SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

Faculty in-charge : Dr.S.S.Shanthakumari

Note : Students have to recollect and work on the problems taught in Financial management about Risk and Return For UNIT I Bond Valuation ; equity valuation and Dividend for UNIT III.

Part A Unit I 1. 2. 3. 4. 5. 6. 7. Define investment economic or financial perspective. What is the difference between speculation and investment? Name any two instruments for investing. What is systematic risk? Define unsystematic risk? Define holding period return? Who is an aggressive/conservative investor?

UNIT II 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. What is primary market? What do you mean by stock exchange or secondary market? What are the different financial markets available? Define term IPO/FPO? Define the term IPO Grading? Name the players/Participants in stock market? What is Private Placement? Define Bid/offer? What is book building? What is price band? What is demat? What do you mean by depositories? Name the depositories operating in India. What is demutualization? What is ring less trading? Who is a DP / Depository Participant?

16. What is Pay-in and Pay out? 17. What is an auction? 18. What is rolling settlement?

UNIT III 1. 2. 3. 4. 5. 6. 7. What do you mean by cyclic stock? Define market capitalization? What do you mean by P/E ratio? What is YTM? What do you mean by intrinsic value? What are the five forces of Michael E. Porter model? What do you mean by ROE?

UNIT IV 1. 2. 3. 4. 5. Define market Breadth. Define support level and resistance level. What is short interest ratio? What is EMH? What are the forms of Efficient Market? UNIT V 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. What are the steps in portfolio management process? What do you mean by entry load? Differentiate between active and passive portfolio. What is difference between growth fund and income fund? Define AMC. What is NAV? What is SIP? What is index fund? What is fund of fund scheme? What is exchange traded funds? What is an expense ratio? What is an efficient portfolio? What is covariance? Define Risk free rate of return. Define Beta Define market risk premium.

Part B Unit I 1. 2. 3. 4. What are the different types of investment? What are the objectives of investment? Explain the characteristics of investment? What are the different types of investment avenues / financial instruments available for an investor in India to invest? 5. Formulate an investment objective/investment policy for an investor with an age group of 35-40? 6. Differentiate between systematic and unsystematic risk?

UNIT II 1. 2. 3. 4. 5. 6. 7. 8. What is Primary market / New Issue Market? What are the regulations regarding the primary market? Name the players of the primary market? Explain the role of each players? What is secondary market? What are the regulation regarding the secondary market? Who is the regulator of the capital market? What is the role and function of the regulator? Explain the capital market reforms that took place post 1991. Explain the framework of NSE/BSE/OTCEI? Explain about the online trading system available in India. What are the different sources of information available for successful investing?

UNIT III 1. What are the factors or indicators to be monitored while evaluating the macro economys impact on stock market? Why? 2. Describe the industry life cycle? What is the implications foe the investors? 3. What are the factors to be analyzed while studying the characteristics of the industry? 4. Discuss the forces that drive competition and influence profit potential for industries according to Michael E. Porter. 5. Refer Problem in Page 451 of the recommended book. 6. What factors should the analyst examine to assess whether a firms performance? 7. Differentiate between top down approach and bottom up approach of fundamental analysis?

UNIT IV 1. 2. 3. 4. 5. 6. 7. What is the difference between primary and secondary market? Explain the Dow Theory. What is the bar chart and line chart? What is the indication provided by them? What are the features of point and figure chart? Explain the techniques of moving average analysis? What buy and sell signals provided by them? Explain eh major indicators in its role in investment decision? What is efficient market? Discuss on the three forms of the market efficiency?

8. Describe the type of test that have been commonly employed to verify the Weak form (randomness) of the market / semi strong form/ strong form of the market,

UNIT V

1. What is the key difference between the open ended and close ended funds? 2. What are the characteristics of the following mutual fund schemes a. Equity schemes b. Hybrid schemes c. Debt schemes 3. Explain the steps involved in portfolio management process? 4. Describe the procedure developed by Markowitz for choosing the optimal portfolio of risky assets? 5. Explain the single index model proposed by William Sharpe with assumptions. 6. Refer Problems in Pages 239-243 of the recommended books 7. Mention the assumptions underlying the standard CAPM? 8. Discuss the relationship embodied in the security market line. 9. What is multi factor model? Describe the types of models. 10. Refer Problems in Pages 269-270 of the recommended book. 11. Refer problems in pages. 620-621; 624-625 of the recommended book.

Part C Problems can Come from UNIT I, UNIT III, UNIT IV or UNIT V IMPORTANT : Refer Problems from SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT by PUNITHAVATHY PANDIAN 1. A stock costing Rs 50, pays no dividend. The possible prices of the stock at the end of year and their probabilities are given below. End of year Price Probability 60 0.1 65 0.2 70 0.4 75 0.2 80 0.1 2. Mr. Mohan wants to buy Ant company stock which is currently selling at Rs 60 without dividend payment. There is equal probability for the Ant stock to be sold at Rs 65 and Rs 80 during the next year. What is the expected return and risk if 300 shares are bought? Transaction cost is ignored. 3. An investor wants to choose either X or Y companys stock. Both the companies are not paying dividends. X company stock is currently selling for Rs 150 and Y for Rs 200. At the end of the year ahead there is a probability for X to be sold either for Rs 171 or Rs 167 and Y either for Rs 227 or Rs223. Which companys scrip should the investor buy? Justify your answer. 4. Stocks X and Y display the following returns over the past three years.

year 1 2 3

Return X Y 14 12 16 18 20 15

a. What is the expected return on portfolio made up of 40 per cent of X and 60 per cent of Y? b. What is the standard deviation of each stock? c. Determine the correlation co-efficient of stock X and Y. d. What is the portfolio risk of a portfolio made up of 40 per cent X and 60 per cent Y? 5. With the given details, evaluate the performances of the different funds using Sharpe, Treynor and Jensen performance evaluation techniques.
Funds A B C D Return 12 12 8 9 Standard deviation 20 18 22 24 Beta 0.98 0.97 1.17 1.22

Risk free rate of return is 4 per cent. Market return is 10 %.