Examination Paper: Portfolio Management
1
IIBM Institute of Business Management
IIBM Institute of Business Management
Examination Paper MM.100
Portfolio Management
Section A: Objective Type (30 marks)
•This section consists of Multiple Choices questions & short note questions.
•Answer all the questions.
•Part one questions carry 1 mark each & Part Two questions carry 4 marks each.
Part One:
Multiple Choices:
1. _________ is the market for issue of new securities.
a. Secondary Market
b. Consumer Market
c. Primary Market
d. Stock Market
2. Inflation is measured in terms of either wholesale price or_______.
a. Face Value
b. Retail Prices
c. MRP Value
d. Tax Value
3. _______ is basically a channel through which the savings of investors are made available to
corporations for investment.
a. Consumer Market
b. Stock Market
c. Retail Market
d. Whole sale Market
4. The share premium reserve is the amount paid by the ______ in excess of the par value of the
shares.
a. Shareholders
b. Stakeholders
c. Tax payers
d. Employees
5. _______ measures the return on sales and assets of the firm.
a. Liquidity Ratios
b. Turnover Ratios
Examination Paper: Portfolio Management
2
IIBM Institute of Business Management
c. Common Stock Ratios
d. Profitability Ratios
6. In which of the following chart, the closing price for each period is plotted as a point?
a. Line Chart
b. Bar Chart
c. Point and Figure Chart
d. R- Chart
7. Capital gains or losses arise when the investors sells his securities at a price____.
a. Similar from the Cost
b. Different from the Cost
c. Different from the Profit
d. Similar from the Loss.
8. A steep rise in price, followed by wide uniform fluctuations around an average price lead to
formulation of a ______.
a. Channel
b. Triangle
c. Flag
d. Wedge
9. CML stands for______.
a. Capital Market Life
b. Cost Market Line
c. Capital Market Line
d. Capital Measurement Line.
10. The security return on any day is defined as:-
a. Today’s Return = Today’s Price + Yesterday’s Price
Yesterday’s Price
b. Today’s Return = Today’s Cost―yesterday’s Cost
Yesterday’s Price
c. Today’s Return = Today’s Price + Today’s Cost
Yesterday’s Price
d. Today’s Return = Today’s Price ― yesterday’s Price
Yesterday’s Price
Examination Paper: Portfolio Management
3
IIBM Institute of Business Management
Part Two:
1. Discuss the characteristics of Stock Exchange in India.
2. Describe the Dow Theory.
3. Write a short note on Capital Market Line.
4. Mr. X has put Rs. 9000 in a five – year fixed deposit account with a bank. If the bank pays
interest at the rate of 15% per annum how much money would Mr. X receive on maturity of the
deposit?
5. Mr. Robert bought 90 shares of ICA Fertilizers Ltd. at Rs. 59 each on 1/1/2008. On 1/6/2008, the
company issued bonus shares in the ratio of 1:2. On 1/1/2010 Robert sold 35 of the bonus shares
for Rs. 78. What is the capital gain made by him ignoring indexation?
Section B: Case lets (40 Marks)
•This section consists of Case lets.
•Answer all the questions.
•Each case lets carries 20 marks.
•Detailed information should form the part of your answer (Word limit 150 to 200 words).
Case let 1
The stock market has a method in its madness. Behind the turbulence evident in the market behavior of
the last two years was the revival of the concept ‘big is beautiful’. Being ‘lean and mean’ may be the
management pundits prescription for success in the product market, but the capital market prefers ‘big’
companies and ‘big’ here refers to market capitalization. Large-cap companies are the safest bets for
appreciation in equity values.
Hindustan Lever’s market capitalization grew from a mere Rs. 9,071 crore in 1996 to Rs. 44,838 crore in
1999- a compounded annual growth rate of a little over 70 percent. This growth was achieved largely by
the market pegging the company’s share at a higher value from time to time rather than any infusion of
fresh capital by its shareholders. The collective market cap of top 50 Indian companies went up around
six times- from Rs. 27,475 crore in January, 1996 to Rs. 1,64,973 crore now, that is a compounded annual
growth of nearly 80 percent. In contrast, the market capitalization of all listed stocks on the Bombay
Stock Exchange grew only 15 percent.
Investments in the shares of these companies are coveted for the wealth gains they fetch for the investors.
Profit earned on a unit of share capital would, then offer the best prospects. But the problem with
choosing investment candidates based on current profitability is the risk of these companies not being
able to sustain the level of profits. In an intensely competitive world, with many players jostling for
consumer attention, a small company is particularly vulnerable a predatory attack on its market by a
larger player, however, profitable it may be at the present juncture. In fact, the more profitable it may be
END OF SECTION A
Examination Paper: Portfolio Management
4
IIBM Institute of Business Management
at the present juncture. In fact the more profitable it is, the greater the risk of such an attack. As the attack
on its market intensifies, the company responds by price cuts, product promotion and other tactics, all of
which cost money without any guarantee of success.
Soon the company begins to slip on profitability and investor fancy. Rather than wait for a price decline
to exit from the scrip, a long-term investor would be better off investing in companies that are large and ,
by extension, less vulnerable.
