PP Invt Sec 2019
PP Invt Sec 2019
PP Invt Sec 2019
APRIL/MAY 2019
Level II
Wednesday
DATE 08 May 2019 MODULE CODE DFA2034Y (3)
INSTRUCTIONS TO CANDIDATES
This paper consists of 6 questions and 2 Sections (Section A and Section B).
Section A is Compulsory and carries 80 marks.
Answer ANY ONE (1) question from Section B. Each question carries 20
marks.
Total: 100 marks
Investment and Security Analysis – DFA2034Y
SECTION A (COMPULSORY)
Question 1
According to Mr V. Dabee (2015), “…..if Mauritius loses its taxing rights on capital gains
under the Mauritius-India DTAA, this is likely to lead to an inexorable erosion of the
multitude of investment funds that seek to avail of the various advantages of the Mauritius
portal to access the opportunities which the Indian market offers...” Discuss with regards to
the challenges relating to future investments in the Mauritian Global Business Sector.
[25 marks]
Question 2
Security X Y Z
Covariance
X 0.15 0.5
Y -0.2
Assuming that an individual decides to invest 25% in Asset X, 40% in Asset Y and the
remaining in Asset Z, calculate the expected rate of return and risk of the portfolio.
[6 marks]
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Investment and Security Analysis – DFA2034Y
C 8% 12% 1.2
Required:
(i) The Treynor Index of the individual assets and portfolio. [4 marks]
(ii) The Sharpe Ratio of the individual assets and portfolio. [4 marks]
(c) Assume that you are currently employed as the financial analyst of Robertson
Investment Ltd, which offers two types of Funds; Salah FUND and Becker FUND.
Becker FUND: Management fee of 0.7% annually plus back-end load fees with 7% at
the start of the year and falling by 1% every year that the investor hold the portfolio
(until the seventh year)
Other information:
Required:
Calculate the value of Rs 30,000 investment in Salah fund and Becker fund if shares
are sold after 10 years. [4 marks]
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Investment and Security Analysis – DFA2034Y
Question 3
Denomination: £100
Yield to Maturity 8%
(ii) Calculate the theoretical price if the yield to maturity increases by 45 basis
points. [3 marks]
(iii) Calculate the actual price of the bond if yield to maturity effectively falls by 45
basis points. [3 marks]
(ii) Assuming that the above-mentioned bond is now a semi-annual bond and that
coupons are being paid every six months, calculate the fair price of the bond.
[8 marks]
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Investment and Security Analysis – DFA2034Y
Question 4
Consider the value of a bond portfolio consisting of one 8-year annual 8% coupon bond. The
yield to maturity is initially set at 8.50% and the par value is $1000. One can setup a bond
portfolio management, immunization which is a procedure to immunize a bond investment
from subsequent interest rate changes. In this respect, you are required to calculate the
followings;
(i) The bond price in Year 5 following a 30 basis point decrease in interest rates
[4 marks]
(ii) The total amount of re-invested coupons in Year 5 following a 30 basis point decrease
in interest rates. [4 marks]
(iii) The Portfolio value in Year 5 following a 30 basis point increase in interest rates.
[7 marks]
SECTION B
Question 5
“If the markets are not efficient, buy and hold strategies will underperform relative to stock
selection and market timing strategies”. Discuss. [20 marks]
Question 6
“For very small change in the yield, duration can be a good approximation of the actual
change in the bond price “. Discuss in relation to convexity in bonds.
[20 marks]
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