Security Analysis & Portfolio Management

1. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

End Semester Examinations –  April 2013

m.com – ii semester

sECURITY ANALYSIS & PORTFOLIO MANAGEMENT

Duration: 3 Hrs                                                                                                Max. Marks: 100

Section – A

1. Answer any SEVEN questions.             (           7 x 5 = 35)

 

Question 1

 

Y ltd. retains Rs.7, 50,000 out of its current earnings. The expected rate of return to the shareholders if they had invested the funds elsewhere is 10%. The brokerage is 5% and the shareholders come in 20% tax bracket. CDT payable by company on dividend distributions made by it is 30%. Find the cost of retained earnings.

Question 2

 

1. Explain CAPM equation used for computing Re ?
2. Explain the graphical representation of CAPM i.e; SML

 

Question 3

 

How do you compute cost of debt in case of redeemable debentures? Explain with the help of an example?

 

Question 4

 

Explain the role of credit rating agencies? What procedure is followed by them in evaluating the prospective client?

 

Question 5

 

Give a brief note on support and resistance levels?

 

Question 6

 

Explain the long straddle strategy in respect of stock of Infy having an Exercise price of 1110. The call option on the same is selling for Rs. 45 and put option for Rs. 125. Also show the payoff taking 5 different hypothetical stock price on maturity?

 

Question 7

 

Distinguish between Mutual funds and Hedge Funds?

 

Question 8

 

1. When will you go long on a Call option?
2. When will you go short on a put option?

 

 

Question 9

 

Explain the difference between open ended and close ended funds?

 

Question 10

 

Distinguish between equity shares and preference shares?

 

Section – B

1. Answer any THREE questions.                                      (3 x 15 = 45 )

 

Question 11

 

X Ltd proposes to replace an old machine by a new machine. The old machine has a book value of INR 40 lacs and can be immediately sold for INR 70 lacs. If not sold today, it will have negligible salvage value at the end of 5 years from now. The new machine cost INR 200 lacs and has a life of 5 year at the end of which it is expected to have a salvage value of INR 80 lacs. This replacement is expected to result in cost savings to the extent of INR 42 lacs per year for 5 years. Depreciation @ 20% WDV, Tax rate = 30% applicable to Capital Gains also. Kc = 13%. Appraise the replacement project?

 

Question 12

Based on the following information, determine the NAV of a regular income scheme on per unit basis:

 

Particulars	Amount (INR in crores)
Listed shares at cost (ex-dividend)	20
Cash in hand	1.23
Bonds and debentures at cost	4.3
Of these, bonds not listed and quoted	1
Other fixed interest securities at cost (assuming to be at par)	4.5
Dividend accrued	0.8
Amount payable on shares	6.32
Expenditure accrued	0.75
Number of units (INR 10 face value)	20 lacs
Current realizable value of fixed income securities of face value of INR 100	106.5
The listed shares were purchased when index was	1,000
Present Index is	2,300
Value of listed bonds and debentures at NAV date	8

 

There has been a diminution of 20% in unlisted bonds and debentures.

 

Question 13

1. If we have a 12% INR 1,000 face value 10 year bond presently trading at a discount of 3% redeemable at a premium of 5% and paying a coupon semi-annually. Calculate the YTM of the bond.

 

1. b) Consider annual coupon and compute post-tax YTM given tax rate 30% and C.G. tax rate 10%. When will realised yield same as YTM?

 

     Question 14

Current share price of Reliance is INR 480. It has paid a dividend of INR 15 for the current year. This DPS is expected to remain same for the next 2 years. After which it will grow at the rate of 25% p.a. for the years 3 to 5 and finally grow at a constant rate of 12% pa forever thereafter. If Re is 14% what should be the share price.

 

Question 15

 

On Jan 1, the stock of TISCO trades at 600. 1 monthfuture on the stock trades at 590. Risk free interest rate is 10% p.a and annualized dividend yield on the stock is 6%. Lot size is 600 Shares.

1. Find out the theoretical future price.
2. Check out for the arbitrage opportunity and show the process of arbitrage if price on maturity happens to be

Case 1 Rs. 500     Case 2 Rs. 700

Section – C

• Compulsory Case study                                        (1 x 20 = 20 )       

16. The historical rate of returns of two securities over the past 10 years are given. Calculate the covariance and the correlation coefficient of the two securities:

 

Years	:	1	2	3	4	5	6	7	8	9	10
Security 1 (Return %)	:	12	8	7	14	16	15	18	20	16	22
Security 2 (Return %)	:	20	22	24	18	15	20	24	25	22	20

 

Further explain the significance of positive, zero and negative correlation between two securities?

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1. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

END SEMESTER EXAMINATION – APRIL 2014

M.COM – II SEMESTER

SECURITY ANALYSIS & PORTFOLIO MANAGEMENT

 

Duration: 3 Hrs                                                                                                Max. Marks: 100

Section – A

 

1. Answer any SEVEN questions. Each question carries 5 marks.              (7×5=35)

1) What is the difference between Capital Market Line    (CML)  and Security

Market Line (SML)?

