LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

**B.Com.** DEGREE EXAMINATION – **CORPORATE SEC.**

SIXTH SEMESTER – **APRIL 2012**

# BC 6602 – PORTFOLIO MANAGEMENT

Date : 18-04-2012 Dept. No. Max. : 100 Marks

Time : 1:00 – 4:00

__PART – A__

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**Answer All the Questions: (10×2 =20 marks)**

- Briefly explain the objectives of investment.
- List the different types of risk.
- What is Beta?
- Explain Constant ratio plan.
- What is meant by warrants?
- Why is industry analysis important?
- A bond of Rs.1000 face value, bearing a coupon rate of 12% will mature after 7 years. What is the value of the bond if the discount rate is 14 %?
- S Ltd would pay Rs.2.50 as dividend per share for the next year and expected to grow indefinitely at 12 % what would be the equity value if the investor requires 20 % return?
- The expected return of the market is 15% and equity’s beta is 1.4. The risk free rate of interest is 7 %. Estimate the stock return using CAPM.
- Net profit after tax Rs.Two lakhs, Equity share capital (Rs.10 each) Rs.One lakh. 10 % Preference shares (Rs. 10 each) Rs. Two lakhs. Calculate EPS.

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__PART – B__

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**Answer any FIVE Questions: (5×8 =40 marks)**

- Differentiate Investments and speculations.
- What are the statistical tools used to measure the risk of the securities return? Explain.
- Explain CAPM theory
- Write short note on a) sweat equity b) zero coupon bonds c) treasury bills
- Discuss any four factors considered to be most important in appraising companies in different industries.

- Given the data below on two companies A and B. Calculate the expected return from the two companies and standard deviation as a risk measure of companies. Which one is better for return and risk estimates.

Outcome | Company A | Company B | ||

Expected return | Probability | Expected return | Probability | |

1 | 6 | 0.3 | 8 | 0.2 |

2 | 10 | 0.5 | 14 | 0.5 |

3 | 12 | 0.2 | 18 | 0.3 |

- Stocks of M and N have the following parameters

Stock M | Stock N | |

Expected return | 20 | 30 |

Expected | 16 | 25 |

Covariance MN | 20 |

Is there any advantage of holding a combination of M and N?

- A Rs.100 par value bond bearing a coupon rate of 11 % matures after 5 years. The expected yield to maturity is 15 %. The present market price is Rs.72. Can the investor buy it ?

__PART – C__

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**Answer any TWO Questions: (2×20 =40 marks)**

- Explain the steps involved in investment management process and the sources of investment information.

- What is fundamental analysis? Elaborate.

- The following three portfolios provide the particulars given below:

Portfolio | Average annual return | Standard Deviation | Correlation Coefficient |

A | 18 | 27 | 0.8 |

B | 14 | 18 | 0.6 |

C | 15 | 8 | 0.9 |

Market | 13 | 12 | — |

Risk free rate of interest is 9.

- Rank these portfolios using Sharpe’s and Treynor’s methods.
- Compare both the indices.

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