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Monday, March 19, 2012

Dibrugarh University - Security analysis and Portfolio Management(2010)

1. (A) the investment process involves a series of activities starting from policy formulation to portfolio evaluation.
                                                                                                  Or
(b) Mr.x has Rs.50, 000 to make one time investment. His son has entered the higher secondary school and he needs his money back after 2(two) years for his son’s educational expenses. As Mr. X’s outflow is one time and the duration is simply 2(two) years, now he has a choice of two types of bonds:
                (i) Bond a has a coupon rate of 7% and maturity period of 4(four) years with a current yield of 10% the current price is Rs 904.90
                (ii)Bond B has the coupon rate of 6% with a maturity period of 1 (one) year and a current yield of 10% the current price is Rs 963.64.
How can Mr. X solve his problem to avoid risk? How can he decide as to how much of his investable fund he should invest in each of the two bonds?
                (1) Calculate the duration.
                (2) Determine the proportion of funds to be invested in Bond A and Bond B.
                (3) Determine the number of bonds A and B which he can buy with Prevailing market price mentioned above.

2. (A) Discuss various steps involved in the traditional approach to portfolio construction.
                                                                         Or
(b) Stock X and Y have yielded the following returns for the past two years:
Year
Return (X)
Return(Y)
2007 – 2008
12%
14%
2008 – 2009
18%
12%
 (i) What is the expected return on portfolio made up to 60% of X and 40% of Y?
(ii)Find out the standard deviation of each stock.
(iii) What is the covariance and coefficient of correlation between X and Y?
(iv) What is the portfolio risk of a portfolio made up to60% of X and 40% of Y?

3(a) Explain and illustrate the concept of capital asset pricing Model with the help of a suitable diagram.
                                                                               Or
(b) (i) Briefly state the advantages of adopting capital Asset pricing Model in portfolio management.
(ii) Mr. Z is considering an investment in the stock of ABC co. LTD. To earn a return of 17% in the next year. the said company’s ‘beta’ is 1.3, riskfree return is 7%and the market return is 15%. Should Mr. Z invest in ABC co.LTd?

4(a) (i) Briefly Explain, with the help of a suitable diagram, Sharpe’s performance Index.
(ii) Mr.N is having units in a mutual fund for the past three years. He wants to evaluate its performance by comparing it to the market.

Fund
Market
Return
Standard Deviation
Risk Free rate
Beta (B)
70.60
41.30
12%
1.12
41.40
19.40
12%
-------
Find out the index value according to Sharp’s performance Index.
                                                                              Or
(b) (i) Briefly Explain, with the help of a suitable diagram, treynor’s performance Index of portfolio performance.
(ii)Using the data given in Q.No. 4. (a) (ii) above, find out the index value according to Treynor’s performance Index.

5(a) what is ‘option’? explain different types of option. Briefly state its usefulness.
                                                                                       Or
(b) what are the basic features of a ‘future’? Distinguish between ‘option’ and ‘future.’