St. Joseph’s College of Commerce (Autonomous)

End Semester Examination- April 2012

MIB – IV Semester

 SECURITIES ANALYSIS AND PORTFOLIO MANAGEMENT

Duration:  3 Hours                                                                                         Max. Marks: 100

Section – A

1. Answer ANY SEVEN questions.                                                         (7×5=35)

1. Mr. Kishor buys 1050 shares of SBI in July 2001 for INR 250 and sells it for INR 480 in April 2002. What kind of an investor is he? What are the various styles of investing?

2. Arun is an Investment consultant with rich experience in equity research and portfolio management. He was requested by a client to give a presentation on equity valuation. You as an executive assistant prepare for him the following:

 

• The equity stock is currently selling for INR 30 per share. The dividend expected next year is INR 2.00. The investor’s required rate of return on this stock is 15%. If the constant growth model applies, what is the expected growth rate?

 

• The equity share is expected to provide a dividend of INR 2.00 and fetch a price of INR 18.80 a year hence. What price would it sell for now if investors’ required rate of return is 12%?

 

3. (a) ABC Co. has a Days Sales Outstanding ratio of 60 days. Total credit sales for the year were $2,400,000. What is the balance in accounts receivable?

 

• If a firm has interest expenses of $10,000 per year, sales of $700,000, a tax rate of 40%, and a net profit margin of 7%, what is the firm’s times interest coverage ratio?

1. Write a note on Fund of Funds.
2. Write a note on Markowitz model.
3. Differentiate between CAPM & ABT.
4. Give a summary of the option payoff patterns.
5. What do candlestick charts and points and figure charts represent?
6. What do SML and CML represent?
7. Who are the different types of traders in the derivative market?

 

Section – B

1. Answer any THREE (3×15=45)

1. Explain Porter’s Model in the light of Industry Analysis.
2. The returns on the equity stock of Auto Electricals Limited and the market portfolio over a 11 year period are given below:

Year	Return on Auto Electricals Ltd. (%)	Return on Market Portfolio (%)
1	15	9
2	16	12
3	10	6
4	-15	4
5	-5	16
6	14	11
7	10	10
8	15	12
9	12	9
10	-4	8
11	-2	12

Calculate the beta for the stock of Auto Electricals Limited.

1. (a) Consider the following information of three mutual funds A,B and C and the market.

	Mean Return	Standard Deviation (%)	Beta
A	12	18	1.1
B	10	15	0.9
C	13	20	1.2
Market Index	11	17	1.0

The mean risk free rate was 6%. Calculate the Treynor measure and Sharpe measure to evaluate the MF performance.

• In deciding whether to use forward, futures, or options contracts for hedging, what are the points which a firm should consider?

(8+7)

1. (a) Differentiate between forwards & futures.

• What are the various methods of classification of Mutual Funds on the basis of structure of schemes?

(8+7)

1. (a) Assume Rs. 1000 is invested each month for 6 months in the units of a certain SIP. The next table shows the declining prices of the units of the scheme from January through June.

Date of Investment	Monthly Investment	Price	Units
1st Jan	1000	32	31
1st Feb	1000	22	45
1st Mar	1000	22	45
1st Apr	1000	18	56
1st May	1000	16	63
1st Jun	1000	11	91

Explain how the concept of RCA helps an investor?

• How are Dividend Discount and Constant Growth Model valued?

(8+7)

Section – C

1. Case study – Compulsory Question.                                                      (20 marks)

CASE STUDY

Tata Steel:

The Tata Group of Companies has business operations (114 companies and subsidiaries) in seven defined sectors – Materials, Engineering, Information Technology and Communications, Energy, Services, Consumer Products and Chemicals. Tata Steel with its acquisition of Corus has secured a place among the top ten steel manufacturers in the world and it is the Tata Group’s flagship Company. Other Group Companies in the different sectors are – Tata Motors, Tata Consultancy Services (TCS), Tata Communications, Tata Power, Indian Hotels, Tata Global Beverages and Tata Chemicals.

As an investor wanting to conduct fundamental analysis what are the qualitative factors and quantitative factors that he has to consider? What are the important ratios he needs to calculate to give him an idea about the progress of the company?

 

 

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