REG NO:

ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

END SEMESTER EXAMINATION – MARCH/APRIL 2016

M.I.B. – IV semester

P211402: SECURITIES ANALYSIS AND PORTFOLIO MANAGEMENT

Duration: 3 Hours Max. Marks: 100

SECTION – A

Answer any SEVEN questions. Each carries 5 marks. (7×5=35)

Mutual funds provide stability to share prices, safety to investors and resources to prospective entrepreneurs – Discuss the importance of mutual funds.

Determine the market value of equity shares of the company from the following information:

Earnings of the company Rs.8,00,000

Number of shares outstanding 1,00,000

Dividend paid Rs.4,00,000

Price earning ratio 10%

Rate of return on investment 15%

At the expansion stage, companies show their competitive position and able to maintain their profits in the market. Hence, this is the best time for investment. – Explain.

What are the functions of credit rating?

Explain the assumptions of Random Walk Theory.

What is Beta? How is it different from correlation?

Following are the particulars relating to realized yield to maturity of investment in bond:

Par value : Rs.1,000; Coupon rate: 10% p.a.; Maturity : 5 Years; Current market price : Rs. 600;

Reinvestment rate of future cash flows 12%. Calculate the future value of bond.

“All investors are risk averse- only the degree of aversion varies”. In this light, bring out the different categories of investors.

Explain the portfolio management process.

10.

Differentiate between Capital asset pricing model and arbitrage pricing theory model.

SECTION – B

II)

Answer any THREE questions. Each carries 15 marks. (3×15=45)

11.

a) State the significance of company analysis in case of consumer goods industry.

b)An investor has to choose from 2 securities. The following are their rates of return and probabilities

P		Q
Return(%)	Probability	Return(%)	Probability
13	0.1	20	0.1
16	0.2	16	0.4
22	0.3	10	0.3
25	0.4	3	0.2

State which is the best security for investment?

(8+7 =15)

12.

a)From the following data calculate (i)Beta, (ii)Alpha, (iii)residual value and (iv)correlation.

Year	X	Y
1	0.10	0.29
2	0.24	0.31
3	0.11	0.10
4	0.08	0.06
5	0.03	0.07

b) From the following calculate return and risk through probability distribution and standard deviation and variance of two companies

Possible outcome	Return of A	Return of A	Probability
1	0.04	0.05	0.25
2	0.12	0.09	0.50
3	0.18	0.18	0.25

(8+7 =15)

13.

a)An investor has expected a rate of return of 25% from the following shares. Which one should be chosen?

Name of shares	Expected dividend	Price of share on
Name of shares	Expected dividend	1.04.2005	1.05.2006
A	35%	100	130
B	15%	40	110
C	10%	350	450

b) Explain the methods of diversification.

(8+7 =15)

14.

An investor wants to buy shares in companies under pharma industry. What are the fundamental factors to be considered which affect the growth of the industry before making purchase?

15.

a) The earnings of a company is Rs.8 and the rate of capitalization is 10%. The company has before it an option of adopting (i) 50%, ii) 75% and

(iii) 100% pay out ratio. Compute the market price of the company quoted share as per Walter’s model, if it can earn a return of (i)15%, (ii)10%

And (iii) 5% on its retained earnings.

b) What are the assumptions of CAPM.

(8+7 =15)

SECTION – C

III)

Case Study (1×20=20)

16.

An investor earns a return of 15% if he invests in equity shares, A mutual fund announces scheme whereby the investor will earn 16%. The expenses of the mutual fund on the new issue are 2%. What in your opinion should be the expenses of the mutual fund for the investor to be indifferent between equity investment and mutual fund investment?

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