Security Analysis and Portfolio Management

1a What is a Portfolio? Explain the portfolio investment process. b. Financial Markets are absolutely vital for the proper functioning of the economy. Explain the statement. 2a. Explain the features of Capital Market. b. Money market provides the investors a place for parking surplus funds for short period of time. Elaborate. 3a. Explain important money market instruments. b. Explain the features and functioning of OTCEI 4a Technical analysis is based on the assumption that markets are driven more by psychological factors than fundamental values. Substantiate. b. What are technical indicators and how it is useful to a technical analyst? 5a. Explain Random Walk Theory. b. Explain event study and bring out its relationship with efficient market hypothesis.

CASE STUDY (10 MARKS)

6. Akash 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:

a. Brief explanation of different types of Equity Valuation Models. b. How is Dividend Discount and Constant Growth Model valued? c. Calculation of required rate of return on the client firms stock. Assume that the risk free rate is 7% and the market premium is 6% and stocks beta is 1.2 d. Assume that the firm is a constant growth company which paid a dividend of Rs5.00 last year and the dividend is expected to grow at the rate of 10% forever. What is the expected value of the stock a year from now? e. If the stock is currently selling for Rs110.00, what is the expected rate of return on the stock?

SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT 1 a. Explain the different types of bonds. b. Consider a Rs.1000 par value bond carrying a coupon rate of 9% and maturing after 8 years. The bond is currently selling at Rs.800. What is the YTM of Bond? 2a. the market price of an Rs1000 par value bond carrying a coupon rate of 14 percent and maturing after five years is Rs1050. Calculate YTM using approximation method. b. A financial institution issued deep discount bonds in 1996 which have a face value of Rs.2, 00,000 and a maturity period of 25 years. The bond was issued at Rs.5300. What is the value of this zero coupon bond? 3a. Explain Capital Market line b. A bond has a face value of Rs100 with a coupon rate of 9% payable annually. The number of years to maturity is 5 and the bond is currently selling at Rs105. Determine the duration of the bond. Use the approximate formula for calculating the yield to maturity 4a. List out the assumptions of CAPM b. Explain the relationship between CML and SML 5a. The total risk of a portfolio consist of two parts: Market risk (systematic) and Unique risk (unsystematic). Explain

b. If GDP grows by 7.5%, inflation is 6% and factor sensitivities of the security to GDP and inflation rate are 2.5 and -0.8 respectively and ai = 5.3% what is the securitys expected return. According to two factor model what is the variance of the security? (5 Marks)

CASE STUDY (10 MARKS)

6. Mr. Rajesh is a Wealth Manager working for a well known Investment banker in India. One of his client wishes to purchase 2 stocks, one related to technology (Asset T) and another banking stock (Asset B). The following is the forecast of returns on both the stocks during 4 phases of economy High Growth, Low Growth, Stagnation and Recession. State of nature Probability Return on asset T Return on asset B High growth 0.10 5% 0% Low growth 0.30 10% 8% Stagnation 0.50 15% 18% Recession 0.10 20% 26% What is the standard deviation of the return on asset T and asset B? What is the covariance between the return on asset T and asset B? What is the coefficient of correlation between the returns on asset T and B?

1. 2. 3.