Seat No.: Enrolment No.
GUJARAT TECHNOLOGICAL UNIVERSITY
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MBA (PART TIME) — SEMESTER 3 - EXAMINATION — WINTER 2018
Subject Code: 2830203 Date:11/12/2018
Subject Name: Security Analysis and Portfolio Management
Time:10:30 AM To 01:30 PM Total Marks: 70
Instructions:
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- Attempt all questions.
- Make suitable assumptions wherever necessary.
- Figures to the right indicate full marks.
| Q. No. | Question Text and Option |
|---|---|
| Q.1 (a) | The aggressive investor buys more A. Money market B. Gold --- Content provided by FirstRanker.com --- instrumentsC. Equity Shares D. Options and Futures |
| Q.1 | An investor gets 15 per cent return from X’s stock. The inflation rate is 7 percent. His real rate of return is A, 7.48% B. 8% C. 25% D 7.84% |
| If the company’s net profit is Rs. 240 million and Equity capital is Rs. 240 --- Content provided by FirstRanker.com --- million with a face value of shares equivalent to Rs. 2, what is the earningper share? A. Rs. 3 B. Re.l C. Rs.2 D. Rs25 | |
| Which of the following statement defines an efficient market? A. Information is fully B. the stock exchange is fully automated --- Content provided by FirstRanker.com --- reflected in the stock prices.C. the market is D. Free entry and exit of investors. regulated by regulatory authorities | |
| The value of the bond depends on A. the coupon rate B. the expected YTM C. years to maturity D. all the above | |
| Diversification reduces: --- Content provided by FirstRanker.com --- A. interest rate risk B. market riskC. unique risk D. Active in portfolio management | |
| (b) | Short Definitions 04
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Q.2 (a) Define and Differentiate Technical analysis from Fundamental analysis. 07
(b) Consider two stocks A and B 07
| Stocks | Expected return % | Standard Deviation% |
|---|---|---|
| Stock A | 14% | 22% |
| Stock B | 20% | 35% |
The returns on the stocks are perfectly negatively correlated.
What is the expected return of a portfolio comprising of the stocks A
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and B when the portfolio is constructed to drive the standard deviationof the portfolio return to zero?
OR
(b) The following information is available: 07
| Stock | Stock | |
|---|---|---|
| P | Q | |
| Efficient return | 14% | 20% |
| Standard deviation | 25% | 40% |
| Correlation coefficient | 0.40 | |
a. What is the covariance between stocks P and Q?
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What is the expected return and risk of a portfolio in which P and Q are
equally weighted?
Q.3 (a) Explain the Difference between SML and EML . 07
(b) The returns on the equity stock of Auto Electricals Limited and the 07
market portfolio over an 11 year period are given below:
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| Year | Ry | Ru |
|---|---|---|
| 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 Auto Electricals Limited.
Establish the characteristic line for the stock of Auto Electricals
Limited.
OR
Q.3 (a) Write a Short note on Capital Asset Pricing Model 07
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Risk free Return 7%
Expected Return on the market 13%
Standard deviation on the market 20%
The expected return and risk for the following portfolios:
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(a) 60% of the investible wealth in the market portfolio, 40% in
the riskless assets.
(b) 125% of the investible wealth in the market portfolio.
Q.4 (a) What are the rules of Duration in Bonds? 07
(b) A Rs. 100 par value bond bears a coupon rate of 12 percent and 07
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matures after 6 years. Interest is payable semi — annually. Computethe value of the bond if the required rate of return is 16 percent,
compounded semiannually.
OR
Q.4 (a) Briefly explain the different types of market orders. 07
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(b) A Zero coupon bond of Rs. 10,000 has a term to maturity of eight years 07
and a market yield of 10 % at the time of issue:
(a) What is the issue price?
(b) What is the duration of the bond?
(c) What is the modified duration of the bond?
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What is the % change in the price of the bond, if the yield declines by
0.5 percentage points?
Q.5 Consider the following information for three mutual funds P, Q and R 14
and the market.
| Mutual fund | Mean Return | Standard deviation | Beta |
|---|---|---|---|
| P | 15% | 20% | 0.90 |
| Q | 17% | 24% | 1.10 |
| R | 19% | 27% | 1.20 |
| Market Index | 16% | 20% | 1.00 |
The mean risk-free'rate is 10 percent.
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Calculate the Treynor’s measure, Sharpe’s measure, Jensen’s measure
and M Squared for the three mutual funds and the market index.
OR
Phoenix Investment, a well-known financial services company.
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Anand has been requested by Arrow technologies to give an
investment seminar to its senior managers interested in investing in
equities through the portfolio management schemes of Phoenix
investment. Manish, the contact person of Arrow Technologies,
suggested that the thrust of the seminar should be on equity
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valuation. Anand has asked you to help him with his presentation.To Illustrate the equity valuation process, you have been asked to
analyse Acme Pharmaceutical’s which manufactures formulations
and bulk drugs. In particular, you have to answer the following
questions:
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(a) What is the general formula for valuing any stock,
irrespective of its dividend paying pattern?
(b) How is constant growth stock valued?
(c) What is the required return on the stock of Acme limited?
Assume that the risk free rate is 7 percent, market premium
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is 6 percent, and the stock of Acme has a beta of 1.2.(d) Assume that Acme Pharmaceuticals is a constant growth
company which paid a dividend of Rs. 5(Do=5), yesterday
and the dividend is expected to grow at the rate of 10
percent forever.
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1) What is the expected value of stock a year from
now?
(i1) What is the dividend yield and the capital gains
yield in the first year.
(d) If the stock is currently selling for Rs. 110, what is the
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expected rate of return on the stock? Assume DO=Rs. 5and g= 10 percent.
(e) Assume that Acme Pharmaceuticals is expected to grow at
a supernormal growth rate of 25 percent for the next 4
years, before returning to the constant growth of rate of 10
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percent .what will be the present value of the stock underthese conditions?
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