DFM03
Security Analysis & Portfolio Management
Assignment – I
Assignment Code: 2015DFM03A1 Last Date of Submission: 15th May 2015
Maximum Marks: 100
Section-A
Each question carries 25 Marks.
1. Portfolio Analysis & selection is a dynamic decision making process which is continuous & systematic that requires astute managerial judgement about the securities market. Comment.
2. What is the difference between fixed issue & book building process? Also explain the legal provisions as to listing of securities.
Section-B (50 Marks)
Case Study
Maria Gilbert is a principal in the firm Orion Financial Management. For twenty years she was chief investment officer with Reliance Investments, the pension management arm of the second National Bank of South Bend, Indiana. She left the bank in May 2005 in an attempt to turn expertise into greater personal rewards.
Two portfolios under management for medium-sized pension funds were on the top of her current agenda. The first portfolio was an index fund representing a cross section of the S&P 500 stocks. This portfolio had been established as a core portfolio for the South Bend Firefighters, currently $10million. The second portfolio was an actively managed fund for the Ryan County Public Employees Retirement Fund, which aggregated $2.75 million.
The firefighters portfolio was put in a cross section of S&P 500 stocks on Dec 23, 2005, when the S&P 500 Stock Index was at 500. One year later, on Dec 20, 2006, the S&P 500 Index closed at 595. On the same day the S&P 500 March/2007 futures contract closed at 600. The March/600 call on the S&P 500 March/2007 futures contract closed at 600. The March/600 call on the S&P 500 Index carried a premium of 18.75 points, & the March/600 put was at 8.50. The Ryan County fund was allocated as follows: cash equivalents, 9%; fixed-income securities, 36%; equities, 55%. Treasury-bond futures were priced at 95.
On Dec 20, 2006, Maria arrived at the office determined to adjust these two portfolios. However, she had mixed feelings about the stock market. On the one hand, she believed the market might continue its advance from an S&P 500 level of 595 to an index level of 640 during the next three months if corporate profits continued their upward surge. On the other hand, she worried that a downward correction could take the market to 545 if interest rates moved sharply higher as some were predicting. After pondering her options she decided to look more closely at alternative strategies for both funds, ignoring taxes & transaction costs for simplification of her task.
Case Questions:
1. Suppose Gilbert thought the stock market would weaken & she wanted to lighten, but not eliminate her equity position & increase the fixed income part of the Ryan portfolio. Indicate specific actions she could take in the futures markets to shift the allocation of the Ryan portfolio to zero cash, $1.6 million fixed-income, & $1.15 million equities.
2. Are the S&P 500 March stock index futures fairly priced on Dec 20?
Explain (Yield: Treasury-bills, 8%; S&P 500, 4%)
3. Which of the following risk management strategies would you recommend for the Firefighters portfolio under the conditions in (a) & (b) below?
(a) Assume the odds of the market going up to 640 were 20% & the odds of the market falling to 545 were 80%.
(b) Assume the odds of the market going up to 640 were 60% & the odds of the market falling to 545 were 40%.
I. Do nothing
II. Liquidate the portfolio
III. Sell March futures
IV. Buy March/600 put
V. Sell March futures & buy March/600 calls
VI. Sell March/600 calls
DFM03
Security Analysis & Portfolio Management
Assignment – II
Assignment Code: 2015DFM03A2 Last Date of Submission: 15th May 2015
Maximum Marks: 100
Section-A
Each question carries 25 Marks.
1. a. Point out the difference between the efficient frontier under capital market theory & under the Markowitz approach.
b. What is a corner portfolio? What is its role in creating an efficient frontier?
2. On the basis of implications of Random Walk Model, what guidelines do you recommend? Can a series of historical stock prices or rates of return be an aid in predicting future stock prices or rates of return?
