IMT-09: Security Analysis & Portfolio Management

IMT-09: SECURITY ANALYSIS & PORTFOLIO MANAGEMENT

PART- A

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Q1. 'The growth of the national economy and political events within the nation influence investment decisions.' Comment.

Q2. A finance company advertises that it would pay a lump sum of Rs 44,650, at the end of the fifth year, to investors who annually deposit Rs 6000 for five years. What is the implied rate of interest in this offer?

Q3. Why is it important to understand the competitive position of a product of a company before purchasing the shares of the company? How is the competitive position of a company determined within an industry?

Q4. What is a market index? Outline its utility for security analysis. Give two different methods used to weigh indexes.

Q5. Discuss the return generating process and risk-return relationship according to the Arbitrage Pricing Theory.

PART- B

Q1. What is the significance of the surveillance system in a stock exchange? Discuss in detail.

Q2. Write a detailed note on how indices are built.

Q3. The stock market is prone to different types of risks. Explain.

Q4. At an annual rate of compounding at 11 per cent, how long would it take for a given sum to become double its original value?

Q5. If an investor wants to hold a stock for multiple years, the present price could be estimated with d/e, P/E and EPS. What formula is applied to find out the present value of the shares?

PART- C

Q1. How are industries analyzed? Classify them into growth, cyclical, defensive and cyclical growth industries.

Q2. Why are charts used as chief analytical tools in technical analysis?

Q3. A company's bonds have a par value of Rs 100. They mature in seven years and carry a coupon rate of 12 per cent payable half yearly. If the appropriate discount rate is 16 per cent, what price should the bond command in the marketplace?

Q4. Define the Efficient Market Hypothesis in each of its three forms.

Q5. Portfolios that frequently buy new securities and sell old holdings will outperform portfolios that are managed more passively. Do you agree with this statement? Explain.

CASE STUDY - I

ABC Ltd has total assets of Rs 40 lakh, financed by equity and debt in the ratio of 60 per cent and 40 per cent respectively. The beta of equity shares is 1.3. The risk-free rate is 7 per cent and the return on market portfolio is 17 per cent.

Find out the following:

Q1. The required return on equity shares

Q2. The beta of the total assets of the company

Q3. The required rate of return on assets of the company

CASE STUDY-II

Ram Enterprise has a beta of 1.5 and risk free return is 7 per cent and the expected return on the market portfolio is 14 per cent. The company presently pays a dividend of Rs 2.50 per share and investors expect a growth in dividend of 12 per cent per annum for many years to come.

Answer the following:

Q1. What is the required rate of return on the equity according to CAPM?

Q2. What is the present market price of the equity share, assuming the computed return as required return?

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