ASSIGNMENT

MF0001
(2 Credits)

SET 1

Marks 30

Security Analysis and Portfolio Management

1a. What is a Portfolio? Explain the portfolio investment process. (5 Marks)

b. Financial Markets are absolutely vital for the proper functioning of the economy.

Explain the statement. (5 Marks)

2a. Explain the features of Capital Market. (5 Marks)

b. Money market provides the investors a place for parking surplus funds for short
period of time. Elaborate.
(5 Marks)

3a. Explain important money market instruments. (5 Marks)

b. Explain the features and functioning of OTCEI (5 Marks)

4a Technical analysis is based on the assumption that markets are driven more by
psychological factors than fundamental values. Substantiate. (5 Marks)

b. What are technical indicators and how it is useful to a technical analyst? (5 Marks)

5a. Explain Random Walk Theory. (5 Marks)

b. Explain event study and bring out its relationship with efficient market hypothesis.
( 5 Marks)

CASE STUDY (10 MARKS)

6. Akash is an Investment consultant with rich experience in equity research and

portfolio management. He was requested by a client to give a presentation on
equity valuation. You as an executive assistant prepare for him the following:
a. Brief explanation of different types of Equity Valuation Models.

b. How is Dividend Discount and Constant Growth Model valued?

c. Calculation of required rate of return on the client firm’s stock. Assume that the risk
free rate is 7% and the market premium is 6% and stock’s beta is 1.2

d. Assume that the firm is a constant growth company which paid a dividend of Rs5.00
last year and the dividend is expected to grow at the rate of 10% forever. What is the
expected value of the stock a year from now?

e. If the stock is currently selling for Rs110.00, what is the expected rate of return on
the stock?

___________________
 ASSIGNMENT

MF0001

(2 CREDITS)

SET - 2

MARKS 30

SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

1 a. Explain the different types of bonds. (5 Marks)

b. Consider a Rs.1000 par value bond carrying a coupon rate of 9% and maturing
after 8 years. The bond is currently selling at Rs.800. What is the YTM of Bond?

(5 Marks)

2a. The market price of a Rs1000 par value bond carrying a coupon rate of 14 percent
and maturing after five years is Rs1050. Calculate YTM using approximation
method. (5 Marks)

b. A financial institution issued deep discount bonds in 1996 which have a face value
of Rs.2, 00,000 and a maturity period of 25 years. The bond was issued at
Rs.5300. What is the value of this zero coupon bond? (5 Marks)

3a. Explain Capital Market line (5 Marks)

b. A bond has a face value of Rs100 with a coupon rate of 9% payable annually. The
number of years to maturity is 5 and the bond is currently selling at Rs105.
Determine the duration of the bond. Use the approximate formula for calculating
the yield to maturity (5 Marks)

4a. List out the assumptions of CAPM (5 Marks)

b. Explain the relationship between CML and SML (5 Marks)

5a. The total risk of a portfolio consist of two parts: Market risk (systematic) and Unique
risk (unsystematic). Explain (5 Marks)
 b. If GDP grows by 7.5%, inflation is 6% and factor sensitivities of the security to GDP
and inflation rate are 2.5 and -0.8 respectively and ai = 5.3% what is the security’s
expected return. According to two factor model what is the variance of the
security? (5 Marks)

CASE STUDY (10 MARKS)

6. Mr. Rajesh is a Wealth Manager working for a well known Investment banker in
India. One of his client wishes to purchase 2 stocks, one related to technology
(Asset T) and another banking stock (Asset B). The following is the forecast of
returns on both the stocks during 4 phases of economy – High Growth, Low
Growth, Stagnation and Recession.

State of nature Probability Return on asset T Return on asset B

High growth 0.10 5% 0%
Low growth 0.30 10% 8%
Stagnation 0.50 15% 18%
Recession 0.10 20% 26%
1. What is the standard deviation of the return on asset T and asset B?
2. What is the covariance between the return on asset T and asset B?
3. What is the coefficient of correlation between the returns on asset T and B?