Download JNTUH (Jawaharlal Nehru Technological University Hyderabad) MBA Third Year (3rd Year) 2018 Nov Security Analysis And Portfolio Management Question Paper.
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MBAIIISemesterEndExaminations(Regular)-November,2018
Regulation: .?R16
SECURITYANALYSISANDPORTFOLIOMANAGEMENT
Time: 3Hours (MBA) MaxMarks: 70
AnswerONEQuestionfromeachUnit
AllQuestionsCarryEqualMarks
Allpartsofthequestionmustbeansweredinoneplaceonly
UNIT?I
1. (a) De?neinvestment. Explaintheattributesthatoneshouldconsiderwhileevaluatinganinvest-
ment. [7M]
(b) Wouldyouexpectthatfundamentalsecurityanalysismakesecuritymarketsmoree?cient?Why?
[7M]
2. (a) De?neaprimaryandsecondarymarketforsecuritiesandexplainhowprimarymarketisdepen-
dentonsecondarymarket. [7M]
(b) ExplainDowTheoryanditsthreecomponents.Whichcomponentismostimportant?Whatis
thereasonforanintermediatereversal? [7M]
UNIT?II
3. (a) Whyshouldtheexpectedreturnforasecuritybedirectlyrelatedtothesecurity?scovariance
withthemarketportfolio? [7M]
(b) YourrateofreturnexpectationsforthecommonstockofGrayDiscCompanyduringthenext
yeararegiveninTable1. [7M]
i.Computetheexpectedreturnonthisinvestment,thevarianceofthisreturn,andthestandard
deviation.
ii.Underwhatconditionscanthestandarddeviationbeusedtomeasuretherelativeriskoftwo
investments?
iii.Underwhatconditionsthecoe?cientofvariationmustbeusedtomeasuretherelativerisk
oftwoinvestments?
Table1
PossibleRateofReturn Probability
-0.10 0.25
0.00 0.15
0.10 0.35
0.25 0.25
Page1of3
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HallTicketNo QuestionPaperCode:CMB404
.
.
MBAIIISemesterEndExaminations(Regular)-November,2018
Regulation: .?R16
SECURITYANALYSISANDPORTFOLIOMANAGEMENT
Time: 3Hours (MBA) MaxMarks: 70
AnswerONEQuestionfromeachUnit
AllQuestionsCarryEqualMarks
Allpartsofthequestionmustbeansweredinoneplaceonly
UNIT?I
1. (a) De?neinvestment. Explaintheattributesthatoneshouldconsiderwhileevaluatinganinvest-
ment. [7M]
(b) Wouldyouexpectthatfundamentalsecurityanalysismakesecuritymarketsmoree?cient?Why?
[7M]
2. (a) De?neaprimaryandsecondarymarketforsecuritiesandexplainhowprimarymarketisdepen-
dentonsecondarymarket. [7M]
(b) ExplainDowTheoryanditsthreecomponents.Whichcomponentismostimportant?Whatis
thereasonforanintermediatereversal? [7M]
UNIT?II
3. (a) Whyshouldtheexpectedreturnforasecuritybedirectlyrelatedtothesecurity?scovariance
withthemarketportfolio? [7M]
(b) YourrateofreturnexpectationsforthecommonstockofGrayDiscCompanyduringthenext
yeararegiveninTable1. [7M]
i.Computetheexpectedreturnonthisinvestment,thevarianceofthisreturn,andthestandard
deviation.
ii.Underwhatconditionscanthestandarddeviationbeusedtomeasuretherelativeriskoftwo
investments?
iii.Underwhatconditionsthecoe?cientofvariationmustbeusedtomeasuretherelativerisk
oftwoinvestments?
