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Security Analysis and Portfolio Management V2A
Assignment A
Question 1.(i) Sweat equity is the best form of reward for those who contribute
to the growth of a company. Discuss.
(ii) Why do investor add real estate in their portfolio?
(iii) What are the steps taken by SEBI in the primary market to protect investor
s?
Question 2 (i) Discuss the dematerialisation and rematerialisation processes in
NSDL?
(ii)

Stock market indices are the barometers of the stock market

Discuss?

(iii) How can increasing short interest give a bullish interpretation Why?
Question 3.(i) Explain the utility of the economic analysis and state the econom
ic factors considered for this analysis.
(ii) What is meant by fundamental analysis? How does fundamental analysis differ
from technical analysis?
(iii) What industry life cycle exhibits the status of the industry and gives the
clue to entry and exit for investors Elucidate.
Question 4.Stocks L and M have yielded the following returns for the past two ye
ars.
(i) What is the expected return on portfolio made up of 60 percent of L and 40 p
ercent of M? Find out the standard deviation of each stock.
(ii) What is the covariance and co-efficient of correlation between stock L and
M?
(iii) What is the portfolio risk of a portfolio made up of 60 percent of land 40
percent
5. Write short notes on the following.
a) Technical Analysis v/s fundamental analysis
b) Immunisation of bond portfolio & its technique
c) Capital and money market securities.
Question 6.Mr. Rajan Tiwari is planning to invest in the equity stocks of Xerox
India Limited. The current share price is Rs.150 per share. Xerox has declared a
dividend of Rs.10 per share for the current year. Mr. Tiwari is of the opinion
that the dividend per share will remain at the same level for the next two years
, after which it will grown at the rate of 25% per annum in the third and fourth
years. From the fifth year onwards, dividends are expected to grow at a
normal rate of 12% per annum. If the required rate of return of Mr. Tiwari is 14

% per annum, do you suggest him to purchase the share at the current price.
a. Intrinsic value of the stock is Rs.551.98 and it is recommended to purchase t
he share
b. Intrinsic value of the stock is Rs.551.98 and it is nor recommended to purcha
se the share.
c. Intrinsic value of the stock is Rs.517.83 and it is recommended to purchase t
he share.
d. Intrinsic value of the stock is Rs.517.83 and it is not recommended to purcha
se the share
e. Intrinsic value of the stock is Rs.150 and it is recommended to purchase the
share.
Question 7. Vishnu ltd, has just paid a dividend of Rs.16 per share. As a part o
f its major reorganization of its operations, it has stated that it does not int
end to pay any dividend for the next two years. In three years time it will comm
ence paying dividend at Rs.12 per share and the directors have indicated that th
ey expect to achieve dividend growth at 14% p.a.thereafter.
If the reorganization does not take place, dividend will be paid in the next two
years and the expected dividend growth will remain at the present level of 8% p
.a. The firm s cost of equity is 18% (i.e. the return expected by the equity inves
tors) and will be unaffected by the reorganization. What will be the value of fi
rm s shares in both the situations? Moreover, advice the directors to which proces
s they should adopt for?
8. Sundaram finance Ltd. has an investment opportunity available which will invo
lve a capital outlay in each of the next 2 years and which will produce benefits
during the following 3 years. A summary of the financial implications of this i
nvestment is given below.
Year
Cash Flow (Rs. 000)
1
(2,000)
2
(2,000)
3
200
4
2,300
5
4,100
Sundaram Ltd., currently has 1,00,000 shares in issue. The dividend just paid wa

s Rs.25 per share. In the absence of the above investment, dividends are expecte
d at this level for the next 3 years, but will then demonstrate perpetual growth
of 15 percent p.a. Sundaram finance Ltd. is currently all equity financed and t
he required rate of return of the equity investor is estimated to be 18 percent.
The only possible way of financing the investment is, therefore, to reduce the
dividend payments made in the next 2 years. Cash received from the new investmen
t is therefore, to reduce the dividend payments made in the 10% will also be mai
ntained because of other operations.
What will be the present market price? What will be the market price after the a
cceptance of the investment (assuming the market knows the dividend changes that
will result from the investment using a dividend valuation model?)

