LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

B.A. DEGREE EXAMINATION – ECONOMICS

BC 26

SIXTH SEMESTER – APRIL 2008

EC 6600 – PORTFOLIO MANAGEMENT

 

 

 

Date : 16/04/2008             Dept. No.                                        Max. : 100 Marks

Time : 9:00 – 12:00

 

PART-A

Answer any FIVE questions in about 75 words.                                 (5 x 4 = 20 Marks)

 

1. Define the concept portfolio management.
2. Explain the meaning and objectives of Investment.
3. Differentiate Risk and Return.
4. Explain the structure of the Capital Market.
5. Define the arbitrage pricing theory.
6. Explain the technique of moving averages analysis.
7. Define the concept Efficient Market Theory.

 

 

PART-B

Answer any FOUR questions in about 250 words.                         (4 x 10 = 40 Marks)

 

1. What are the factors determining risk?
2. What are the assumptions of Capital Market Theory?
3. What is security market line? Illustrate with an example.
4. Explain the significance of Portfolio Analysis.
5. What are the advantages of Mutual Funds?
6. What is called preference share? If a company has issued 14% preference shares and the investors expect 13% return from the shares, what is its values?
7. Write a short note on Futures and options.

 

PART-C

Answer any TWO questions in about 900 words.                               (2 x 20 = 40 Marks)

 

1. Explain the concepts Capital Market line and Security Market line with a suitable diagram.
2. Suppose there are two securities A and B with beta of 1.2 and 0.8 respectively. The return on the market portfolio is18 percent. The rate of return offered by government securities which are considered to be risk-free is 9 percent. Calculate the expected return on securities A and B.

 

1. Discuss Sharpe’s Single Index Model.
2. What are the macro factors determining economic analysis?

 

 

 

 

 

 

 

 

1. (a) ABC Ltd is considering a new five- year project. Its investment costs and annual profits are

projected as follows;

 

Investment Profits	Year	Rs.
	0	[2,50,000]
	1	40,000
	2	30,000
	3	20,000
	4	10,000
	5	10,000

 

 

 

The residual value at the end of the project is expected to be Rs. 40,000 and depreciation of the original investment is on straight line basis. Using average profits and average capital calculate the ARR for the project and the pay back period.

 

1. Consider the following three securities and calculate the portfolio return and risk

 

	Stock I	Stock II	Stock III
Expected return	10	12	8
Standard deviation	10	15	5

 

Correlation coefficients:

Stocks -> 1, 2 = 0.3

2, 3=0.4

1, 3 =0.5

 

The proportion of investments is;

 

Stock I = 0.2

Stock II = 0.4

Stock III = 0.4

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