DFM 03
SECURITY ANALYSIS & PORTFOLIO MANAGEMENT
Assignment – I
Assignment Code: 2016DFM03B1 Last Date of Submission: 15th November 2016
Maximum Marks: 100
Section-A
Each question carries 25 Marks.
1. Rakesh inherited the following securities on his uncle’s death:
Types of Security Number Annual Coupon % Maturity in years Yield %
Bond A (Rs. 1000) 10 9 3 12
Bond B ( Rs.1000) 10 10 5 12
Preference Shares C
(Rs. 100) 100 11 * 13*
Preference Shares D
(Rs. 100) 100 12 * 13*
* Likelihood of being called at a premium over par.
You are required to : Compute the current value of Rakesh’s uncle portfolio
2. Two bonds - Taxo and Maxo are listed on the national exchange for trading; both have maturity of 5 years. Taxo bond has coupon rate of 8.5% and face value of Rs.1000 & has a current market price of Rs. 954.74. YTM of Taxo bond is 10%. Maxo bond has coupon rate of 11.5% and face value of Rs.1000 & has a current market price of Rs. 1044.57. YTM of Taxo bond is 10.6%.
You are required to:
(i) Calculate the duration of Taxo and Maxo bonds. (10 marks)
(ii) Calculate the volatility of these bonds (modified duration). (10 marks)
(iii) What will be the change in market price of these bonds if interest rates increase by 2%?
(5 marks)
Section-B (50 Marks): Case Study
P. Ltd invested on 1.4.2015 in Equity shares as below:
Company Number of Shares Cost (Rs.)
M Ltd. 1000 ( Rs. 100 each) 2,00,000
N Ltd. 500 (Rs. 10 each) 1,50,000
In September 2015, M. Ltd. paid 10% interim dividend and in October 2015 N Ltd. paid 30% interim dividend.
P Ltd. have been informed by their investment advisers that:
(i) Final dividends from M Ltd. and N Ltd. for the year ended 31.3.2016 are likely to be 20% and 35% respectively.
(ii) Probabilities of market quotations on 31.3.2016 are:
Probability Price of Share of M Ltd. Price of Share of N Ltd.
0.20 220 290
0.50 250 310
0.30 280 330
You are required to:
(i) Calculate the average return from the portfolio for the year ended 31.3.2016 (10 marks)
(ii) Calculate the expected average return from the portfolio for the year 2015-16 (10 marks)
(iii) Advise P Ltd. of the comparative risk of two investments by calculating the standard deviation in each case. (15 marks)
(iv) Calculate the risk of the portfolio for the year ended 31.3.2016 (15 marks)
DFM 03
SECURITY ANALYSIS & PORTFOLIO MANAGEMENT
Assignment – II
Assignment Code: 2016DFM03B2 Last Date of Submission: 15th November 2016
Maximum Marks: 100
Section-A
Each question carries 25 Marks.
1. The following information is available for stocks of ABC and XYZ:
ABC XYZ
Expected Return 12% 16%
Correlation with market 0.5 0.6
Beta 0.9 1.2
Expected return on the market is 14% and standard deviation of market return = 10%. Risk free rate = 5%.
(a) Which stock will you prefer to buy according to CAPM? (5 marks)
(b) Which will you prefer to buy if you consider the return/total risk? (10 marks)
(c) If we want to create a minimum risk portfolio with the two stocks in part (a) what proportion would you recommend in the following two cases: if they have perfect negative correlation (-1) and if they have perfect positive correlation (+1). (10 marks)
2. Following information are available for three stocks – A, B & C :
Stock Alpha Beta Variance of Residual
A -2 1.5 4
B 8 -0.2 0
C 0 0.8 15
Market return = 10% and standard deviation = 5%. Risk free rate of return = 5%.
(i) Calculate risk and return for a portfolio of 50% of A and 25% each of B & C according to the market model. (10 marks)
(ii) Draw the characteristic line for Stock A, B and C. (8 marks)
(iii) What does residual variance of 4 for Stock A and 14 for stock B signify? (7 marks)
Section-B (50 Marks)
Case Study
A Company has a choice of investment between several different equity oriented mutual funds. The company has an amount of Rs. 1 crore to invest. The details of the mutual funds are as follows:
Mutual Fund Beta
A 1.6
B 1.0
C 0.9
D 2.0
E 0.7
You are required to calculate:
(i) If the company invests 20% of its investment in the mutual funds A & B and an equal amount in the mutual funds C, D and E what is the beta of that portfolio? (15 marks)
(ii) If the company invests 15% of its investment in C, 15% in A, 10% in E and the balance in equal amount in the other mutual funds, what is the beta of that portfolio? (15 marks)
(iii) If the expected return of market portfolio is 12% at a beta factor of 1.0, what will be the portfolios expected return in both the situations given above? (20 marks)
SECURITY ANALYSIS & PORTFOLIO MANAGEMENT
Assignment – I
Assignment Code: 2016DFM03B1 Last Date of Submission: 15th November 2016
Maximum Marks: 100
Section-A
Each question carries 25 Marks.
