Professional Documents
Culture Documents
Assignment A
Question 1.(i) Sweat equity is the best form of reward for those who contribute
to the growth of a company. Discuss.
(ii) Why do investor add real estate in their portfolio?
(iii) What are the steps taken by SEBI in the primary market to protect
investors?
Question 2. (i) Discuss the dematerialisation and rematerialisation processes in
NSDL?
(ii) Stock market indices are the barometers of the stock market
Discuss?
(iii) How can increasing short interest give a bullish interpretation Why?
Question 3. (i) Explain the utility of the economic analysis and state the
economic factors considered for this analysis.
(ii) what is meant by fundamental analysis? How does fundamental analysis
differ from technical analysis?
(iii) What industry life cycle exhibits the statius of the industry and
gives the clue to entry and exit for investors Elucidate.
Question 4. Stocks L and M have yielded the following returns for the past two
years.
Years
Return
%
L
M
1995
12
14
1996
18
12
(i) What is the expected return on portfolio made up of 60 percent of L and
40 percent of M? Find out the standard deviation of each stock.
(ii) What is the covariance and co-efficient of correlation between stock L
and M?
(iii) What is the portfolio risk of a portfolio made up of 60 percent of
land 40 percent
Question 5. For the first four years XYZ firm is assumed to grow at a rate of 10
per cent. After four years the growth rate of dividend is assumed to decline
linearly to 6 per cent. After 7 years, the firm is assumed to grow at a rate of
6 per cent infinitely. The next year dividend is Rs.2 and the required rate of
8% p.a. The firms cost of equity is 18% (i.e. the return expected by the equity
investors) and will be unaffected by the reorganization. What will be the value
of firms shares in both the situations? Moreover, advice the directors to which
process they should adopt for?
Question 3. Sundaram finance Ltd. has an investment opportunity available which
will involve a capital outlay in each of the next 2 years and which will produce
benefits during the following 3 years. A summary of the financial implications
of this investment is given below.
Year
Cash Flow (Rs.000)
1
(2,000)
2
(2,000)
3
200
2,300
5
4,100
Sundaram Ltd., currently has 1,00,000 shares in issue. The dividend just paid
was Rs.25 per share. In the absence of the above investment, dividends are
expected at this level for the next 3 years, but will then demonstrate perpetual
growth of 15 percent p.a. Sundaram finance Ltd. is currently all equity financed
and the required rate of return of the equity investor is estimated to be 18
percent. The only possible way of financing the investment is, therefore, to
reduce the dividend payments made in the next 2 years. Cash received from the
new investment is therefore, to reduce the dividend payments made in the 10%
will also be maintained because of other operations.
What will be the present market price? What will be the market price after the
acceptance of the investment (assuming the market knows the dividend changes
that will result from the investment using a dividend valuation model?)
Case Study
EQUITY RESEARCH
Mr. Prashant Gupta is interested in investing in equity shares of Infosys and
Hamdard. Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven
people with US$ 250. Today, it is a global leader in the next generation of IT
and consulting with revenues of over US$ 4 billion. It offers span business and
technology consulting, application services, systems integration, product
engineering, custom software development, maintenance, re-engineering,
independent testing and validation services, IT infrastructure services and
1
0.1455
0.0432
0.0654
2
0.1291
0.307
0.1536
3
-0.1036
-0.0498
-0.0749
4
-0.0643
-0.0369
0.0473
5
-0.0673
-0.0272
-0.0178
6
0.1361
0.0286
-0.0291
7
-0.0111
-0.1088
-0.1465
8
0.0452
-0.1338
0.0194
9
0.0277
0.0913
0.0663
10
0.0581
0.011
-0.0022
11
0.0313
0.0581
0.0854
12
0.1021
0.1043
0.0127
13
0.1652
0.0876
0.0914
14
-0.0237
0.0617
0.0604
15
-0.0581
0.0877
-0.0099
16
-0.0077
0.14
0.0119
17
-0.0401
0.0369
-0.008
18
-0.0589
0.0473
-0.0605
19
0.1335
0.1054
0.0746
20
0.0693
0.0249
0.0596
21
-0.0391
0.1082
0.048
22
-0.0086
0.048
0.0378
23
0.0196
0.068
0.0813
(i) Monthly returns on equity shares of Infosys and Hamdard for a period
of 2 years (w.e.f. October 2006 to September 2008) along with portfolio of S&P
CNX NIFTY.
(ii) Return on 364-days treasury bills issued by Government of India for
the period 2007-08 is 5.15 per cent per annum and 0.419 per month. This rate is
to be used as a proxy for risk-free rate of return.
(iii) Debt-equity ratio (based on the average of 2004 to 2008) is 1.6 per
cent for Wipro and 31.4 per cent for Dabur.
(iv) Corporate tax is 35 per cent.
Question:
Compute the beta and interpret it for Prashant. Examine different circumstances
with analysis of data.
Assignment C
S. No.
Question
A
B
C
D
1
Which of the following is /are true?