Section-B (50 Marks)
Case Study
Peter Danial is a professional financial planner. His business involves advising clients on comprehensive financial programs including budgeting, tax matters and investments. Frequently he advises clients on investment vehicles simply by recommending consideration of mutual funds. These are often appropriate for someone who wants to achieve professional management and diversification at a relatively low cost.
The Durallax Fund has recently been brought to his attention by the fund’s sponsors, who have attempted to sell the merits of the fund to financial advisers such as Peter. In order to carry out a responsible examination, Danial has gathered financial information on Durallax as well as several other funds he knows well from past experience.
Table below contains comparative annual rates of return on the Durallax Fund, the S & P 500 Stock Index, and U.S. Treasury bills for the period 1996-2010.
Year Durallax S & P 500 Treasury Bills
1996 17.0 10.7 4.4
1997 -14.7 -8.6 6.7
1998 1.7 3.5 7.5
1999 9.0 14.2 4.2
2000 10.5 18.6 4.1
2001 -5.8 -14.5 7.0
2002 -15.7 -26.0 7.9
2003 38.5 36.8 6.8
2004 32.2 23.6 4.0
2005 -7.0 -7.2 5.2
2006 2.8 7.4 6.2
2007 28.4 18.2 6.3
2008 23.0 31.6 11.4
2009 -0.7 -4.9 -14.1
2010 54.3 20.4 10.8
Performance Data for Five Investment Companies 1996-2010
Return Standard Deviation Beta R2
Supreme Fund 2.96 21.3 .984 .818
Foresight Fund 10.56 17.33 .970 .881
Doxford Fund 8.42 20.93 1.169 .187
Epsilon Fund 8.05 24.04 1.224 .816
Free Top Fund 8.85 17.45 .668 .582
Case Questions:
1. Calculate the necessary ingredients for the Durallax Fund that is needed for evaluating its performance, using the Sharpe, Treynor, and Jensen performance evaluation techniques.
2. Rank Durallax along with the other five funds in Table 2 according to the Sharpe, Treynor, and Jensen techniques. How do you reconcile any conflicts in rankings?
Security Analysis & Portfolio Management
Assignment – I
Assignment Code: 2015DFM03A1 Last Date of Submission: 15th May 2015
Maximum Marks: 100
Section-A
Each question carries 25 Marks.
1. Portfolio Analysis & selection is a dynamic decision making process which is continuous & systematic that requires astute managerial judgement about the securities market. Comment.
2. What is the difference between fixed issue & book building process? Also explain the legal provisions as to listing of securities.
Section-B (50 Marks)
Case Study
Maria Gilbert is a principal in the firm Orion Financial Management. For twenty years she was chief investment officer with Reliance Investments, the pension management arm of the second National Bank of South Bend, Indiana. She left the bank in May 2005 in an attempt to turn expertise into greater personal rewards.
Two portfolios under management for medium-sized pension funds were on the top of her current agenda. The first portfolio was an index fund representing a cross section of the S&P 500 stocks. This portfolio had been established as a core portfolio for the South Bend Firefighters, currently $10million. The second portfolio was an actively managed fund for the Ryan County Public Employees Retirement Fund, which aggregated $2.75 million.
The firefighters portfolio was put in a cross section of S&P 500 stocks on Dec 23, 2005, when the S&P 500 Stock Index was at 500. One year later, on Dec 20, 2006, the S&P 500 Index closed at 595. On the same day the S&P 500 March/2007 futures contract closed at 600. The March/600 call on the S&P 500 March/2007 futures contract closed at 600. The March/600 call on the S&P 500 Index carried a premium of 18.75 points, & the March/600 put was at 8.50. The Ryan County fund was allocated as follows: cash equivalents, 9%; fixed-income securities, 36%; equities, 55%. Treasury-bond futures were priced at 95.
