LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034
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M.Com. DEGREE EXAMINATION – COMMERCE
THIRD SEMESTER – November 2008
CO 3802 – SECURITY ANALYSIS & PORTFOLIO MANAGEMENT
Date : 03-11-08 Dept. No. Max. : 100 Marks
Time : 9:00 – 12:00
SECTION – A Answer ALL questions: ( 10 x 2 = 20 )
- What do you understand by securities?
- What is private placement?
- State the special benefits available to the equity shareholders.
- Identify any two major factors that affect the investment decisions.
- Highlight some of the obstacles in the way of an analyst in the investment process.
- What is the Run Test? How it differs from other tests conducted under Efficient Market
Theory?
- What is Capital Asset Pricing Model?
- What do you mean by ‘Filtering’ under Weak form market?
- Explain how diversification is different from revision of portfolio?
- Find the portfolio variance of a portfolio consisting of equities, bonds and real estate, if the portfolio
weights are 0.15, 0.10 and 0.05 respectively. Following are also given:
The standard deviations are 20% for equity, 35% for bonds and 40% for real estate.
The correlations are 0.45 per equity and bonds, 0.35 for equities and real estate, and 0.20 for bonds
and real estate.
SECTION – B Answer any five questions ( 5 x 8 = 40 )
- Distinguish between real assets and financial assets.
- Bring out the features and advantages of investing in bonds
- a) What is arbitrage model? (3)
- b) Calculate the returns under the arbitrage model: (5)
| Factor | Market price of risk | Sensitivity Index |
| Inflation | 10% | 1.5 |
| Industrial production | 7% | 1 |
| Risk premium | 5% | 1.2 |
| Interest rate | 4% | -0.75 |
Other details:
- The risk free interest =10%
- The expected return = 20%
- Following is the information available in respect of rate of return of two securities A and B in different economic conditions:
| Economic condition | Probability | Rate of Return | |
| Security A (%) | Secutrity B (%) | ||
| Recession | .20 | -15 | 20 |
| Normal | .50 | 20 | 30 |
| Boom | .30 | 60 | 40 |
Find out the expected returns and the standard deviation for these securities . Assume
that an investor has Rs.20,000 to invest and he wants to invest Rs.15,000 in security A
and the balance in security B, what will be expected return of the portfolio.?
- Give a brief account of three movements of share prices under Dow Theory.
- State and explain assumptions involved in the CAPM-Theory.
- Here are four Mutual Funds
Fund Return S.D Beta
ABC 16 8 1.50
QWA 14 5 1.40
RDS 18 10 0.75
YTR 15 7 1.25
If the risk free rate is 7%, rank the funds based on (i) Sharpe and (ii) Treynor Model
- Mr.Bhave is considering several investments. The risk-free rate of return is currently 6.5%,
and the expected return for the market is 12%. What should be the required rates of return for
each investment (using the CAPM)?
Security A B C D E
Beta 1.20 0.80 1.50 0.60 1.25
Find out which security gives the best and least return?
SECTION – C
Answer any TWO questions: ( 2 x 20 = 40 )
- Discuss in detail the functions and the various institutions involved in the primary
Market operations.
- Elaborate the various stages involved in the Portfolio management process.
- Write short notes on the following:
- Unsystematic risk
- Valuation multiples in company analysis
- Relative strength under Technical analysis
- Uniqueness of Mutual funds
(e) Monetary policy.