Amity Campus

Uttar Pradesh
India 201303

ASSIGNMENTS
PROGRAM: MFC
SEMESTER-III
Subject Name
Study COUNTRY
Roll Number (Reg.No.)
Student Name

: SECURITY ANALYSIS
:BOTSWANA
:MFC001112014-20160175
:MPHO PELOEWETSE TAU

INSTRUCTIONS
a) Students are required to submit all three assignment sets.
ASSIGNMENT
Assignment A
Assignment B
Assignment C

DETAILS
Five Subjective Questions
Three Subjective Questions + Case Study
Objective or one line Questions

MARKS
10
10
10

b)
c)
d)
e)

Total weightage given to these assignments is 30%. OR 30 Marks

All assignments are to be completed as typed in word/pdf.
All questions are required to be attempted.
All the three assignments are to be completed by due dates and need to be
submitted for evaluation by Amity University.
f) The students have to attached a scan signature in the form.

Signature :
Date
:

_________________________________
27/09/2015

( ) Tick mark in front of the assignments submitted

Assignment
Assignment B
Assignment C

S e c u r i t y An a l y s i s
A s s i g n m e n t A:
Q . 1 W h a t i s m e a n t b y F u n d a m e n t a l An a l y s i s ? H o w d o e s i t d i f f e r
f r o m t e c h n i c a l An a l y s i s ?
Fundamental analysis is a method used to determine the value of a stock by analyzing the
financial data that is 'fundamental' to the company. That means that fundamental analysis
takes into consideration only those variables that are directly related to the company itself,
such as its earnings, its dividends, and its sales. Fundamental analysis does not look at the
overall state of the market nor does it include behavioral variables in its methodology. It
focuses exclusively on the company's business in order to determine whether or not the stock
should be bought or sold.
The intrinsic value o f a n equity share depend s o n a multitude o f factors. The earning s o f t he
company, t he growth rate and t he risk exposure o f t he company have a direct bearing o n t he
price of the share. These factors in turn rely on the host of other factor s like economic
environment in which t he y function, t he industry they belong to, and f finally compan ies ' own
performance.
Fundamental analysis has a core purpose to produce a value that an investor can then compare
with the current stock price of a given company. That value then becomes a buy, sell, hold type
rating. But technical analysis? There are no such things as buy, sell, and hold ratings.
Fundamental analysis will focus on the economy, typically macroeconomics to help
determine intrinsic value. What that means in 101 terms is this, hey, interest rates may be
affected later this year, this will surely affect xxxxxxxxxxx. Technical analysis on the other
hand does not care what the economy is up to. 10% Gap ups are more important than interest rate
hikes and war.
Fundamental analysis focuses on financial ratios and numbers such as debt, EPS, cash
flow forecasts, etc. whereas technical analysis focuses on historical price movements to
determine possible short term or long term moves to come
Q.2 Define risk & distinguish between Systematic & Unsystematic
risk
Risk is the degree or probability of a loss
Systematic risk refers to the risk which affects the whole stock market and therefore it cannot be
reduced or diversified away. For example any global turmoil will affect the whole stock market
and not any single stock, similarly any change in the interest rates affect the whole market
though some sectors are more affected then others. This type of risk is called non diversifiable
risk because no amount of diversification can reduce this risk whereas Unsystematic risk is the
extent of variability in the stock or securitys return on account of factors which are unique to a

company. For example it may be possible that management of a company may be poor, or there
may be strike of workers which leads to losses. Since these factors affect only one company, this
type of risk can be diversified away by investing in more than one company because each
company is different and therefore this risk is also called diversifiable risk.
Q.3 Explain the Whitebeck Kisor m odel?

Q.4 What is Macaulays Duration?

The Macaulay duration (named after Frederick Macaulay, an economist
who developed the concept in 1938) is a measure of a bond's sensitivity to
interest rate changes. Technically, duration is the weighed average number
of years the investor must hold a bond until the present value of the bonds
cash flows equals the amount paid for the bond.

