LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034
B.Com DEGREE EXAMINATION – COMMERCE
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FIFTH SEMESTER – NOV 2006
CO 5401 – PERSONAL INVESTMENT
(Also equivalent to COM 401)
Date & Time : 08-11-2006/9.00-12.00 Dept. No. Max. : 100 Marks
PART – A
(10 x 2 = 20)
Answer ALL questions
- Who is a potential investor?
- What is meant by time value of money?
- Narrate the term immunization.
- Why do investors add real estate in their portfolio?
- Define the term credit rating.
- Write a note on sweat equity.
- Mr. Michael plans to send his son for MBA in LIBA. He expects the cost of these
studies to be Rs.500000. How much should he save annually to have a sum of
Rs.500000 at the end of 10 years, if the interest rate is 12%.
- At the time of his retirement, Mr. Basheer is given a choice between 2 options:
- An annual pension of Rs.40000 as long as he lives
- A lumpsum of Rs.200000 at the time of his retirement.
Mr. Basheer expects to live for 15 years and the interest rate is estimated at 15%.
Which option should he choose?
- Beta is 0.7, Rm is 16%, Rf is 8%. Find out the expected rate of return of the security.
Also calculate the Beta of the security which has an expected return of 19%.
- A bond of Rs.10000, bearing a coupon rate of 12% p.a. payable quarterly is
redeemable after 2.5 years at par. What will be the value of bond, if the required rate
of return is 16% ?
PART – B
(5 x 8 = 40)
Answer any FIVE questions
- What are the secondary objectives of investment?
- “Stocks are considered to be risky, but bonds are not”. This is not fully correct.
Elucidate.
- What is a Mutual Fund? Briefly explain its merits.
- Explain the methods of valuation of Equity Shares.
- Give an account of working of depository system.
- The expected return and their respective probabilities from investment in Securities
A and B are as follows:
| Security A | Security B | ||
| Expected return | Probability | Expected return | Probability |
| 6 | 0.10 | 4 | 0.10 |
| 7 | 0.25 | 6 | 0.20 |
| 8 | 0.30 | 8 | 0.40 |
| 9 | 0.25 | 10 | 0.20 |
| 10 | 0.10 | 12 | 0.10 |
Calculate the standard deviation of the expected return and comment on the risk of
the securities.
- As an investor you expect a interest rate of 18% p.a. M/s. Mothiram Investment Ltd.,
advertises that it will pay a lump sum of Rs.50000 at the end of 6 years, if you deposit
annually Rs. 5000. Calculate the rate of interest offered by the NBFC? Would you
accept the offer? Comment.
- The market value of a Rs.1000 par value bond carrying a coupon rate of 12% and
maturing after 7 years at Rs.750. What is the YTM on the bond ? Also compute the
approximate YTM using equation.
PART – C
(2 x 20 = 40)
Answer any TWO questions
- Discuss the process of investment with relevant examples.
- Explain the factors affecting security analysis.
- Describe the following terms: (4 marks each)
- Scripless Trading
- Public Provident Fund
- Capital Asset Pricing Model
- Diversifiable risk of a security
(e) Features of Warrants
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