IMT 09 Security Analysis & Portfolio Management M2

PART – A

Q1. Discuss the characteristics of investors, speculators, and gamblers. Explain the impact of each on the investment programme process.

Q2. Discuss the features of an investment programme?

Q3. What are the main functions of a stock exchange? In what ways is a stock exchange indispensable for an economy?

Q4. Briefly trace the history of stock markets in India.

Q5. Explain the meaning of the term ‘New Issue Market’. How does it differ from the ‘Secondary Market’? Are they connected to each other?

PART – B

Q1. Discuss the procedure to be followed by a listed company for rights issue.

Q2. P. S. Gupta is considering investing in a bond currently selling for Rs. 8785.07. The bond has four years to maturity, a Rs. 10,000 face value and a 8 per cent coupon rate. The next annual interest payment is due one year from today. The approximate discount factor for investments of similar risk is 10 percent.

a. Calculate the intrinsic value of the bond. Based on this calculation, should Gupta purchase the bond?

b. Calculate the YTM of the bond. Based on this calculation, should Gupta purchase the bond?

Q3. What part do the growth rate of earnings, dividend, and the future P/E play in the valuation equation?

Q4. What is the money market? Explain the objectives and needs of money market instruments.

Q5. State the meaning, rationale, procedure and limitations of the Fundamental Analysis.

PART – C

Q1. Define the Efficient Market Hypothesis in each of its three forms. What are its implications?

Q2. Explain how the efficient frontier is determined using the Markowotz approach. Use a two security approach.

Q3. Why must the market portfolio be a combination of all securities, each in proportion to market value outstanding?

Q4. Under the CAPM, what is the efficient set called/ If there is buying and selling of a risk-free asset, what happens to the efficient set?

Q5. Discuss the growth of financial derivatives in the global financial markets.

CASE STUDY – I

Stocks ABC and XYZ have the following historical returns:

Year

Stock A’s Returns (%), RA

Stock B’s Returns (%), RB

2005

10

3

2006

18

21

2007

38

44

2008

14

3

2009

33

28

a. Calculate the average rate of return for each stock during the period 2005 through 2009. Assume that someone held a portfolio consisting of 50 percent of Stock ABC and 50 percent of Stock XYZ. What would have been the realized rate of return on the portfolio in each year from 2005 through 2009? What would have been the average return on the portfolio during this period?

b. Calculate the standard deviation of returns for each stock and for the portfolio.ASE

CASE STUDY – II

High

growth

Low

growth

Stagnation

Recession

Probability

0.4

0.2

0.3

0.1

Return on ABC stock

150

130

90

60

Return on XYZ stock

100

110

120

140

Calculate the expected return and standard deviation of investing

(a) Rs. 100 in ABC limited

(b) Rs. 100 in XYZ limited

(c) Rs 500 in each ABC and XYZ

Given, both the stocks are currently selling for Rs. 10 per share