All investments are speculative by nature
Genuine investments involve calculated risks which are consistent with the
expected returns
The ultimate objective of an investment or speculative stock is to increase the
terminal wealth of the person concerned
Both b and c above
2
Which of the following is not an investment constraint?
Liquidity
The absence of the need for regular income
the preferred time horizon
Risk tolerance
3
A straight debenture is one which
Offers straight interest payments and is redeemed at par
Can be transferred by simple endorsement and delivery
Does not have a charge on any of the companys assets
4
The issuing company has to create a Debenture Redemption Reserve up to _________
of the amount of debentures to be redeemed, before the date of redemption
10%
25%
30%
50%
5
Which of the following is not a non-security form of investment?
National savings scheme
Purchase of gold and art objects
Bank deposits
Corporate fixed deposits
7
The threshold limit for total FII investments in an Indian company is
10%
24%
30%
none
8
Risk(s) affecting all the securities in the market is/are
Risk due to variability in returns due to changed investors expectations
Financial risk
Inflation risk
both a & c
9
The risk for the whole market as measured by Beta is
1
0
-1
Greater than 1
10
Of the following, systematic risk encompasses
Business risk
Inflation risk
Interest rate risk
Both b and c
11
Securities which are plotted above the SML line are
Under priced
Over priced
Favourable investments
Both a and c
12
Covariance between a stock and a market index and the variance of the market
index were found to be 33.56 and 19.15 respectively. The Beta of the stock is
1.55
1.75
1.85
1.95
13
The beta of a stock is 1.12 and its covariance with the market is 220. The
standard deviation of market returns is
16%
14%
12%
11.30%
14
The characteristic line established the relationship between
Return on a security and its beta
return on a security and its standard deviation
Return on the security and return on the market
Risk of the security and risk of the market
15
Which of the following statements is true?
Slope of SML is known as beta
Slope of CML is known as beta
CML includes inefficient portfolios
CML is a relationship between total risk and required return.
16
17
Riskiness of a security in the context of security analysis essentially means
Variability of the securitys returns
Variability of returns above a benchmark mentioned by clients
Variability of returns below a benchmark mentioned by clients
Market risk
18
Market Indicators are employed in
Studying the behavior of the stock market
Evaluating the performance of the portfolios
Calculating betas of the securities
19
As the business cycle enters the initial phase of economic recovery the stock
prices generally
Decline
Maintain the same trend as before
Rise
Rise to an extent and then take a downturn
20
Cyclical industries are those
Which experience high growth rates when economy is booming
Which perform irrespective of the economic conditions
Which experience downtrend when economy is in recession
Both a and c
21
22
Which among the following is not volatile?
Cyclical growth industries
Growth industries
Cyclical industries
Defensive industries
23
In a balance sheet, equity and fixed assets are expressed in terms of their
Market value
Cost
Book value
Replacement value
24
The measurement of leverage is
PAT/Equity
Equity/Debt
Total assets/Equity
Total assets/Debt
25
Which of the following is/are cyclical industries?
Steel and Iron
Construction
Shipping
Cement
26
27
A business division with high growth but low relative market share is referred
to as a
Cash cow
Profit center
Question Mark
Star
28
during an inflationary period a company can artificially show higher profits by
Moving from FIFO and LIFO method of inventory valuation
Moving from LIFO to FIFO method of inventory valuation
29
An industry in the growth stage of its life cycle is indicated by
High P/E ratios
High dividend pay out ratios
High dividend yield
High investment in R & D
30
Which of the following is not an entry barrier?
Profit differentiation
Switching costs
Capital requirements
Low value addition
31
32
If a vertical rally or decline comes to a temporary halt to consolidate the
gain/loss after which the prices move in the same direction, give rise to
Flag
Rectangle
Gap
Both a and b
33
Which of the following is a measure of momentum against itself?
Relative strength indicator
Rate of change
MACD
Stochastic
34
In a technical analysis the exponent value for calculating a 10 day Exponential
Moving Average will be
0.2
0.1
2
20
35
In technical analysis the odd-lot theory is a classic example of
Oscillator
Breadth of market indicator approach
Contrarian opinion theory
Dow Theory
36
The argument that when stock prices increase, the closing prices have a tendency
to be closest to the peaks of the period, forms the basis of
Exponential moving average
Confidence index
Elliott wave theory
Stochastic
37
Which of the following best measures the strength of market advances of
declines?
Moving average analysis
Stochastic
Gap analysis
Breadth of market indicators
38
Which of the following is an assumption of technical analysis?
39
An investor buys an option contract for a premium or Rs. 200. The exercise price
is Rs. 20 and the current market price of the share is Rs. 17, if the share
price after three months reaches Rs. 25, what is the profit made by the option
holder on exercising the option. Contract is for 100 shares. Ignore the
transaction charges
Rs. 200
Rs. 250
Rs. 300
Rs. 350
A put option was written at a premium of Rs. 400. The current market price of
the stock is Rs. 38 and the exercise price of the contract is Rs. 35. After a
period of two months the price of the stock is Rs. 30. The amount of the profit
made by the option holder is Rs. ___________
325
250
150
100