| st. joseph’s college of commerce (autonomous) |
| END SEMESTER EXAMINATION – MARCH /APRIL 2015 |
| B.com. – VI SEMESTER |
| FIN 605: SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT
(FINANCE Elective) |
| Duration: 3 Hours Max. Marks: 100 |
Section – A
- Answer ALL the questions. Each carries 2 marks. (10×2=20)
- How is Stock Investing different from Gambling?
- What are the secondary objectives of Investment?
- What is an Equity Linked Saving Scheme?
- What is a Unit Linked Insurance Policy?
- Mention any two qualitative factors considered in Company Analysis.
- What are the main assumptions of Technical Analysis?
- State the CAPM formula for calculating cost of equity.
- The equity stock of a company is currently selling for Rs. 30 per share. The dividend expected next year is Rs. 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?
- Who is a Qualified Institutional Buyer as per SEBI?
- What is the Sharpe Index Model used for?
Section – B
- Answer any FOUR Each carries 5 marks. (4×5=20)
- Explain the different concepts of Investment.
- A 28 year old man saves Rs.1,00,000 which he plans to invest. Explain the steps that he would have to follow in the process of investing the same.
- Explain the concept of Diversification and Risk diagrammatically.
- There is this joke about a dealer whose trades were based on technical calls. One day his boss asks him which stock he is trading on, and he answers ‘Ford’. “Great company. In fact I own a Ford car,” says his boss. “I didn’t know they made cars,” the technical trader replies. Bring out the meaning of the above statement by differentiating between Fundamental analysis and Technical analysis.
- (a) Consider an 8 year, 12% coupon bond with a par value of Rs. 100 on which interest is payable semi annually. The required return on this bond is 14%. Calculate the value of this bond.
(b) A company’s equity share is expected to provide a dividend of Rs. 2 and fetch a price of Rs. 18 a year hence. What price would it sell for now if the investors’ required rate of return is 12%? (2.5+2.5)
- Write a note on Arbitrage Pricing Theory.
Section – C
- Answer any THREE Each carries 15 marks. (3×15 = 45)
- The returns on security j and the market portfolio for a 10 year period are given below:
| Year | Return on
Security j (%) |
Return on
Market Portfolio (%) |
| 1 | 10 | 12 |
| 2 | 6 | 5 |
| 3 | 13 | 18 |
| 4 | -4 | -8 |
| 5 | 13 | 10 |
| 6 | 14 | 16 |
| 7 | 4 | 7 |
| 8 | 18 | 15 |
| 9 | 24 | 30 |
| 10 | 22 | 25 |
Calculate the beta for the security j.
- (a) What are the methods of classification of Mutual Funds on the basis of structure of schemes?
(b) Write a note on Efficient Market Theory? (8+7)
- Explain HM Model of Return and Risk calculation of a portfolio. Describe his contention about Efficient Portfolios.
- (a) Explain diagrammatically the concept of role reversal in Technical Analysis
- Explain the relationship between coupon rate, required yield and price of a bond. (8+7)
- What are the four main types of charts used in Technical Analysis? Show them diagrammatically and differentiate between them.
SECTION – D
- Case study (15 marks)
- The stock of Alpha Company performs well relative to other stocks during recessionary periods, while the stock of Beta Company does well during the growth period. Both the stocks are currently selling for INR 50/share. The rupee return (dividend plus price) of these stocks for the next year would be as follows:
| High growth | Low growth | Stagnation | Recession | |
| Probability | 0.3 | 0.3 | 0.2 | 0.2 |
| Return of Alpha’s stock | 55 | 50 | 60 | 70 |
| Return of Beta’s stock | 75 | 65 | 50 | 40 |
Calculate the expected return and standard deviation of:
- 1000 in equity stock of Alpha
- 1000 in equity stock of Beta
- 500 in equity stock of Alpha and Rs. 500 in equity stock of Beta
Which of the above options would you choose and why?