2) What is the significance of beta (β) ? Give interpretations of negative, positive

and zero beta

3) In credit rating what does the symbols -AAA⁺, BBB & D signify?

4) A security has a beta of 1.4. What is the expected return as per CAPM if the

market is returning  12% and risk free rate is 10%

5) What do you mean by EMH?

6) With the help of the formula, explain the concept of bond duration?

7) What is a derivative? What is the fair 3 month forward price of gold for 10

grams, currently trading at Rs 28,000 per 10 grams, the cost of

insurance and storage for 10 grams are 0.1% per annum each and risk free

rate is 10% per annum.

8) With the help of an illustration, explain risk − return trade off?

9) Differentiate between systematic and unsystematic risk?

10) Mention at least 5 types of mutual funds ?

 

Section – B

 

1. Answer any three Each carries 15 marks.      (3×15=45)

 

11)  What is the YTM of a bond with the following characteristics?

Face value = RS 100. Coupon Rate = 14% (Per annum; paid annually)

Current Market Price = Rs 95.

Years remaining to maturity = 6 years. Maturity value = 105

12) What is fundamental analysis? Explain the significance (giving the

formula) of at least 5 ratios that are to be   evaluated as part of

fundamental analysis?

13) Explain with illustration: i) Candlestick charting & ii) Point & Figure chart ?

14) Define a futures contract? Explain the role of market participants in a

futures contract.

15) What is a swap? Explain the types of swaps?

 

 

 

 

Section – C

 

• Compulsory question.                                                                                 ( 20 marks)

 

17. Rate of return and risk for three growth oriented companies were calculated over the most recent 5 years and are as follows

 

FIRM	RETURN -%	Portfolio Risk -%
M	15	16
N	13	18
O	12	11

 

If the risk free rate is 7%, rank the companies as per Sharpe’s index of portfolio performance?

 

 

1. Highlight the differences between Investing & trading through the concepts of Fundamental Analysis & Technical Analysis.  In this context mention the qualitative factors to be considered in fundamental analysis.

 

(10 +10)

 

 

 

1. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

END SEMESTER EXAMINATION – MARCH/APRIL 2015

M.COM – II SEMESTER

P111203: SECURITY ANALYSIS PORTFOLIO MANAGEMENT

Duration: 3 Hours                                                                                                  Max. Marks: 100

SECTION – A

 

1. I) Answer any SEVEN questions. Each carries 5 marks.          (7×5=35)

 

1. Explain the steps involved in portfolio investment process.
2. What is meant by Efficient Frontier.
3. Write short notes on Convertibles and Warranties as financial derivatives.
4. How does Markowitz Model differ from Sharp Single Index model.
5. State briefly the meaning of terms ‘Hedging’, ‘Arbitrage’ and ‘Speculation’.
6. What is CAPM?
7. In what way can Beta and correlation be used while constructing a portfolio? How does Beta differ from Correlation?
8. How does Fundamental Analysis differ from Technical Analysis?
9. A 9%  100 face value debenture, having a provision for conversion at the end of 5 years into four equity shares of face value Rs. 10 each at a premium of Rs. 15 each. It is expected that the equity shares will have market value of Rs. 33 per share on the date of conversion. An investor has expected rate of return of 15% per annum. Suggest him at what price he should be ready to buy this debenture.
10. What are the types of Bond that are issued in Indian Bond Market?

 

SECTION – B

1. II) Answer any THREE questions. Each carries 15 marks.                                     (3×15=45)

 

11. What is meant by Forward and Future Contract? How does forward differ from future?
12. What is Risk? Explain the kinds of Systematic and unsystematic Risk.

13. The returns on the equity stocks of TCS limited and the market portfolios over a 12 year period are given below :
Year	Return on auto TCS 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
a)     Calculate the beta for the stock of TCS limited
b)     Established the characteristics line for the stock of TCS limited.

 

14. Mr. X buys one call at strike price 55 and one at call strike price Rs.65. He sells 2 call at strike price 60. Current spot price Rs.61.  Call option quotations in the market are as follows:

Strike Price `	Premium `
55	10
60	7
65	5

 

Give pay as per Butterfly strategy if spot price on expiry are 51, 52,…….70.

 

15. An Investor has gathered the following information about mutual funds:

Mutual Fund	Return (%)	Risk () %	Beta β
A	15	5	1.5
B	11	4	0.5
C	17	7	1
D	11	6	0.7
E	19	5	1.2

 

Return on Zero beta portfolios is 4% and return on market is 18%.  Evaluate these mutual funds using sharpe, Treynor and Jenson’s methods.

 

 

SECTION – C

 

1. IV) Case Study (1×20=20)

 

16. Mr.Vinod received Rs.10 Lakhs from his pension fund. He wants to invest in the stock Market. The Treasury Bill rate is 7% and the market return variance is 20. The following Table gives the details of regarding the expected return, Beta and residual variance of the security. What is the optimum portfolio assuming no short sales?

 

Stock	Ri	Beta	Standard deviation square
A	20	0.75	25
B	18	1.3	16
C	16	1.3	9
D	12	0.75	16
E	10	0.6	9
F	15	1.8	36