On Dec 20, 2006, Maria arrived at the office determined to adjust these two portfolios. However, she had mixed feelings about the stock market. On the one hand, she believed the market might continue its advance from an S&P 500 level of 595 to an index level of 640 during the next three months if corporate profits continued their upward surge. On the other hand, she worried that a downward correction could take the market to 545 if interest rates moved sharply higher as some were predicting. After pondering her options she decided to look more closely at alternative strategies for both funds, ignoring taxes & transaction costs for simplification of her task.
Case Questions:
1. Suppose Gilbert thought the stock market would weaken & she wanted to lighten, but not eliminate her equity position & increase the fixed income part of the Ryan portfolio. Indicate specific actions she could take in the futures markets to shift the allocation of the Ryan portfolio to zero cash, $1.6 million fixed-income, & $1.15 million equities.
2. Are the S&P 500 March stock index futures fairly priced on Dec 20?
Explain (Yield: Treasury-bills, 8%; S&P 500, 4%)
3. Which of the following risk management strategies would you recommend for the Firefighters portfolio under the conditions in (a) & (b) below?
(a) Assume the odds of the market going up to 640 were 20% & the odds of the market falling to 545 were 80%.
(b) Assume the odds of the market going up to 640 were 60% & the odds of the market falling to 545 were 40%.
I. Do nothing
II. Liquidate the portfolio
III. Sell March futures
IV. Buy March/600 put
V. Sell March futures & buy March/600 calls
VI. Sell March/600 calls
DFM03
Security Analysis & Portfolio Management
Assignment – II
Assignment Code: 2015DFM03A2 Last Date of Submission: 15th May 2015
Maximum Marks: 100
Section-A
Each question carries 25 Marks.
1. a. Point out the difference between the efficient frontier under capital market theory & under the Markowitz approach.
b. What is a corner portfolio? What is its role in creating an efficient frontier?
2. On the basis of implications of Random Walk Model, what guidelines do you recommend? Can a series of historical stock prices or rates of return be an aid in predicting future stock prices or rates of return?
Section-B (50 Marks)
Case Study
Peter Danial is a professional financial planner. His business involves advising clients on comprehensive financial programs including budgeting, tax matters and investments. Frequently he advises clients on investment vehicles simply by recommending consideration of mutual funds. These are often appropriate for someone who wants to achieve professional management and diversification at a relatively low cost.
The Durallax Fund has recently been brought to his attention by the fund’s sponsors, who have attempted to sell the merits of the fund to financial advisers such as Peter. In order to carry out a responsible examination, Danial has gathered financial information on Durallax as well as several other funds he knows well from past experience.
Table below contains comparative annual rates of return on the Durallax Fund, the S & P 500 Stock Index, and U.S. Treasury bills for the period 1996-2010.
Year Durallax S & P 500 Treasury Bills
1996 17.0 10.7 4.4
1997 -14.7 -8.6 6.7
1998 1.7 3.5 7.5
1999 9.0 14.2 4.2
2000 10.5 18.6 4.1
2001 -5.8 -14.5 7.0
2002 -15.7 -26.0 7.9
2003 38.5 36.8 6.8
2004 32.2 23.6 4.0
2005 -7.0 -7.2 5.2
2006 2.8 7.4 6.2
2007 28.4 18.2 6.3
2008 23.0 31.6 11.4
2009 -0.7 -4.9 -14.1
2010 54.3 20.4 10.8
Performance Data for Five Investment Companies 1996-2010
Return Standard Deviation Beta R2
Supreme Fund 2.96 21.3 .984 .818
Foresight Fund 10.56 17.33 .970 .881
Doxford Fund 8.42 20.93 1.169 .187
Epsilon Fund 8.05 24.04 1.224 .816
Free Top Fund 8.85 17.45 .668 .582
Case Questions:
1. Calculate the necessary ingredients for the Durallax Fund that is needed for evaluating its performance, using the Sharpe, Treynor, and Jensen performance evaluation techniques.
2. Rank Durallax along with the other five funds in Table 2 according to the Sharpe, Treynor, and Jensen techniques. How do you reconcile any conflicts in rankings?
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