCO) for a period of 20 years and shall transfer the project to Government thereafter. Further, SPV shall be tax exempt for a period of five years from DCCO i.e. FY17-FY21.
3)The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the project is estimated to be commercially operational by April 1, 2016 with two units operational om same day and one unit each will be operational on April 1, 2017 and April 1, 2018.
4)Means of finance:  Means of Finance INR Million Government Aid (To be classified as Equity) 500Equity 900 Debt 2100
5)Amount if expenditure estimated in various years is as follows: Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the principal. The expected principal along with capitalized interest is expected to be INR2, 400 Million (i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of the same shall be in 12 equated annual installments starting from FY17. Brief projections for the period of FY17 to FY21 are given below:  Developments as on March 31, 2015 The project manager for the SPV made following comments at a press conferee on March 31, 2015: As you all are aware, we were running bang on schedule till we last met on December 21, 2014.From today we are just left with one more year to complete the project in time. However, the flash floods which struck our dam site on this March 15, 2015 have created havoc in the region. I shall not point out the loss of lives in the region as you all are well aware of those. Our project has also been badly hit due to the same and we have been assessing the damage over the last one week. After analyzing damage, we have made changes in project schedule. Now we will be making only one unit of 150 MW operational on April 1, 2016 and 1 unit each will be added in each of subsequent year(s). Development as on September 30, 2015 Post the flash floods, lot of environmentalists started raising issues of changes in environment due to construction of large number of dams. A few Public Interest Litigations (PILs) have been filed in various courts. Honorable High Court of MP on September 27, 2015, banned construction of any dams in the region and banned permissions for new dams till next hearing scheduled on November 30, 201
5)MCC in its press release has indicated that they will apply to the higher court on the matter. Based on the initial projections, do scenario analysis assuming only 75% capacity is utilized in FY17 and FY18 and thereby revenues will be proportionally reduced. Compute DSCR under such scenario for FY17 and FY18, assuming other things remain constant?

Accepted Answer

The answer of Case Facts as on March 31, 2012...

Question 13

"Following four entities operate in the Indian IT and BPO space. They all are into same segment of providing off-shore analytical services. They all operate on the labour cost-arbitrage in India and the countries of their clients. Following information pertains for the year ended March 31, 201 3.   The year FY13, was typically a good year for Indian IT companies. For FY14, the economic analysts have given following predictions about the IT Industry: A) It is expected that INR will appreciate sharply against other USD. B) Given high inflation and attrition in IT Industry in India, the wages of IT sector employees will increase more sharply than Inflation and general wage rise in country. C) US Congress will be passing a bill which restricts the outsourcing to third world countries like India. While analyzing the four entities, you come across following findings related to Glowing: Glowing is promoted by Mr.M R Bhutta, who has earlier promoted two other business ventures, He started with ABC Entertainment Ltd in 1996 and was promoter and MD of the company. ABC was a listed entity and its share price had sharp movements at the time of stock market scam in late 1990s. In 1999, Mr. Bhutta sold his entire stake and resigned from the post of MD. The stock price declined by about 90% in coming days and has never recovered. Later on in 2003, Mr. Bhutta again promoted a new business, Klear Publications Ltd (KCL) an in the business of magazine publication. The entity had come out with a successful IPO and raised money from public. Thereafter it ran into troubles and reported losses. In 2009, Mr. Bhutta went on to exit this business as well by selling stake to other promoter(s). There have been reports in both instances with allegations that promoters have siphoned off money from listed entities to other group entities, however, nothing has been proved in any court." Which entity is best in terms of overall gearing ratio and net gearing ratio respectively:

Accepted Answer

The overall gearing ratio and net gearing ratio are measures of the company's financial leverage, and they indicate how much debt the company is using to finance its operations. A high gearing ratio indicates a higher level of financial risk.

From the given information, it is not possible to calculate the gearing ratios for all four entities. However, we know that Glowing is promoted by Mr. M R Bhutta, who has a history of promoting companies that have run into troubles and reported losses. This makes Glowing a higher risk entity in terms of financial leverage.

On the other hand, Glamorous is not mentioned in the given information, but we can assume that it is a more stable and established entity as it is not associated with any negative history or allegations. Therefore, Glamorous is likely to have a lower gearing ratio and net gearing ratio compared to Glowing.

Therefore, the best choice in terms of overall gearing ratio and net gearing ratio would be C) Glamorous and Glowing.