How it works/Example:
There is more than one way to calculate duration, but the Macaulay duration
is the most common. The formula is:

where:
t = period in which the coupon is received
C = periodic (usually semiannual) coupon payment
y = the periodic yield to maturity or required yield
n = number periods
M = maturity value (in $)
P = market price of bond

The formula is complicated, but it boils down to: Duration = Present value of a bond's cash
flows, weighted by length of time to receipt/ bonds current market value. For example, let's
calculate the duration of a three-year $1,000 Company XYZ bond with a semiannual 10%
coupon.

Notice in the table above that we first multiplied the cash flows by the periods in which they
occurred and then calculated the present value of each of these weighted cash flows.
To calculate the Macaulay duration, we then divide the sum of the present values of these cash
flows by the current bond price (which we are assuming is $1,000):
Company XYZ Macaulay duration = $5,329.48 / $1,000 = 5.33
Duration can help investors understand how sensitive a bond is to changes in prevailing interest
rates. By multiplying a bond's duration by the change, the investor can estimate the percentage
price change for the bond. For example, consider the Company XYZ bonds with a duration of
5.33 years. If for whatever reason market yields increased by 20 basis points (0.20%), the
approximate percentage change in the XYZ bond's price would be:
-5.33 x .002 = -0.01066 or -1.066%
Note that this is an approximation. The formula assumes a linear relationship between bond
prices and yields (that is, they always change by the same degree) even though the relationship is
actually convex (meaning that when one changes, the other changes but to varying degrees).
Thus, the formula is less reliable when there is a large change in yield.

Q.5 Explain Efficient market Hypothesis?

Efficient Market Hypothesis (EMH), states that the market prices of assets reflect all available

information about the assets. The appropriate definition of all available varies and gives rise to
alternative testable implications of the EMH. The information set over which markets are said to
be efficient can be one of three possibilities, each giving rise to a broader (i.e. stronger) version
of the EMH which encompasses more information relevant to asset prices/returns:
1. The Weak EMH
This states that all information contained in historical prices and firm characteristics (such as
size,
book value etc.) is incorporated in the actual (current) price.
All historical information is thus reflected in the observed market price. Notice that no claim is
made about the inclusion of any other type of information, nor about the speed with which
information is incorporated in asset prices.
2. The Semi-Strong EMH
This includes the history of past prices as well as all publicly available information about
assets
returns, i.e. all disclosures, announcements and reports which are available to all market
participants.
All such information is reflected in the current price.
3. The Strong EMH
In addition to the the above, the strong form of the EMH also includes all privately available
information on the assets, i.e. information proprietary to particular analysts and managers. The
most
common such information is private forecasts of asset returns.
Since each information set is a proper subset of the next one, the strong EMH clearly implies the
semi-strong EMH, and in turn the semi-strong form implies the weak form, but not vice
versa.

Assignment B
Q.1 Explain bond value theorem s?

BOND PRICING THEOREMS

for a typical bond making periodic coupon payments and a

terminal principal payment

THEOREM 1

I f a b o n d s m a r k e t p r i c e i n c r e a s e s
then its yield must decrease

conversely if a bonds market price decreases

then its yield must increase

THEOREM 2

I f a b o n d s y i e l d d o e s n t c h a n g e o v e r i t s l i f e ,

then the size of the discount or prem ium w ill decrease

as its life shortens

THEOREM 3

I f a b o n d s y i e l d d o e s n o t c h a n g e o v e r i t s l i f e

then the size of its discount or premium will decrease

at an increasing rate as its life shortens

THEOREM 4

A d e c r e a s e i n a b o n d s y i e l d w i l l r a i s e t h e b o n d s p r i c e
by

an

amount

that

is

greater

in

size

than

the

c o r r e s p o n d i n g f a l l i n t h e b o n d s p r i c e t h a t w o u l d
occur if there were an equal-sized increase in the
bonds yield

the price-yield relationship is convex

THEOREM 5

t h e p e r c e n t a g e c h a n g e i n a b o n d s p r i c e o w i n g t o a
change in its yield will be smaller if the coupon rate is
higher

Q.2 Determine the price of Rs.1, 000 zero coupon bond with yield to
maturity of 18% and 10 years to maturity & determine yield to
maturity of this bond if its price is Rs 220?