Size is a function of the asset base of a company. Assets are financed by a combination of debt and
equity. In the short run, the relationship between debt and equity may be expected to be stable. Hence size
can be measured by reference to the growth in equity capital. As the equity base expands, so must the
company’s market capitalization, price remaining constant. Therefore, it is appropriate that market
capitalization is used to measure corporate size.
Large market cap companies have a greater ability to acquire other companies, take advantage of growth
opportunities, and protect themselves from takeover bids. On the other hand, low market cap companies
must accept lower valuations and be prepared for hostile takeover bids from larger cap companies, unless
they achieve critical mass through mergers and acquisitions.
Questions:
1. Analyze the characteristics of companies which have a small asset base and a low ratio of Market
to book Value?
2. Market capitalization of a company is a product of number of outstanding shares and the current
market price. Since the current market price (CMP) of the stock does not remain constant, is
investing for a long-term in a company looking at its present market value a good guiding
principle? Explain.
Case let 2
Whenever there is a plea for tax concessions for dedicated gilt funds, the government raises the bogey of
principles of high public finance. It is argued that concessions do not make for an optimal tax system and,
therefore, should not be provided to dedicated gilts.
Now what does one make out of this schizophrenic response of the government? The only explanation is
that, the government, to prove its sense of fair play, hates gilts which is its own instrument, and to doubly
prove the point, resorts to sell- flagellation. This sounds harsh but the action of government belies all
logic.
Questions:
1. Why is the government reluctant to provide concession or remove tax on dividends declared by
dedicated gilt funds?
2. How can dedicated gilt funds be used to develop a retail segment for government securities?
3. If dedicated gilt funds are exempted from income tax for individuals, what will be the
implications of such measures on the retail gilt market?
END OF SECTION B
Examination Paper: Portfolio Management
5
IIBM Institute of Business Management
Section C: Applied Theory (30 Marks)
•This section consists of Applied Theory Questions.
•Answer all the questions.
•Each question carries 10 marks.
•Detailed information should form the part of your answer (Word limit 200 to 250 Words)
1. Discuss the concept of Portfolio Insurance.
2. Discuss the fundamental notions of modern portfolio theory.
3. Consider a Rs. 50 crores mutual funds floated on 1-1-2003 with a life of 8 year. The fund
estimates that its annual outflow on account of dividend, operating and management costs would
amount to Rs.15.5 crores. Suppose that the rate of interest is 16%. What is the target duration for
this mutual fund?
END OF SECTION C
1
IIBM Institute of Business Management
IIBM Institute of Business Management
Examination Paper MM.100
Portfolio Management
Section A: Objective Type (30 marks)
•This section consists of Multiple Choices questions & short note questions.
•Answer all the questions.
•Part one questions carry 1 mark each & Part Two questions carry 4 marks each.
Part One:
Multiple Choices:
1. _________ is the market for issue of new securities.
a. Secondary Market
b. Consumer Market
c. Primary Market
d. Stock Market
2. Inflation is measured in terms of either wholesale price or_______.
a. Face Value
b. Retail Prices
c. MRP Value
d. Tax Value
3. _______ is basically a channel through which the savings of investors are made available to
corporations for investment.
a. Consumer Market
b. Stock Market
c. Retail Market
d. Whole sale Market
4. The share premium reserve is the amount paid by the ______ in excess of the par value of the
shares.
a. Shareholders
b. Stakeholders
c. Tax payers
d. Employees
5. _______ measures the return on sales and assets of the firm.
a. Liquidity Ratios
b. Turnover Ratios
Examination Paper: Portfolio Management
2
IIBM Institute of Business Management
c. Common Stock Ratios
d. Profitability Ratios
6. In which of the following chart, the closing price for each period is plotted as a point?
a. Line Chart
b. Bar Chart
c. Point and Figure Chart
d. R- Chart
7. Capital gains or losses arise when the investors sells his securities at a price____.
a. Similar from the Cost
b. Different from the Cost
c. Different from the Profit
d. Similar from the Loss.
8. A steep rise in price, followed by wide uniform fluctuations around an average price lead to
formulation of a ______.
a. Channel
b. Triangle
c. Flag
d. Wedge
9. CML stands for______.
a. Capital Market Life
b. Cost Market Line
c. Capital Market Line
d. Capital Measurement Line.
10. The security return on any day is defined as:-
a. Today’s Return = Today’s Price + Yesterday’s Price
Yesterday’s Price
b. Today’s Return = Today’s Cost―yesterday’s Cost
Yesterday’s Price
c. Today’s Return = Today’s Price + Today’s Cost
Yesterday’s Price
d. Today’s Return = Today’s Price ― yesterday’s Price
Yesterday’s Price
Examination Paper: Portfolio Management
3
IIBM Institute of Business Management
Part Two:
1. Discuss the characteristics of Stock Exchange in India.
2. Describe the Dow Theory.
3. Write a short note on Capital Market Line.
4. Mr. X has put Rs. 9000 in a five – year fixed deposit account with a bank. If the bank pays
interest at the rate of 15% per annum how much money would Mr. X receive on maturity of the
deposit?