ASSIGNMENT-B
CASE STUDY
EQUITY RESEARCH
Mr. Prashant Gupta is interested in investing in equity shares of Infosys and Ha
mdard. Infosys Technologies Ltd. (NASDAQ: INFY) which was started in 1981 by sev
en people with US$ 250. Today, it is a global leader in the "next generation" of
IT and consulting with revenues of over US$ 4 billion. It offers span business
and technology consulting, application services, systems integration, product en
gineering, custom software development, maintenance, re-engineering, independent
testing and validation services, IT infrastructure services and business proces
s outsourcing. Hamdard (Wakf) Laboratories, India is a famous pharmaceutical com
pany in India known for its Unani and Ayurvedic products. It is the world's larg
est manufacturer of Unani medicinesSome of its more famous products include Safi
, Sharbat Rooh Afza, Cinkara, Roghan Badam Shirin and Pachnol. It is associated
with Hamdard Foundation, India.
Being conservative in nature, he wants to determine the risk associated with inv
estments. In specific terms, he wants to seek data related to both levered and u
nlevered beta of these companies. He approaches Nitin Shah, a financial consulta
nt to do the needful. Nitin has collected the relevant information detailed belo
w:
Number
(MONTHS)
INFOSYS*
HAMDARD*
S&P CNX NIFTY**
1
2
3
4
5

6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
0.1455
0.1291
-0.1036
-0.0643
-0.0673
6 0.1361
-0.0111
0.0452
0.0277
0.0581
0.0313
0.1021

0.1652
-0.0237
-0.0581
-0.0077
-0.0401
-0.0589
0.1335
0.0693
-0.0391
-0.0086
0.0196

0.0432
0.307
-0.0498
-0.0369
-0.0272
0.0286
-0.1088
-0.1338
0.0913
0.011
0.0581
0.1043
0.0876
0.0617
0.0877
0.14
-0.0369

0.0473
0.1054
0.0249
0.1082
0.048
0.068
0.0654
0.1536
-0.0749
0.0473
-0.0178
-0.0291
-0.1465
0.0194
0.0663
-0.0022
0.0854
0.0127
0.0914
0.0604
-0.0099
0.0119
-0.008
-0.0605
0.0746
0.0596
0.048
0.0378
0.081
(i) Monthly returns on equity shares of Infosys and Hamdard for a period of 2 ye
ars (w.e.f. October 2006 to September 2008) along with portfolio of S&P CNX NIFT

Y.
(ii) Return on 364-days treasury bills issued by Government of India for the per
iod 2007-08 is 5.15 per cent per annum and 0.419 per month. This rate is to be u
sed as a proxy for risk-free rate of return.
(iii) Debt-equity ratio (based on the average of 2004 to 2008) is 1.6 per cent f
or Wipro and 31.4 per cent for Dabur.
(iv) Corporate tax is 35 per cent.
1. Compute the Beta and interpret it for Prashant. Examine different circumstanc
es with analysis of data.
Assignment C
1 .India's largest stock exchange is
Options
NSE
CSE
TSE
ASE
Question No. 2
Stock exchanges have roles in the economy
Options
single
dual
multiple
triple
Question No. 3
There is usually .compulsion to issue stock via the stock exchange itself, nor must
stock be subsequently traded on the exchange.
Options
no
always
once
none of the above
Question No. 4
Buyers and sellers come together to trade

...specific hours on business days.

Options
once
never
during
after
Question No. 5
If a particular company is traded on an exchange, it is referred to as

....

Options
listed
non listed
traded
non traded
Question No. 6
When people draw their savings and invest in shares, it leads to a more
of resources

. allocation

Options
Final
rational
equitable
irrational
Question No. 7
Exchanges
h them.

... rules and regulations on the firms and brokers that are involved wit

Options
DENY
impose
equate
clear
Question No. 8
Investing in shares is open to

... the large and small stock investors

Options
neither
either
only
both
Question No. 9
Companies that are not listed on a stock exchange are sold

..

Options
OTC
PTC
STC
WTC
Question No. 10
An exchange is an institution, organization, or association which hosts a market
where stocks, bonds, options and futures, and commodities are traded.
Options
TRUE
FALSE
can t say
inadequate information

Question No. 11
Listing requirements are the set of conditions imposed by a given
es that want to be listed on that exchange

... upon compani

Options
stock exchange
SEBI
RBI
GOI
Question No. 12
Stock exchanges originated as

. organizations, owned by its member stock brokers.