1. Rakesh inherited the following securities on his uncle’s death:
Types of Security Number Annual Coupon % Maturity in years Yield %
Bond A (Rs. 1000) 10 9 3 12
Bond B ( Rs.1000) 10 10 5 12
Preference Shares C
(Rs. 100) 100 11 * 13*
Preference Shares D
(Rs. 100) 100 12 * 13*
* Likelihood of being called at a premium over par.
You are required to : Compute the current value of Rakesh’s uncle portfolio
2. Two bonds - Taxo and Maxo are listed on the national exchange for trading; both have maturity of 5 years. Taxo bond has coupon rate of 8.5% and face value of Rs.1000 & has a current market price of Rs. 954.74. YTM of Taxo bond is 10%. Maxo bond has coupon rate of 11.5% and face value of Rs.1000 & has a current market price of Rs. 1044.57. YTM of Taxo bond is 10.6%.
You are required to:
(i) Calculate the duration of Taxo and Maxo bonds. (10 marks)
(ii) Calculate the volatility of these bonds (modified duration). (10 marks)
(iii) What will be the change in market price of these bonds if interest rates increase by 2%?
(5 marks)
Section-B (50 Marks): Case Study
P. Ltd invested on 1.4.2015 in Equity shares as below:
Company Number of Shares Cost (Rs.)
M Ltd. 1000 ( Rs. 100 each) 2,00,000
N Ltd. 500 (Rs. 10 each) 1,50,000
In September 2015, M. Ltd. paid 10% interim dividend and in October 2015 N Ltd. paid 30% interim dividend.
P Ltd. have been informed by their investment advisers that:
(i) Final dividends from M Ltd. and N Ltd. for the year ended 31.3.2016 are likely to be 20% and 35% respectively.
(ii) Probabilities of market quotations on 31.3.2016 are:
Probability Price of Share of M Ltd. Price of Share of N Ltd.
0.20 220 290
0.50 250 310
0.30 280 330
You are required to:
(i) Calculate the average return from the portfolio for the year ended 31.3.2016 (10 marks)
(ii) Calculate the expected average return from the portfolio for the year 2015-16 (10 marks)
(iii) Advise P Ltd. of the comparative risk of two investments by calculating the standard deviation in each case. (15 marks)
(iv) Calculate the risk of the portfolio for the year ended 31.3.2016 (15 marks)
DFM 03
SECURITY ANALYSIS & PORTFOLIO MANAGEMENT
Assignment – II
Assignment Code: 2016DFM03B2 Last Date of Submission: 15th November 2016
Maximum Marks: 100
Section-A
Each question carries 25 Marks.
1. The following information is available for stocks of ABC and XYZ:
ABC XYZ
Expected Return 12% 16%
Correlation with market 0.5 0.6
Beta 0.9 1.2
Expected return on the market is 14% and standard deviation of market return = 10%. Risk free rate = 5%.
(a) Which stock will you prefer to buy according to CAPM? (5 marks)
(b) Which will you prefer to buy if you consider the return/total risk? (10 marks)
(c) If we want to create a minimum risk portfolio with the two stocks in part (a) what proportion would you recommend in the following two cases: if they have perfect negative correlation (-1) and if they have perfect positive correlation (+1). (10 marks)
2. Following information are available for three stocks – A, B & C :
Stock Alpha Beta Variance of Residual
A -2 1.5 4
B 8 -0.2 0
C 0 0.8 15
Market return = 10% and standard deviation = 5%. Risk free rate of return = 5%.
(i) Calculate risk and return for a portfolio of 50% of A and 25% each of B & C according to the market model. (10 marks)
(ii) Draw the characteristic line for Stock A, B and C. (8 marks)
(iii) What does residual variance of 4 for Stock A and 14 for stock B signify? (7 marks)
Section-B (50 Marks)
Case Study
A Company has a choice of investment between several different equity oriented mutual funds. The company has an amount of Rs. 1 crore to invest. The details of the mutual funds are as follows:
Mutual Fund Beta
A 1.6
B 1.0
C 0.9
D 2.0
E 0.7
You are required to calculate:
(i) If the company invests 20% of its investment in the mutual funds A & B and an equal amount in the mutual funds C, D and E what is the beta of that portfolio? (15 marks)
(ii) If the company invests 15% of its investment in C, 15% in A, 10% in E and the balance in equal amount in the other mutual funds, what is the beta of that portfolio? (15 marks)
(iii) If the expected return of market portfolio is 12% at a beta factor of 1.0, what will be the portfolios expected return in both the situations given above? (20 marks)
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