Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis - II - Question Paper

· The omitted assets must be identified for their market value to be determined. Assets such as brand asset, knowledge asset, managerial asset etc. are the assets missing from the balance sheet. These are all intangible assets and valuing them is very difficult task.

· Even if the individual assets can be valued, the sum of the market values of all identified assets may not (and probably will not) be equal to the value of the assets in total. Assets are used jointly. Indeed, entrepreneurs create firms to combine assets in a unique way to generate value. The value of the synergy asset is indefinable.

· Asset based evaluation is a complex way of evaluation and also an expensive tool.

< TOP >

5. A: A downtrend accompanies by low quantities is normal market tendency and hence no potential of pattern reversal. So, the indication is to sell.

B: At this point both moving avg. and price line has started rising and it is an indication to buy.

C. The ROC index is rising while it is beneath the reference line. So it is an indication of the reversal of the pattern. Thus, it is an indication to buy.

< TOP >

part E: Caselets

Caselet 1

6. a few of the durations, which are commonly used, are as under

Macaulay Duration

This duration is computed as the “present-value-weighted time to receipt of cash flows,” which is why it is quoted in “years.” every cash flow “time” is multiplied by the current value of the associated cash flows and then the sum of all of these terms is divided by the sum of the current values.

replaced Duration

It presented a proof of the relationship ranging from duration and bond price modifications. replaced duration is a measurement of the change in value of an instrument in response to a change in interest basis (payment frequency). This "modifies" Macaulay duration. The relationship of duration and price volatility can be expressed as follows:

Percentage price change = -Modified duration x Yield change x 100

Key Rate Durations (Partial Duration)

Measures the price sensitivity of a bond (or a portfolio of bonds) to modifications in specific parts of the yield curve.

Spread Duration

A measure of the percentage price change to a change in the spread (OAS) of a bond. This is a very important duration measurement for floaters.

Empirical Duration

Empirical duration was developed to deal with how the security has been trading instead of estimating how a security will trade. In other words, it uses historical measurements that compute true price modifications and modifications in the level of the market to measure how the security is truly performing.

Earning:   Approval pending.