a) Price= face value

(1+YTM)n
=

1,000 =
(1+.18)10

1,000
5.2338

= Rs 191.07
b) [face value] -1= YTM
Bond value
Rs1000

-1= YTM

Rs220
(4.55).1-1= YTM
1.163-1=.163
YTM= 16.3
Q.3 Explain in detail the Dow Theory and how it is used to
determine the direction of stock market?
Case study:
M r.J o s e w a n t s t o i n v e s t i n b o n d s a s u m o f R s . 1 , 0 0 , 0 0 0 . T h r e e b o n d s a r e
b e i n g e x a m i n e d b y h i m w i t h a h o l d i n g p e r i o d o f t h r e e ye a r s . E a c h b o n d
i s g i v e n AA A r a t i n g b y C r i s i l . I n t h e e c o n o m i c s c e n a r i o , t h e e c o n o m i c
c yc l e i s b e g i n n i n g t o m a t u r e & i n f l a t i o n i s e x p e c t e d t o i n c r e a s e . I n a n
effort to contain the inflation, Reserve Bank of India is moving
t o w a r d s c r e d i t s q u e e z e . M r.J o s e s t a x b r a c k e t i s 5 0 % . T h e d e t a i l s o f t h e
bond are given:

Coupon rate
M a t u r i t y( y e a r s )

Bond A
0%
5

Bond B
10%
7

Bond C
10%
5

Yie l d t o m a t u r i t y
Duration

11 %
5

12%
6.58

11 %
4.68

Q . I f M r.J o s e h a s t o p i c k u p a n y t w o b o n d s w h a t w o u l d b e h i s
choice.What are the reasons you cite for picking up the particular
bonds?
C a s e A n a l y s i s I n t h e e c o n o m y, i n f l a t i o n a n d r e s t r i c t i v e c r e d i t p o l i c y
are reported. If there is inflation there would be two effects.
1) The purchasing power of money may decline affecting the real rate
of return from the bond.
2) The interest rate may increase
In this situation holding a bond with long years of maturity is not
advisable because of the bond may fall with the rising interest rate.
C o m p a r e t o b o n d A, b o n d C , m a t u r i t y p e r i o d i s l e s s e r. E v e n t h o u g h t h e
y i e l d i s h i g h e r i n b o n d B , M r. J o s e w o u l d p r e f e r b o n d c o n t h e b a s i s o f
maturity period.
C o n s i d e r i n g t h e t a x b r a c k e t , M r. J o s e h a s t o p a y t a x o n t h e r e t u r n h e
receives from the bond. In the case of the discount bond the payment of
t a x c a n b e p o s t p o n e d f o r f i v e y e a r s . D e p e n d i n g u p o n M r. J o s e s o t h e r
i n c o m e s o u r c e s , h e w o u l d a l l o t s o m e a m o u n t o f m o n e y f o r b o n d A.
Assignment C (40 multiple choice questions)
Q.1 Duration is the measure of
( a ) Ti m e s t r u c t u r e o f t h e b o n d
(b) Interest rate risk
( c ) Ti m e s t r u c t u r e & m a r k e t r i s k
(d) Tim e structure & the interest rate risk

Q . 2 T h e s t a t i s t i c a l t o o l u s e d t o m e a s u r e a c o m p a n y s r i s k i s
(a) Mean
(b) Mode
( c ) Var i a n c e
(d) Co-variance
Q.3 Interest rate risk occurs when
(a) The market price of bond moves inversely to the prevailing
market interest rate
(b) The variability in yield is due to the market interest rate
fluctuations
(c) There is variability in the coupon interest rates
( d ) Al l
Q.4 Uncontrollable risk of a company is
(a) Labour problem
(b) Increase in loan service charge
(c) Cut in subsidy
( d ) Tec h n o l o g i c a l o b s o l e s c e n c e
Q.5 Conceptual framework of valuation through P/E ratio arises
from
( a ) M u l t i p l e ye a r h o l d i n g m o d e l
(b) Constant grow th m odel
( c ) Two s t a g e g r o w t h m o d e l
(d) Three stage growth model
Q . 6 An i n v e s t o r p u r c h a s e s a s t o c k i n t h e s t o c k m a r k e t . H i s h o l d i n g
period return depends on the
(a) Purchase price of the stock
(b) Selling price of the stock

