University of Delhi 2010-2nd Year M.Com Commerce SECURITY ANALYSIS AND PORTFOLIO MANAGAMENT UNIVERSITY - Question Paper
This question paper contains 11 printed pages ]
Your Roll No
M.Com. / II J
Course 432 - SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT
Time : 3 Hours Maximum Marks : 75
WFT: 3 : 75
(Write your Roll No on the top immediately on receipt of this question paper ) (R % fncrlrl fNvffTrf 3T'TTT l)
Note: The maximum marks printed on the question paper are applicable for the candidates registered with the School of Open Learning These marks will, however, be scaled down proportionately in respect of the students of regular colleges, at the time of posting of awards for compilation of result
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Attempt all questions All questions carry equal marks
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1 (a) Investment is well grounded and carefully planned speculation In the light of this statement, explain and differentiate between investment and speculation How does speculation differ from gambling 9 9
(b) What is meant by technical analysis 9 How
is it different from fundamental analysis 9 6
(a) Examine critically the efficient market hypothesis m each of its three forms Describe the types of tests which have been commonly employed to verify the weak form, and semi strong forms of efficient
1 market hypothesis 10
(b) Descnbe the process of dematenalization of securities Give its advantages and disadvantages 5
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(a) Explain clearly the natuie of business risk, interest rate nsk and maiket risk with the help of suitable examples 8
(b) How has Indian securities market been affected by recent global financial cnsis 7 Explain ?
(a) An investor has obtained the following details regarding a companys stock call option The current price of the stock is Rs 45 and the strike pnce is Rs 40 for a three month option The standard deviation is 0 52 and the riskless rate of interest rs assumed to be 10 percent Determine the value of the call option 10
(b) State rthe difference between hedging, speculation and arbitrage in the context of financial derivatives 5
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3 (a) The market price of a Rs 1000 par value bond carrying a coupon rate of 15 percent (payable annually) and maturing after v 5 years is Rs 850 What will be realized yield to maturity if the reinvestment rate is 16 percent 9 6
(b) VL Ltd s earnings and dividends have been growing at the rate of 18 percent per annum This growth rate is expected to continue for 4 years After that the growth rate will fall to 12 percent for the next 4 years Thereafter the growth rate is expected to be 6 percent forever If the last year dividend per share was Rs 2 and investors required rate of return on VL Ltd s equity is 15 percent, what is the intrinsic value per share 9 9
|
Face value |
Rs 1000 |
|
Coupon interest rate |
15% payable annually |
|
Years to maturity |
6 years |
|
Redemption value |
Rs 1000 |
|
Current market price |
Rs 963 |
What is the yield to maturity, duration and volatility of this bond 7 9
(b) Develop the valuation model for a common stock whose yearly dividend per share is expected to grow at a constant rate infinitely 6
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4 (a) The following information is available | ||||||||||||
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(i) Find the risk and return of the portfolio formed by investing equal amount of funds in stock A and stock B
(11) What should be the weight of each stock if a portfolio return of 20 50% is desired 9 What will be the risk of such a portfolio 9
(m) If the coefficient of correlation between stock A and stock B is assumed to -1 (perfectly negative), what should be the weight of each stock in a portfolio having no risk 7 Also find the return of such a portfolio 10
(b) What are the advantages of Arbitrage Pricing Theory (APT) over Capital Asset Pricing Model (CAPM) 9 Explain 5
(a) The following secunties are assumed to be correctly priced on the security market line * '
|
Security |
Return (%) |
Beta |
|
A |
14 |
12 |
|
B |
16 |
1 6 |
Using the above information
(i) Find the return on the market index, and the nsk fiee assft
(n) Calculate the return on security C lying on security market line and having beta of 2 5
(in) Calculate the beta of security D lying on the security market hne and offering return of 24% 9
(b) Formula plans help the investor to overcome being emotionally attached to the
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5 (a) Mr X wants to invest Rs 10 lakhs in the slock majket The treasury bill rate is 5% and maiket return variance is 10% The following table gives the details regarding the expected return, beta and residual variance of the individual security What is the optimum portfolio assuming no short sales 9
|
Security |
Expected return (%) |
Beta (p) |
Residual variance |
|
A |
16 00 |
1 00 |
25 00 |
|
B |
12 00 |
- 1 50 |
14 00 |
|
C |
18 00 |
2 50 |
30 00 |
|
D |
15 00 |
0 80 |
12 00 |
|
E |
18 00 |
1 20 |
20 00 |
|
F |
17 00 |
1 40 |
15 00 |
Also calculate the relative investments in each security to be included in the optimal portfolio 15
Write notes on any two of the following
(a) Treynor and Sharpe measures of portfolio performance t
(b) Sources of financial information
(c) Bond Convexity IVi + IVi
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A |
16 00 |
100 |
25 00 |
|
B |
12 00 |
1 50 |
14 00 |
|
C |
18 00 |
2 50 |
30 00 |
|
D |
15 00 |
0 80 |
12 00 |
|
E |
18 00 |
1 20 |
20 00 |
|
F |
17 00 |
140 |
15 00 |
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Attachment: |
| Earning: Approval pending. |
