LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034
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M.A. DEGREE EXAMINATION – ECONOMICS
FOURTH SEMESTER – APRIL 2007
EC 4813 – PORTFOLIO THEORY AND INVESTMENT ANALYSIS
Date & Time: 23/04/2007 / 9:00 – 12:00Dept. No. Max. : 100 Marks
Part – A
Answer any FIVE questions in about 75 words each. (5 x 4 = 20 marks)
- Define ‘Delphi Technique’.
- State the investment rule in security analysis.
- Distinguish between diversified and non-diversified risk.
- What is a forward contract?
- Distinguish between ‘operational efficiency’ and ‘allocative efficiency’.
- What is meant by ‘Clearing’?
- What is volatility hedging?
Part – B
Answer any FOUR questions in about 250 words each. (4 x 10 = 40 marks)
- Elucidate Cootner’s price value interaction model.
- State the assumptions of capital asset pricing model.
- Write a note on ‘Short selling’.
- Explain the advantages and risks of margin trading.
- Estimate characteristic line from the following data
| Month | 1 | 2 | 3 | 4 | 5 | 7 | 8 |
| Monthly Stock price change | -7 | -8 | -4 | 3 | 2 | 1 | 5 |
| Change in market index | -5 | -9 | -4 | 5 | 2 | 2 | 1 |
- What are the economic benefits of derivatives?
- Elucidate return based trading strategies.
Part – C
Answer any TWO questions in about 900 words each. (2 x 20 = 40 marks)
- For the following two hypothetical stocks X and Y, draw the security market line
| Company X | 12 | -21 | 41 | 7 | 32 | 30 | 14 |
| Company Y | 119 | -23 | 4 | 3 | 16 | -15 | 31 |
| Market Index | 11 | 1 | 26 | -7 | -21 | 16 | 11 |
- Derive efficiency frontier and explain investor’s equilibrium for risk-loving and risk-averse investors.
- Distinguish clearly characteristic line, security market line and capital market line.
- What percentage of your funds would you invest in today’s stock market? Explain the reasons for your decision.