Table1
PossibleRateofReturn Probability
-0.10 0.25
0.00 0.15
0.10 0.35
0.25 0.25
Page1of3
4. (a) How isbetaderivedfroma security?s marketmodel? Whyhigh beta securitiesaretermed
?aggressive??Whyarelowbetasecuritiestermed?defensive?? [7M]
(b) Basedonaone-factormodel,assumethattherisk-freerateis6%andtheexpectedreturnona
portfoliowithunitsensitivitytothefactoris8.5%. consideraportfoliooftwosecuritieswith
thefollowingcharacteristicsgiveninTable2: [7M]
Table2
security Factorsensitivity Proportion
A 4.0 0.3
B 2.6 0.7
UNIT?III
5. (a) Explainwhyimmunizationpermitsabondinvestortobecon?dentofmeetingagivenliability
onapredeterminedfuturedate. [7M]
(b) YouareconsideringinvestinginoneofthefollowingbondsinTable3. Yourincometaxrate
is30%andyourcapitalgaintaxise?ectively10%. Capitalgainstaxesarepaidatthetimeof
maturityonthedi?erencebetweenthepurchasepriceandparvalue.Whatisyourpost-taxyield
tomaturityfromthesebonds? [7M]
Table3
Couponrate Maturity Price/Rs.100parvalue
BondA 12% 10yrs Rs.70
BondB 10% 6yrs Rs.60
6. (a) Howisthepriceofabonddetermined? Whyisthisprocessrelativelystraightforwardfora
bond? [7M]
(b) AZero-couponbondofRs. 10,000hasatermtomaturityofeightyearsandamarketyieldof
10percentatthetimeofissue. [7M]
i. Whatistheissueprice?
ii. Whatisthedurationofthebond?
iii. Whatisthemodi?eddurationofthebond?
iv. Whatwillbethepercentagechangeinthepriceofthebond,iftheyielddeclinesby0.5
percentagepoints(50basispoints)?
UNIT?IV
7. (a) Explaintheoptiontradingstrategiesindetail. [7M]
(b) Thecommonwealthcorporation?searningsanddividendshavebeengrowingattherateof12%
p.a.Thisgrowthrateisexpectedtocontinuefor4years.Afterthatthegrowthratewouldfallto
8%forthenextfouryears.Beyondthatthegrowthrateisexpectedtobe5%forever.Ifthelast
dividendwasRs. 1.50andtheinvestor?srequiredrateofreturnonthestockofcommonwealth
is14%,howmuchshouldbethemarketvaluepershareofcommonwealthcorporation?sequity
stock? [7M]
Page2of3
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HallTicketNo QuestionPaperCode:CMB404
.
.
MBAIIISemesterEndExaminations(Regular)-November,2018
Regulation: .?R16
SECURITYANALYSISANDPORTFOLIOMANAGEMENT
Time: 3Hours (MBA) MaxMarks: 70
AnswerONEQuestionfromeachUnit
AllQuestionsCarryEqualMarks
Allpartsofthequestionmustbeansweredinoneplaceonly
UNIT?I
1. (a) De?neinvestment. Explaintheattributesthatoneshouldconsiderwhileevaluatinganinvest-
ment. [7M]
(b) Wouldyouexpectthatfundamentalsecurityanalysismakesecuritymarketsmoree?cient?Why?
[7M]
2. (a) De?neaprimaryandsecondarymarketforsecuritiesandexplainhowprimarymarketisdepen-
dentonsecondarymarket. [7M]
(b) ExplainDowTheoryanditsthreecomponents.Whichcomponentismostimportant?Whatis
thereasonforanintermediatereversal? [7M]
UNIT?II
3. (a) Whyshouldtheexpectedreturnforasecuritybedirectlyrelatedtothesecurity?scovariance
withthemarketportfolio? [7M]
(b) YourrateofreturnexpectationsforthecommonstockofGrayDiscCompanyduringthenext
yeararegiveninTable1. [7M]
i.Computetheexpectedreturnonthisinvestment,thevarianceofthisreturn,andthestandard
deviation.
ii.Underwhatconditionscanthestandarddeviationbeusedtomeasuretherelativeriskoftwo
investments?
iii.Underwhatconditionsthecoe?cientofvariationmustbeusedtomeasuretherelativerisk
oftwoinvestments?