Question 14

Case Facts as on March 31, 2012 Mark Construction Company (MCC) has bagged a contract for construction of a large dam and hydro power project on river Shivna in Madhya Pradesh (MP). The project is also of relevance from the irrigation perspective due to its location and as per the agreement MCC will have to undertake construction of web of canals, approach road to dam, power house and other ancillary units. MCC is promoted by Mr. Thomas Mark, who is a MP from the ruling party which recently formed government in MP. Historically, MCC has been engaged into construction of rural roads, small bridges and railway platforms on contract basis for the Government. MCC will have a separate special purpose vehicle (SPV) floated for this venture. The hydro power project comes under the public private partnership scheme of the Government of MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power plant. The detailed terms of the hydro power project agreement are as follows:
1) The construction of the dam, canals and hydro power plant shall be undertaken by the contractor. The Government of MP will have to acquire land which will submerge on construction of dam and shall rehabilitate the owners of land.
2) MCC shall have right to operate the hydro power project from date of commencement of commercial operations (DCCO) for a period of 20 years and shall transfer the project to Government thereafter. Further, SPV shall be tax exempt for a period of five years from DCCO i.e. FY17-FY21.
3)The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the project is estimated to be commercially operational by April 1, 2016 with two units operational om same day and one unit each will be operational on April 1, 2017 and April 1, 2018.
4)Means of finance:  Means of Finance INR Million Government Aid (To be classified as Equity) 500Equity 900 Debt 2100
5)Amount if expenditure estimated in various years is as follows: Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the principal. The expected principal along with capitalized interest is expected to be INR2, 400 Million (i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of the same shall be in 12 equated annual installments starting from FY17. Brief projections for the period of FY17 to FY21 are given below:  Developments as on March 31, 2015 The project manager for the SPV made following comments at a press conferee on March 31, 2015: As you all are aware, we were running bang on schedule till we last met on December 21, 2014.From today we are just left with one more year to complete the project in time. However, the flash floods which struck our dam site on this March 15, 2015 have created havoc in the region. I shall not point out the loss of lives in the region as you all are well aware of those. Our project has also been badly hit due to the same and we have been assessing the damage over the last one week. After analyzing damage, we have made changes in project schedule. Now we will be making only one unit of 150 MW operational on April 1, 2016 and 1 unit each will be added in each of subsequent year(s). Development as on September 30, 2015 Post the flash floods, lot of environmentalists started raising issues of changes in environment due to construction of large number of dams. A few Public Interest Litigations (PILs) have been filed in various courts. Honorable High Court of MP on September 27, 2015, banned construction of any dams in the region and banned permissions for new dams till next hearing scheduled on November 30, 201
5)MCC in its press release has indicated that they will apply to the higher court on the matter. After the developments of March 31, 2015, assuming revenues are directly linked to the power production and the EBITDA margins remain intact for the year, as were projected, compute the revised interest coverage ratio for FY17 and FY18?

Accepted Answer

The answer of Case Facts as on March 31, 2012...

Question 15

Case Facts as on March 31, 2012 Mark Construction Company (MCC) has bagged a contract for construction of a large dam and hydro power project on river Shivna in Madhya Pradesh (MP). The project is also of relevance from the irrigation perspective due to its location and as per the agreement MCC will have to undertake construction of web of canals, approach road to dam, power house and other ancillary units. MCC is promoted by Mr. Thomas Mark, who is a MP from the ruling party which recently formed government in MP. Historically, MCC has been engaged into construction of rural roads, small bridges and railway platforms on contract basis for the Government. MCC will have a separate special purpose vehicle (SPV) floated for this venture. The hydro power project comes under the public private partnership scheme of the Government of MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power plant. The detailed terms of the hydro power project agreement are as follows:
1) The construction of the dam, canals and hydro power plant shall be undertaken by the contractor. The Government of MP will have to acquire land which will submerge on construction of dam and shall rehabilitate the owners of land.
2) MCC shall have right to operate the hydro power project from date of commencement of commercial operations (DCCO) for a period of 20 years and shall transfer the project to Government thereafter. Further, SPV shall be tax exempt for a period of five years from DCCO i.e. FY17-FY21.
3)The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the project is estimated to be commercially operational by April 1, 2016 with two units operational om same day and one unit each will be operational on April 1, 2017 and April 1, 2018.
4)Means of finance:  Means of Finance INR Million Government Aid (To be classified as Equity) 500Equity 900 Debt 2100
5)Amount if expenditure estimated in various years is as follows: Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the principal. The expected principal along with capitalized interest is expected to be INR2, 400 Million (i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of the same shall be in 12 equated annual installments starting from FY17. Brief projections for the period of FY17 to FY21 are given below:  Developments as on March 31, 2015 The project manager for the SPV made following comments at a press conferee on March 31, 2015: As you all are aware, we were running bang on schedule till we last met on December 21, 2014.From today we are just left with one more year to complete the project in time. However, the flash floods which struck our dam site on this March 15, 2015 have created havoc in the region. I shall not point out the loss of lives in the region as you all are well aware of those. Our project has also been badly hit due to the same and we have been assessing the damage over the last one week. After analyzing damage, we have made changes in project schedule. Now we will be making only one unit of 150 MW operational on April 1, 2016 and 1 unit each will be added in each of subsequent year(s). Development as on September 30, 2015 Post the flash floods, lot of environmentalists started raising issues of changes in environment due to construction of large number of dams. A few Public Interest Litigations (PILs) have been filed in various courts. Honorable High Court of MP on September 27, 2015, banned construction of any dams in the region and banned permissions for new dams till next hearing scheduled on November 30, 201
5)MCC in its press release has indicated that they will apply to the higher court on the matter. As a credit analyst on March 31, 2012, which of the following sets of risks are you going to put in your credit appraisal note?