Options
single
partnership
mutual
corporation
Question No. 13
Some exchanges are physical locations where transactions are carried out on a
oor, by a method known as open outcry

.. fl

Options
trading
marble
cement
mud
Question No. 14
Actual trades are based on an auction market model where a potential buyer bids
a specific price for a ...and a potential seller asks a specific price for the sto
ck.
Options
game
stock
color
system
Question No. 15
The stocks are listed and ,

.on stock exchanges

Options
traded
not traded
analysed
studied
Question No. 16
When a company is delisted, it is a serious sign of financial or managerial trou
ble and generally causes the stock price to
...

Options
increase
stay stable
fall
none of the above
Question No. 17
The exchanges provide real-time trading information on the listed securities, fa
cilitating price discovery.
Options
cost
price
number
quality
Question No. 18
Companies that have shares traded OTC are usually

... and riskier

Options
clear
equal
bigger
smaller
Question No. 19
The ... monitors the transactions to avoid illegal activity and / or stock price m
anipulation.
Options
NASD
RBI
SEBI
GOI
Question No. 20
The NASDAQ is a
uter network

... listed exchange, where all of the trading is done over a comp

Options
Real
contemporary
only
virtual
Question No. 21
The
.. that an exchange provides affords investors the ability to quickly and easil
y sell securities.
Options
clarity
solvency
liquidity
profitability

Question No. 22
The price of shares and other assets is an important part of the dynamics of
tivity

. ac

Options
social
economic
peresonal
demographic
Question No. 23
Stock exchange "specialists" play a
. role in the process, helping to keep an order
ly market by deftly matching buy and sell orders.
Options
crucial
small
negligible
unclear
Question No. 24
Exchanges also act as the

... for each transaction

Options
clearinghouse
storehouse
greenhouse
none of the above
Question No. 25
Stock exchanges are

... of a global market for securities.

Options
part
complete
not required
necessary
Question No. 26
Stock valuation models are methods to value

..

Options
state
system
slide
stock
Question No. 27
.is probably the most common model that you ever heard when it comes to stock valua
tion
Options
DCF

NDCF
PDF
CDF
Question No. 28
The discounted rate normally includes a risk
ital asset pricing model?

.. Which is commonly based on the cap

Options
discounting
premium
both of the above
none of the above
Question No. 29
Some feel that if the stock is listed in a well organized stock market, with a
.. vo
lume of transactions, the listed price will be close to the estimated fair value
Options
large
small
negligible
clear
Question No. 30
Fundamental analysis of a business involves analyzing its financial statements a
nd health, its management and .. advantages, and its competitors and markets.
Options
class
system
competitive
industry
Question No. 31
Fundamental analysis is performed on historical and present data, but with the g
oal of making ..forecasts.
Options
social
financial
environment
none of the above
Question No. 32
The discounted cash flow (DCF) method, involves
Options
discounting
compunding
both of the above
none of the above
Question No. 33

.. of the profits

Investors may use fundamental analysis within different

..management styles.

Options
portfolio
stock
shares
debentures
Question No. 34
Technical analysis is a security analysis discipline for forecasting the ..directio
n of prices through the study of past market data, primarily price and volume.
Options
current
past
future
all of the above
Question No. 35
Technical analysts may employ models and trading rules based on price and volume
transformations, such as the relative strength index,
. averages, regressions
Options
moving
still
no
none of the above
Question No. 36
In addition to fundamental economic criteria,
account market-based valuation.

.. Criteria also have to be taken into

Options
personal
company
industry
market
Question No. 37
Technical analysis .. that prices already reflect all such influences before inve
stors are aware of them
Options
denies
alleges
holds
none of the above
Question No. 38
The term business cycle (or economic cycle) refers to economy-wide fluctuations
in production or
.activity over several months or years.
Options

social
economic
peresonal
demographic
Question No. 39
Economic theory has moved towards the study of
s cycle

. fluctuation rather than a 'busines

Options
social
economic
peresonal
demographic
Question No. 40
Managing economic policy to smooth out the cycle is a
omplex economy.

.. task in a society with a c

Options
clerical
easy
simple
difficult
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