Table1
PossibleRateofReturn Probability
-0.10 0.25
0.00 0.15
0.10 0.35
0.25 0.25
Page1of3
4. (a) How isbetaderivedfroma security?s marketmodel? Whyhigh beta securitiesaretermed
?aggressive??Whyarelowbetasecuritiestermed?defensive?? [7M]
(b) Basedonaone-factormodel,assumethattherisk-freerateis6%andtheexpectedreturnona
portfoliowithunitsensitivitytothefactoris8.5%. consideraportfoliooftwosecuritieswith
thefollowingcharacteristicsgiveninTable2: [7M]
Table2
security Factorsensitivity Proportion
A 4.0 0.3
B 2.6 0.7
UNIT?III
5. (a) Explainwhyimmunizationpermitsabondinvestortobecon?dentofmeetingagivenliability
onapredeterminedfuturedate. [7M]
(b) YouareconsideringinvestinginoneofthefollowingbondsinTable3. Yourincometaxrate
is30%andyourcapitalgaintaxise?ectively10%. Capitalgainstaxesarepaidatthetimeof
maturityonthedi?erencebetweenthepurchasepriceandparvalue.Whatisyourpost-taxyield
tomaturityfromthesebonds? [7M]
Table3
Couponrate Maturity Price/Rs.100parvalue
BondA 12% 10yrs Rs.70
BondB 10% 6yrs Rs.60
6. (a) Howisthepriceofabonddetermined? Whyisthisprocessrelativelystraightforwardfora
bond? [7M]
(b) AZero-couponbondofRs. 10,000hasatermtomaturityofeightyearsandamarketyieldof
10percentatthetimeofissue. [7M]
i. Whatistheissueprice?
ii. Whatisthedurationofthebond?
iii. Whatisthemodi?eddurationofthebond?
iv. Whatwillbethepercentagechangeinthepriceofthebond,iftheyielddeclinesby0.5
percentagepoints(50basispoints)?
UNIT?IV
7. (a) Explaintheoptiontradingstrategiesindetail. [7M]
(b) Thecommonwealthcorporation?searningsanddividendshavebeengrowingattherateof12%
p.a.Thisgrowthrateisexpectedtocontinuefor4years.Afterthatthegrowthratewouldfallto
8%forthenextfouryears.Beyondthatthegrowthrateisexpectedtobe5%forever.Ifthelast
dividendwasRs. 1.50andtheinvestor?srequiredrateofreturnonthestockofcommonwealth
is14%,howmuchshouldbethemarketvaluepershareofcommonwealthcorporation?sequity
stock? [7M]
Page2of3
8. (a) AstockiscurrentlysellingforRs.60.Thecalloptiononthestockexercisableayearfromnow
atanexercisepriceofRs.55iscurrentlysellingforRs. 15. Therisk-freeinterestrateis12%.
Thestockcaneitherriseorfallafterayear.Itcanfallby30%.Bywhatpercentcanitrise?
[7M]
(b) Straddleshavebeendescribedas?volatilityplays?. Explainwhatthismeansforbothlongand
shortstraddlepositions. Giventhefactthatvolatilityisaprimaryfactorinhowoptionsare
priced,underwhatconditionsmightaninvestorwhobelievesthatmarketsaree?cienteverwant
tocreateastraddle? [7M]
UNIT?V
9. (a) Shouldyoucareabouthowwellmutualfundisdiversi?ed?Whyorwhynot? [7M]
(b) TheAMCmutualfundhassold1,50,000sharestoinvestors. Currentlythefundhasaccrued
investmentmanagementfeeobligationsofRs.50,000.Thefund?sportfolioisshowninTbale4.
Calculatethefund?snetassetvalue [7M]
Table4
Stock Shares Price/share
A 50,000 10
B 20,000 7
C 35,000 30
D 10,000 100
10. (a) Thereareliterallyhundredsofmutualfundsavailableforpurchase. Describewhatcriteriayou
mightuseinselectingfromamongthesemanyfunds. [7M]
(b) ThefollowingportfoliosshowninTable5arebeingconsideredforinvestment.Duringtheperiod
underconsideration,RFR=0.07.ComputetheSharpemeasureforeachportfolioandthemarket
portfolio. ComputetheTreynormeasureforeachportfolioandthemarketportfolio. Rankthe
portfoliosusingeachmeasure,explainingthecauseforanydi?erencesyou?ndintherankings.
[7M]
Table5
Portfolio Return Beta p
P 0.15 1.0 0.05
Q 0.20 1.5 0.10
R 0.10 0.6 0.03
S 0.17 1.1 0.06
Market 0.13 1.0 0.04
Page3of3
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This post was last modified on 04 December 2019