(c) Dividend paid to the stock

( d ) Al l t h e a b o v e
Q.7 Inter Connected Stock exchange is to interlink
(a) The BSE, NSE & OTCEI
( b ) Al l t h e s t o c k e x c h a n g e s
(c) Fifteen regional stock exchanges
(d) Fourteen regional stock exchanges
Q.8 Over the Counter Exchange of India was started after the role
model of
(a) NASAQ
(b) JASAQ
(c) NASDAQ & JASDAQ
(d) NSE
Q.9 Customer s protection fund is set up
( a ) To p r o t e c t t h e i n v e s t o r s a g a i n s t p r i c e f l u c t u a t i o n s
( b ) To p r o t e c t t h e b r o k e r i n c a s e o f n o n p a y m e n t o f m o n e y b y
investors
( c ) To p r o v i d e i n s u r a n c e t o i n v e s t o r s i n c a s e o f d e f a u l t b y t h e
members
( d ) To p r o t e c t t h e m e m b e r & t h e i n v e s t o r
Q.10 The oldest stock exchange in India is
(a) BSE
(b) NSE
(c) Nifty
(b) ISE
Q . 11 T h e a c c o u n t i n g p e r i o d c y c l e o f N S E i s

( a ) Wed n e s d a y t o n e x t Tue s d a y
( b ) Tu e s d a y t o n e x t Wed n e s d a y
(c) Monday to next Friday
( d ) Wed n e s d a y t o n e x t Wed n e s d a y
Q.12 Marketability risk of bond is
(a) The market risk which affects all the bonds
( b ) Var i a t i o n i n r e t u r n c a u s e d b y d i f f i c u l t y i n s e l l i n g b o n d s
(c) The failure to pay the agreed value of the bond by the issuer
(d) Both a & b
Q.13 Default risk is lower in
( a ) Tr e a s u r y b i l l s
(b) Government bonds
(c) ICICI Bonds
(d) IDBI bonds
Q.14 The value of bond depends on
(a) The coupon rate
( b ) Yea r s t o m a t u r i t y
( c ) E x p e c t e d yi e l d t o m a t u r i t y
( d ) Al l t h e a b o v e
Q . 1 5 T h e b o n d yi e l d r e m a i n s c o n s t a n t o v e r i t s l i f e a n d t h e d i s c o u n t
or premium amount will decrease
( a ) At a d e c r e a s i n g r a t e a s i t s l i f e g e t s s h o r t e r
( b ) At a d e c r e a s i n g r a t e a s i t s l i f e g e t s l o n g e r
( c ) At a n i n c r e a s i n g r a t e a s i t s l i f e g e t s s h o r t e r
( d ) At a n i n c r e a s i n g r a t e a s i t s l i f e g e t s l o n g e r
Q.16 Investment is the

(a) Net additions made to the national capital stocks

( b ) P e r s o n s c o m m i t m e n t t o b u y a f l a t o r a h o u s e
(c) Employment of funds on assets to earn returns
(d) Employment of funds on goods and services that are used in
production process
Q.17 Speculator is a person
(a) Who evaluates the performance of the company
(b) Who uses his own funds only
(c) Who is willing to take high risk for high return
( d ) W h o c o n s i d e r s h e r e s a ys & m a r k e t b e h a v i o u r s
Q . 1 8 To f r a m e t h e i n v e s t m e n t p o l i c y t h e i n v e s t o r s h o u l d h a v e
(a) Knowledge about the company and the brokers
(b) Investible funds
(c) Knowledge about investment alternatives
(d) Knowledge about the market with funds
Q.19 The main objective of a rational investor is
(a) Maximising returns & minimizing risk
(b) Minimising return & maximizing risk
(c) short term gains
(d) safety of the principal
Q.20 Clearing & settlement operations of the NSE is carried out by
(a) National Security Depository Ltd
(b) National Security Clearing Co-operation
(c) State Bank of India
(d) By the exchange itself
Q.21 In the stock market psychology

