DFM 03
SECURITY
ANALYSIS & PORTFOLIO MANAGEMENT
Assignment – I
Assignment
Code: 2016DFM03A1 Last Date of Submission: 26th
May 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: 2016DFM03A2 Last
Date of Submission: 26th May 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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