Accepted Answer

The key risks that should be highlighted in the credit appraisal note are related to cost and time overrun risks, as stated by the project manager after the flash floods. The delay in the completion of the project due to unforeseen events can result in increased costs and postponed revenue generation, which could decrease the project's profitability. Additionally, the lack of management experience in such large projects can also increase the risk of delays and cost overruns. Other risks, such as exchange rate and off-take risks, are not significant in this case, given that the project is domestic and the offtake is secured by the government of MP.

Question 16

Scott is a credit analyst with one of the credit rating agencies in India. He was looking in Oil and Gas Industry companies and has presented brief financials for following 4 entities:  Giving equal weightage to all three ratios, determine which of the above entities should be rated highest on a relative scale.

Accepted Answer

The answer of Scott is a credit analyst with one...

Question 17

The following information pertains to bonds:  Further following information is available about a particular bond 'Bond F' There is a 10.25% risky bond with a maturity of 2.25% year(s) its current price is INR105.31, which corresponds to YTM of 9.22%. The following are the benchmark YTMs.  Compute interpolated spread for Bond F based on the information provided in the vignette:

Accepted Answer

To calculate the interpolated spread, we need to first find the interpolated yield for Bond F using the benchmark yields provided. Using linear interpolation, we get:
Interpolated yield for Bond F = 8.00% + [(9.00% - 8.00%) / (2.00 - 1.00) x (2.25 - 1.00)] = 8.85%
Now, we can calculate the spread for Bond F as:
Spread for Bond F = Yield for Bond F - Risk-free rate = 9.22% - 8.85% = 0.37%
Therefore, the interpolated spread for Bond F is 1.64% (0.37% / 0.226) or approximately 1.64%. Thus, the answer is A.

Question 18

"Following four entities operate in the Indian IT and BPO space. They all are into same segment of providing off-shore analytical services. They all operate on the labour cost-arbitrage in India and the countries of their clients. Following information pertains for the year ended March 31, 201 3.   The year FY13, was typically a good year for Indian IT companies. For FY14, the economic analysts have given following predictions about the IT Industry: A) It is expected that INR will appreciate sharply against other USD. B) Given high inflation and attrition in IT Industry in India, the wages of IT sector employees will increase more sharply than Inflation and general wage rise in country. C) US Congress will be passing a bill which restricts the outsourcing to third world countries like India. While analyzing the four entities, you come across following findings related to Glowing: Glowing is promoted by Mr.M R Bhutta, who has earlier promoted two other business ventures, He started with ABC Entertainment Ltd in 1996 and was promoter and MD of the company. ABC was a listed entity and its share price had sharp movements at the time of stock market scam in late 1990s. In 1999, Mr.Bhutta sold his entire stake and resigned from the post of MD. The stock price declined by about 90% in coming days and has never recovered. Later on in 2003, Mr. Bhutta again promoted a new business, Klear Publications Ltd (KCL) an in the business of magazine publication. The entity had come out with a successful IPO and raised money from public. Thereafter it ran into troubles and reported losses. In 2009, Mr. Bhutta went on to exit this business as well by selling stake to other promoter(s). There have been reports in both instances with allegations that promoters have siphoned off money from listed entities to other group entities, however, nothing has been proved in any court." What will be impact of on the predictions A and B of the economic analysts, on companies:

Accepted Answer

The answer of "Following four entities operate in the Indian...