5. Mr. Robert bought 90 shares of ICA Fertilizers Ltd. at Rs. 59 each on 1/1/2008. On 1/6/2008, the
company issued bonus shares in the ratio of 1:2. On 1/1/2010 Robert sold 35 of the bonus shares
for Rs. 78. What is the capital gain made by him ignoring indexation?
Section B: Case lets (40 Marks)
•This section consists of Case lets.
•Answer all the questions.
•Each case lets carries 20 marks.
•Detailed information should form the part of your answer (Word limit 150 to 200 words).
Case let 1
The stock market has a method in its madness. Behind the turbulence evident in the market behavior of
the last two years was the revival of the concept ‘big is beautiful’. Being ‘lean and mean’ may be the
management pundits prescription for success in the product market, but the capital market prefers ‘big’
companies and ‘big’ here refers to market capitalization. Large-cap companies are the safest bets for
appreciation in equity values.
Hindustan Lever’s market capitalization grew from a mere Rs. 9,071 crore in 1996 to Rs. 44,838 crore in
1999- a compounded annual growth rate of a little over 70 percent. This growth was achieved largely by
the market pegging the company’s share at a higher value from time to time rather than any infusion of
fresh capital by its shareholders. The collective market cap of top 50 Indian companies went up around
six times- from Rs. 27,475 crore in January, 1996 to Rs. 1,64,973 crore now, that is a compounded annual
growth of nearly 80 percent. In contrast, the market capitalization of all listed stocks on the Bombay
Stock Exchange grew only 15 percent.
Investments in the shares of these companies are coveted for the wealth gains they fetch for the investors.
Profit earned on a unit of share capital would, then offer the best prospects. But the problem with
choosing investment candidates based on current profitability is the risk of these companies not being
able to sustain the level of profits. In an intensely competitive world, with many players jostling for
consumer attention, a small company is particularly vulnerable a predatory attack on its market by a
larger player, however, profitable it may be at the present juncture. In fact, the more profitable it may be
END OF SECTION A
Examination Paper: Portfolio Management
4
IIBM Institute of Business Management
at the present juncture. In fact the more profitable it is, the greater the risk of such an attack. As the attack
on its market intensifies, the company responds by price cuts, product promotion and other tactics, all of
which cost money without any guarantee of success.
Soon the company begins to slip on profitability and investor fancy. Rather than wait for a price decline
to exit from the scrip, a long-term investor would be better off investing in companies that are large and ,
by extension, less vulnerable.
Size is a function of the asset base of a company. Assets are financed by a combination of debt and
equity. In the short run, the relationship between debt and equity may be expected to be stable. Hence size
can be measured by reference to the growth in equity capital. As the equity base expands, so must the
company’s market capitalization, price remaining constant. Therefore, it is appropriate that market
capitalization is used to measure corporate size.
Large market cap companies have a greater ability to acquire other companies, take advantage of growth
opportunities, and protect themselves from takeover bids. On the other hand, low market cap companies
must accept lower valuations and be prepared for hostile takeover bids from larger cap companies, unless
they achieve critical mass through mergers and acquisitions.
Questions:
1. Analyze the characteristics of companies which have a small asset base and a low ratio of Market
to book Value?
2. Market capitalization of a company is a product of number of outstanding shares and the current
market price. Since the current market price (CMP) of the stock does not remain constant, is
investing for a long-term in a company looking at its present market value a good guiding
principle? Explain.
Case let 2
Whenever there is a plea for tax concessions for dedicated gilt funds, the government raises the bogey of
principles of high public finance. It is argued that concessions do not make for an optimal tax system and,
therefore, should not be provided to dedicated gilts.
Now what does one make out of this schizophrenic response of the government? The only explanation is
that, the government, to prove its sense of fair play, hates gilts which is its own instrument, and to doubly
prove the point, resorts to sell- flagellation. This sounds harsh but the action of government belies all
logic.
Questions:
1. Why is the government reluctant to provide concession or remove tax on dividends declared by
dedicated gilt funds?
2. How can dedicated gilt funds be used to develop a retail segment for government securities?
3. If dedicated gilt funds are exempted from income tax for individuals, what will be the
implications of such measures on the retail gilt market?
END OF SECTION B
Examination Paper: Portfolio Management
5
IIBM Institute of Business Management
Section C: Applied Theory (30 Marks)
•This section consists of Applied Theory Questions.
•Answer all the questions.
•Each question carries 10 marks.
•Detailed information should form the part of your answer (Word limit 200 to 250 Words)
1. Discuss the concept of Portfolio Insurance.
2. Discuss the fundamental notions of modern portfolio theory.
3. Consider a Rs. 50 crores mutual funds floated on 1-1-2003 with a life of 8 year. The fund
estimates that its annual outflow on account of dividend, operating and management costs would
amount to Rs.15.5 crores. Suppose that the rate of interest is 16%. What is the target duration for
this mutual fund?
END OF SECTION C
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