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NJR/KS/18/6754
Master of Business Administration (M.B.A.) Semester—III (C.B.C.S.) Examination
SECURITIES, PORTFOLIO AND RISK MANAGEMENT
Optional Paper—2
Elective/Specialization Courses—Core Group-B (Fin. Mgt.)
Time : Three Hours] [Maximum Marks : 80

Note :— (1) All the questions are compulsory.

(2) All questions carry equal marks (16 marks each).
1. (A) A Rs. 1,00,000/- par, 5 year maturity bond with a 9% coupon rate (paid annually), currently sells at
a YTM of 8%. A portfolio manager wants to forecast the total return on the bond over the coming 2
years. He believes that two years from now, three-year maturity bonds will sell at a yield of 7% and
the coupon income can be reinvested in short term securities over the next two years at a rate of 6%.
What is the expected annualised rate of return over the two-year period ? 16
OR
(B) ‘V’ Ltd.’s earnings and dividends have been growing at a rate of 20% p.a. This growth rate is expected
to continue for 4 years. After that the growth rate will fall to 15% for the next 4 years. Thereafter, the
growth rate is expected to be 10% forever. If the last dividend per share was
Rs. 20/- and the investor’s required rate of return on ‘V’ Ltd.’s equity is 18%, what is the value
of each share ? 16
2. (A) Differentiate between the top-down approach and bottom-up approach to fundamental analysis.
Also explain the elements involved in Economic Analysis, Industry Analysis and Company
Analysis. 16
OR
(B) Calculate the trend from four yearly moving average of the data given below and comment on
the trend :
Sr. No. Year Stock Index
1 1972 614
2 1973 615
3 1974 652
4 1975 678
5 1976 681
6 1977 655
7 1978 717
8 1979 719
9 1980 708
10 1981 779
11 1982 757 16

RQA—32392 1 (Contd.)
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3. (A) From the following data calculate covariance between the market portfolio ‘X’ and Security ‘Y’. Also
calculate variance of the market portfolio and Beta of the Security ‘Y’ :
Year Market Portfolio Security
‘X’ ‘Y’
1981 15 16
1982 14 12
1983 17 19
1984 16 18
1985 13 15 16
OR
(B) Discuss the Capital Market Theory and Arbitrage Pricing Theory. 16
4. (A) Calculate the value of a call option using binomial model for the following data :

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e.c
* Current Price : Rs. 100/-

lin
* Strike Price (of a 3 month call option) : Rs. 95/-

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* Possible prices at the end of 3 months : Rs. 150/- or Rs. 70/-

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* Risk free Rate : 12% p.a. (not compounded continuously). 16

w.
OR ww
(B) From the following data, find the value of a call option using Black & Scholes model :

* Spot Price : Rs. 80/-

* Standard Deviation : 0.40

* Strike Price : Rs. 75/-

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e.c

* Time to Expiry : 6 months

lin

* Rf = 12%
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[Given : e (– 0.12 × 0.5) = 0.9417 & ln (80/75) = 0.0645]

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Number of SD from Mean (z) Area to the left or right of one tail
w.
ww

0.25 0.4013
0.30 0.3821
0.55 0.2912
0.60 0.2578 16
5. (a) Mention and explain in brief the risks involved in bond investing.
(b) How does a candle, in a candle-stick chart, help in identifying a bull day and a bear day ? Briefly
explain with the help of diagrams.
(c) Briefly explain Active Portfolio Strategy.
(d) Write a brief note on cost of carry model. 4×4=16

RQA—32392 2 NJR/KS/18/6754
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