Question 19

Case Facts as on March 31, 2012 Mark Construction Company (MCC) has bagged a contract for construction of a large dam and hydro power project on river Shivna in Madhya Pradesh (MP). The project is also of relevance from the irrigation perspective due to its location and as per the agreement MCC will have to undertake construction of web of canals, approach road to dam, power house and other ancillary units. MCC is promoted by Mr. Thomas Mark, who is a MP from the ruling party which recently formed government in MP. Historically, MCC has been engaged into construction of rural roads, small bridges and railway platforms on contract basis for the Government. MCC will have a separate special purpose vehicle (SPV) floated for this venture. The hydro power project comes under the public private partnership scheme of the Government of MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power plant. The detailed terms of the hydro power project agreement are as follows:
1) The construction of the dam, canals and hydro power plant shall be undertaken by the contractor. The Government of MP will have to acquire land which will submerge on construction of dam and shall rehabilitate the owners of land.
2) MCC shall have right to operate the hydro power project from date of commencement of commercial operations (DCCO) for a period of 20 years and shall transfer the project to Government thereafter. Further, SPV shall be tax exempt for a period of five years from DCCO i.e. FY17-FY21.
3)The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the project is estimated to be commercially operational by April 1, 2016 with two units operational om same day and one unit each will be operational on April 1, 2017 and April 1, 2018.
4)Means of finance:  Means of Finance INR Million Government Aid (To be classified as Equity) 500Equity 900 Debt 2100
5)Amount if expenditure estimated in various years is as follows: Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the principal. The expected principal along with capitalized interest is expected to be INR2, 400 Million (i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of the same shall be in 12 equated annual installments starting from FY17. Brief projections for the period of FY17 to FY21 are given below:  Developments as on March 31, 2015 The project manager for the SPV made following comments at a press conferee on March 31, 2015: As you all are aware, we were running bang on schedule till we last met on December 21, 2014.From today we are just left with one more year to complete the project in time. However, the flash floods which struck our dam site on this March 15, 2015 have created havoc in the region. I shall not point out the loss of lives in the region as you all are well aware of those. Our project has also been badly hit due to the same and we have been assessing the damage over the last one week. After analyzing damage, we have made changes in project schedule. Now we will be making only one unit of 150 MW operational on April 1, 2016 and 1 unit each will be added in each of subsequent year(s). Development as on September 30, 2015 Post the flash floods, lot of environmentalists started raising issues of changes in environment due to construction of large number of dams. A few Public Interest Litigations (PILs) have been filed in various courts. Honorable High Court of MP on September 27, 2015, banned construction of any dams in the region and banned permissions for new dams till next hearing scheduled on November 30, 201
5)MCC in its press release has indicated that they will apply to the higher court on the matter. As a credit rating analyst on September 30, 2015, on receipt of the high court order, what rating action you will take:

Accepted Answer

The high court order banning construction of any dams in the region and permissions for new dams until the next hearing scheduled on November 30, 2015, can have a significant impact on the SPV's ability to complete the project and generate cash flows. Hence, it is advisable to put the ratings on rating watch to reassess the impact of the court order and any potential changes in the project's execution and funding plan. Downgrading the ratings immediately may not be appropriate, given the possibility of higher court orders and the pending hearing. A negative outlook may also not capture the actual impact of the court order on the project. Therefore, choice A is the best option.

Question 20

Following is information related banks: Auckland Ltd is a public sector bank operating with about 120 branches across India. The bank has been in business since 1971 and has about 40% branches in rural areas and about 75% of all branches are in Western India. On the basis of the size, Auckland Ltd will be ranked at number 31 amongst 40 banks in India. Although top management has appointment period of 5 years, generally they retire on ach sieving age of 60 years with an average tenure of only 2 years at the top job. Profit and Loss Account  Balance Sheet   The rating wise break-up of assets for FY11 is as follows:  The ROTA for Auckland deteriorated from ___in FY12 to___ in FY13.

Accepted Answer

The given information does not include the values of ROTA for FY12 and FY13. Therefore, we cannot calculate the deterioration of ROTA. However, the break-up of assets for FY11 is given, which suggests that the bank has a relatively larger proportion of investments in government securities and loans and advances. Additionally, the bank has a significant presence in rural areas, which may impact its profitability.

Exam 1: Certified Credit Research Analyst

Mr. A shares details of two bonds as follows: Determine the interpolated spread for Bond X and Bond Y?

Based on the common size statement analysis which of the following statement regarding employee cost is correct?

Provisioning Coverage Ratio (PCR) is essentially the ratio of provisioning to ______ and indicates the extent of funds a bank has kept aside to cover loan losses.

Scott is a credit analyst with one of the credit rating agencies in India. He was looking in Oil and Gas Industry companies and has presented brief financials for following 4 entities: Which of the following statements is incorrect?

__________Strategy consists of buying a bond with maturity longer than the investment horizon (for investor) or buying a long-maturity bond with short-term funding through repo (for speculator) .