Securities Analysis And Portfolio Mangement

St. Joseph’s College of Commerce (Autonomous)

End Semester Examination- April 2011

MIB – IV Semester

 

SECURITIES ANALYSIS AND PORTFOLIO MANAGEMENT

Duration:  3 Hours                                                                                         Max. Marks: 100

Section – A

1. Answer ALL the questions in one or two sentences                            (10×2=20)
2. Tiwari is expecting to receive INR.25,000/- at the end of 10 years. He wants to know what is the present value of this amount, if the rate of interest is 10% p.a.
3. What is role reversal in technical analysis?
4. What do point & figure charts represent?
5. What are the major questions Fundamental analyses serves to answer?
6. What is gambling?
7. What is systematic risk?
8. What is a forward?
9. Karthik purchased RBI Bonds since a) The returns are certain b) Minimum variation in the returns c) The return is certain and the variation is NIL d) There is assurance of full payment of Principal
10. What is an index fund?
11. Which MF in India is leading in terms of AUM for the quarter ending December 2010?

Section – B

1. Answer any FOUR                                                             (4×5=20)

1. The total risk of a portfolio consist of two parts: Market risk (systematic) and Unique risk (unsystematic). Explain.
2. What are the criteria for credit rating? Name a few credit rating agencies in India.
3. Write a note on Efficient Market Hypothesis.

14. Ravi Rao is the CEO of Capmart Limited, an investment advisory firm. He has been requested to give a seminar to a group of finance executives drawn from state run universities. Ravi Rao has asked you to help him to make this presentation. In particular you have to answer the following questions.

 

• What is the value of a 9 year, INR 1000 par value bond with a 10% annual coupon, if its required rate of return is 8%?
• What is the value of the bond described in part (a) if it pays interest semi annually, other things remaining equal

 

15. (a) Manufacturer’s Inc. estimates that its interest charges for this year will be $700 and that its net income will be $3,000. Assuming its average tax rate is 30%, what is the company’s estimated times interest earned ratio?

(b) A firm’s current assets and current liabilities are INR 1500 and INR 600 respectively. How much can it borrow from the bank without reducing the current ratio below 1.5?

 

16. How are Dividend Discount and Constant Growth Model valued?

Section – C

• Answer any THREE of the following      (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	12
2	-6	1
3	18	14
4	30	24
5	12	16
6	25	30
7	2	-3
8	20	24
9	18	15
10	24	22
11	8	12

Calculate the beta for the stock of Auto Electricals Limited.

1. (a) Suppose a company has issued 1975 lakh shares of which 900 shares are promoters’ holdings and its closing price on BSE on say May 10, 2009 was INR 350 per share. , The market capitalization on May 9th 2009 was 354420 lakhs. The index value on the same day was 5620 points. How will the index on May 10th be calculated? Explain the method employed to calculate the index.

(b) How are convertible debentures and share warrants similar to call options?

(8+7)

1. (a) Explain the significance of yield of a bond.

• The returns on the portfolios of three mutual funds A,B and C over a 9 year period, along with the return on a market index and the risk free return are given below:

Period	Fund A	Fund B	Fund C	Return on market	Risk free return
1	-38.7	-16	-33	-26	7.9
2	39.6	39.4	30	36.9	5.8
3	11.1	34.3	18.2	23.6	5.0
4	12.7	-6.9	-7.3	-7.2	5.3
5	20.9	3.2	4.9	6.4	7.2
6	35.5	28.9	30.9	18.2	10.0
7	57.6	24.1	34.7	31.5	11.5
8	-7.8	0.0	6.0	-4.8	14.1
9	22.8	23.4	33.0	20.4	10.7
Mean: Rp	17.1	14.5	13.0	11	8.6
SD:σp	28.1	19.7	22.8	20.5	–
Beta: βp	1.20	0.92	1.04	1.00	–

 

Evaluate the performance of the three funds using Sharpe & Treynor measures.

(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)

Section D

1. Case study – Compulsory Question.                                 (15 marks)

CASE STUDY

Technical analysts believe that certain formations or patterns observed on the bar chart or line chart have a predictive value. Explain how the following patterns help such an analyst to predict stock behavior and summaries the importance of technical analysis.