(a) Investors forget the past

(b) History repeats itself
(c) More faith in future prediction
(d) Both a &b
Q.22 Gross domestic product is a logical factor to analyse the
economy in picking up a stock because it indicates
(a) Inflation or deflation
(b) The market value of assets
(c) The status of the economy
(d) The condition of the stock market
Q.23 One of the following factors leads the activity of the stock
market
(a) Money supply
(b) Per capita income
(c) Unemployment rate
(d) Manufacturing & trade
Q.24 The fall in interest rate is conducive to the stock market
because
(a) Money may flow from the bond market to stock market
(b) Corporate can borrow at easy terms
(c) Brokers can do business at borrowed funds
(d) Both b & c
Q.25 The growth in book value per share shows the
(a) Rise in the share price
(b) Increase in the physical assets of the form
(c) Increase in the net worth
(d) Growth in reserves

Q.26 The price earnings ratio of a stock reflects

(a) The grow th of the com pany
( b ) T h e m a r k e t m o o d f o r t h e c o m p a n y s s t o c k
(c) The earnings retained and invested in the company
( d ) T h e d i v i d e n d p a i d o u t f o r t h e c o m p a n y s s t o c k
Q . 2 7 N B F C s o f f e r s h i g h e r i n t e r e s t r a t e b e c a u s e o f
(a) the best management funds
(b) the competition amongst NBFCs
(c) the risk involved
(d) the credit rating
Q.28 Open ended schemes are
(a) open for a particular period
(b) have fixed period of maturity
(c) listed in the stock exchanges
(d) open on a continuous basis
Q.29 Interval fund is
(a) Index fund
(b) open fund
(c) a closed end fund
(d) a combination of close & open end fund
Q.30 Index schemes
(a) Returns equal to index returns
(b) reflect the market
(c) are income schemes
(d) are tax saving schemes

Q.31 Stock exchange

(a) helps in the fixation of stock prices
(b) ensure safe & fair dealing
(c) induces good performance by the company
( d ) Al l t h e a b o v e

Q.32 __________ was the grandfather of technical analysis.

A)

Harry Markowitz

B)

Wi l l i a m S h a r p e

C)

Charles Dow

D)

Benjamin Graham

E)

none of the above

Q.33 The goal of the Dow theory is to

A)

identify head and shoulder patterns.

B)

identify breakaway points.

C)

identify resistance levels.

D)

identify support levels.

E)

identify long-term trends.

Q . 3 4 Tec h n i c a l i n d i c a t o r s h e l p
( a ) To f i n d o u t t h e p r e s e n t s t a t e o f t h e s t o c k m a r k e t
( b ) To e s t i m a t e t h e g r o w t h o f s t o c k m a r k e t
( c ) To i n d i c a t e t h e e c o n o m i c a c t i v i t y
( d ) To s h o w t h e d i r e c t i o n o f t h e o v e r a l l m a r k e t
Q.35 The market value of the scrip is determined by
(a) The dividend declared by the company
(b) The present status of the stock market

(c) The number of floating shares

(d) The interaction of demand & supply
Q.36 The negotiable financial investment is different from the nonnegotiable financial investment in terms of
(a) Maturity period
(b) Interest rate
( c ) Tr a n s f e r a b i l i t y
(d) Face value

Q.37 Investment made on a house property is a

(a) Financial investment
(b) Economic investment
(c) Non-negotiable financial investment
(d) Non-financial investment

Q.38 Which one of the following is not a money market security?

( a ) Tr e a s u r y b i l l s
(b) National savings certificate
(c) Certificate of deposit
(d) Commercial paper

Q.39Commercial papers are

(a) Unsecured promissory notes
(b) secured promissory notes
(c) Sold at a premium
(d) issued for a period of 1-2 years

Q.40 This particular scheme helps in deferring the tax payment

(a) Public provident fund
(b) National savings scheme
(c) National savings certificate
(d) Life insurance scheme