Security Analysis And Portfolio Management (Finance Elective Paper III)

St. Joseph’s College of Commerce (Autonomous)

End Semester Examination- MARCH/April 2013

B.Com /B.B.M.  – VI Semester

SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

(Finance Elective – paper iii)

Duration:  3 Hours                                                                                        Max. Marks: 100

Section – A

1. Answer ALL the questions in one or two sentences. (10×2=20)
2. Who is an arbitrageur?
3. Differentiate Risk and uncertainty?
4. Explain the term “True Concept Value”?
5. What is debt valuation?
6. Explain the term “Confirmation” in technical analysis?
7. What is Bonds in Perpetuity? Mr. X has a perpetual bond of the face value of Rs. 1000. He receives an interest of Rs 90 annually. What would be its value if the required rate of return is 15%?
8. Mention any four basic assumptions behind the APT?
9. Explain the total return on an investment?
10. What do you mean by market risk premium?
11. Define Purchasing Power risk?

 

Section – B

1. Answer any FOUR (4×5=20)
2. A 45 year old man, married with two children studying in school, is working in an non IT firm? What will be his investment objectives, constraints and in which financial instruments will he invest?
3. 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.

13. Write a note on Markowitz Model.
14. What are the qualitative factors to be considered for Company Analysis?

 

15. Explain the relationship between coupon rate, required yield and price of a bond.

 

16. What are the various methods of classification of Mutual Funds on the basis of investment objective?

 

Section – C

• Answer any THREE of the following        (3×15 = 45)

 

17. (a) What are the different stages of industry cycle and the main features of such stages?

 

(b) What is five-force analysis and its utility for industry analysis?

 

18. (a) What is SCORES (SEBI Complaints Redress System)?

• 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.

 

 

19. The stock of P Ltd performs well relative to other stocks during recessionary periods, while the stock of Q Ltd does well during the growth period. Both the stocks are currently selling for INR 100/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	0.4	0.2	0.2
Return of P Ltd stock	100	110	120	140
Return of Q Ltd stock	150	130	90	60

Calculate the expected return and standard deviation of:

• INR 1000 in equity stock of P Ltd
• INR 1000 in equity stock of Q Ltd
• INR 500 in equity stock of P Ltd and INR 500 in Q Ltd.

20. (a) Explain diagrammatically the concept of role reversal in Technical Analysis.

• Explain Arbitrage Pricing Theory.

21. 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%?

 

• What do candlestick charts and points and figure charts represent?

                          P.T.O…………

 

 

 

 

 

 

Section – D

1. Case study – Compulsory Question.                                      (10+5 marks)

 

22. (a) What are the 4 main types of charts used in Technical Analysis? Show them diagrammatically and differentiate between them.

(b) 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 behaviour.