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    Mba Summer 2016

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    Mba Summer 2016

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    2830203-MBA-SUMMER-2016

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    Mba Summer 2016

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    of 4

    Seat No.: ________ Enrolment No.

    ___________

    GUJARAT TECHNOLOGICAL UNIVERSITY


    MBA – SEMESTER 3 – EXAMINATION – SUMMER 2016

    Subject Code: 2830203 Date: 09/05/2016


    Subject Name: Security Analysis and Portfolio Management
    Time:10.30 AM TO 01.30 PM Total Marks: 70
    Instructions:
    1. Attempt all questions.
    2. Make suitable assumptions wherever necessary.
    3. Figures to the right indicate full marks.

    Q1 Answer the following multiple choice questions: 06


    Which of the following terms represent an upper price limit for a stock
    based on the quantity of the willing seller?
    A. Support B. Trend line
    1.
    C. Resistance D. Channel

    A main difference between real and nominal return proceeds is that,


    A. A real return adjust for B. Real return use actual cash
    inflation and nominal flows and nominal use expected
    return do not cash flows
    2.
    C. Real return adjust for D Real returns show highest
    commissions and possible return and nominal
    nominal returns do not show lowest possible return

    Non-systematic risk is further more identified as


    3. A. No diversifiable risk B. Market risk
    C. Random risk D. Company specific risk

    Suppose you have 20 stocks and you want to derive efficient frontier,
    how many co-variances do you have to calculate?
    4. A. 90 B. 190
    C. 20 D. 400

    Mr X is just retired as a government officer. Which investment would


    grade upper most with regard to protection is,
    5. A. Preferred stock B. Real estate
    C. Common stock D. Government bonds

    Consider two stock in portfolio A and B

    E (R) S.D.
    A 15% 10%
    B 20% 30%

    If the returns of the two stocks perfectly negatively correlated what is


    the weightage of two stocks that risk of portfolio driven down to zero?

    6. A. 75% and 25% B. 60% and 40%


    C. 80% and 20% D. 66.67% and 33.33%
    Q.1 (b) Explain the meaning of the following terms: 04
    1
    1. Circuit breaker
    2. Anchoring
    3. Short sell
    4. Regret aversion
    Q.1 (c) Write a note of IPO investments. 04

    Q.2 (a) Define investments. Discuss the various marketable and non-marketable 07
    investment avenues available to investors.
    (b) What do you mean by efficient market hypothesis? Also explain the 07
    forms of market efficiency.
    OR

    (b) A highly volatile stock earns the following returns over six year periods 07
    R1= 10%, R2= 30%, R3=15%, R4=-0.12, R5=35%, R6=12%

    Calculate and interpret the following values:


    1. Arithmetic mean
    2. Cumulative wealth index
    3. Standard deviation

    Q.3 What are the basic assumption and inputs required for CAPM? Explain
    (a) 07
    CML and SML. Also establish intra-relation between them.
    (b) The earning of a company has been growing at 15% over the past several 07
    years and is expected to increase at this rate for next seven years and
    thereafter at 9% in perpetuity it is currently earning Rs 4 per share and
    paying Rs 2 per dividend. What shall be present value of share with
    discount rate of 12% for the first seven years and 10% thereafter?
    OR
    Q.3 (a) Select an industry of your choice and do the industry analysis in the 07
    current economic scenario.
    (b) The following table gives analyst expected return on two stocks for 07
    particular market:

    Market return Aggressive stock Defensive stock


    8% 3% 10%
    25% 40% 20%

    1. What are the betas of the stocks?


    2. What is the expected return on each stock if market return is
    equally likely to be 8% and 25%?
    3. If the risk free rate is 9% and market return is equally likely to
    be 8% or 25%, what is SML?
    4. What is the alpha of two stocks?

    Q.4 (a) Write a note on the following: 07


    1. Technical analysis
    2. Dow theory and components

    (b) The rates of return on stock X and market portfolio for last 12 07
    months are given below:
    2
    Month 1 2 3 4 5 6 7 8 9 10 11 12
    Return 13 17 24 15 14 18 16 6 10 13 14 20
    on
    stock
    (%)
    Return 14 13 12 7 9 15 18 7 3 16 8 10
    on
    market
    (%)
    1. Calculate and interpret the beta stock – X.
    2. What is characteristic line for stock – X?

    OR
    Q.4 (a) Write a note on the following: 07
    1. Single index model
    2. Arbitrage pricing theory

    (b) Calculate the systematic and unsystematic risks for the given securities 07
    from the following data.

    Average Standard Beta


    Return (%) deviation
    Tata power 33.90 126.34 0.36
    Mahindra & 25.09 106.70 0.74
    Mahindra
    Market index 28.63 39.52 1
    (Nifty)
    Correlation 0.90
    coefficient
    r2 0.81

    Q.5 Mr. X has recently completed MBA Finance from GTU as major 14
    in finance and he has been hired as a financial planner by a leading
    financial corporation. His boss has assigned him the task of
    investing Rs 10,00,000 for a client who has been asked to consider
    only the following investment alternatives, Stock A and Stock B.

    The research wing of the company has developed the probability


    distribution for the state of the economy and estimated value of
    rate of return under each state of economy. The following
    information is available for your research purpose:

    State of Probability Stock A Stock B


    Economy
    1 0.20 5 20
    2 0.30 15 14
    3 0.40 18 35
    4 0.10 02 10

    1. What are expected returns and standard deviations of returns for


    stock A and B? What is your recommendation of client in terms
    of variability for the two stocks? Which stock is more consistent?
    Justify your answers.

    3
    2. If correlation coefficient of two stocks is 0.80 and investor wants
    to invest 40% in stock A and remaining in stock B, what is the
    expected return and risk of the portfolio of the two stocks?

    OR
    Q.5 Consider the following information for three mutual funds, X, Y and Z 14
    and the market.

    Mean return S.D. Beta


    X 15% 20% 0.90
    Y 17% 24% 1.10
    Z 19% 27% 1.20
    Market index 16 20 1.00

    The mean risk free rate was 10%.

    1 Calculate the Treynor measure, Sharpe measure and Jensen


    measure for the three mutual funds and the market index.
    2 Explain the real life application of the Treynor measure, Sharpe
    measure and Jensen measure with reference to the above
    question.

    *************

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