# Subject Name: Investment Analysis and Portfolio Management

##### Full Marks:30 Duration: 1 Hour

## Part – **A**

###### Attempt 5 questions

**Each **question carries **2 **Marks (2 X 5)

1. What is Fundamental Analysis?

**or**

1. Distinguish between the security market line and capital market line?

2. Discuss the factors that differentiate the investor from the speculator and gambler.

**or**

2. What is simple diversification**? **(a) will it reduce total risk? **(**b) will it reduce

unsystematic risk?

3. Which chart patterns are indicative **of price**/trend reversal?

**or**

3. Differentiate between covariance and correlation coefficient

4. Explain with examples what is meant by i) an aggressive security, ii) defensive

security.

**or**

4. What are the other ratios that can be examined besides PE ratio?

5.Explain the Sharpe Index model? How does it differ from the Markowitz model?

**or**

5 What is the limitation of the Markowitz Model?

6. What is meant by the term ‘yield to maturity (YTM)”?

**or**

6. What is a Mutual Fund?

7. For a bond define coupon rate

or

7. Explain briefly ‘short selling’

**or**

8. What is a trend line? Give an example of a trend line with a sketch.

**or**

8.Explain the importance of the estimation of beta and co-efficient of determination.

9. What is a derivative?

**or**

9. Broadly, describe the different types of bonds?

10. How are Price and Volume indicators interpreted to indicate a price trend?

**or**

10. What is non-voting equity share?

**Part – B**

**Attempt 6 questions**

**Each question carries 5 Marks **(5 X **6)**

11. A Rs 1000 par value bond bearing a coupon rate of 14% will mature after 5 years. 5

The required rate of return on this bond is 13%. What is the value of this bond?

** OR**

I. **Explain **briefly the relevance of Business risk as a part of unsystematic risk.

2. A Rs 100 par value bond carries a coupon rate of 12% and a maturity period of 8 5 years. Interest is payable half yearly. What is the value of the bond if the required rate of return is 14%?

** OR**

12. With a sketch show the different stages of the industry life cycle, and an industry 5

example for each stage.

13. An investor purchases a bond at Rs 900 with Rs 100 as coupon payment and sells 5

it at Rs 1000.

**a**) What is his holding period return?

b) If the bond is sold for Rs 750 after receiving Rs 100 as coupon payment, what is the holding period return?

**OR**

13. What are the non-financial aspects to be considered for Fundamental Analysis?

14. If a company is expected to pay Rs 2 per share as dividend Indefinitely, what is 5 the value of its share? Assume that the required rate of return for similar investments is 10%. If the market price of the company’s share is Rs 15, what is your advice for the investor?

** OR**

14. The common share of Bulls Corporation is currently selling at Rs 70 per share. Dividend per share has grown from Rs 2 to the current level of Rs **6 **over the past 10 years, and this dividend growth is expected to continue in future. What is the required rate of return of the Bulls Corporation?

15. ABC Ltd offers a dividend of Rs 2 per share. The dividend is expected to grow at the rate of 18% for 5 years. Thereafter the dividend growth rate is expected to decline linearly over a period of 10 years and stabilize at 10%. What is the intrinsic value of the share if an investor expects a return of 16%?

** OR**

15. Explain briefly **with **a sketch the term ‘double bottom’ and **its **relevance.

16. Explain the term structure of interest rates with a sketch.

** OR**

16. Explain briefly convexity of a bond with a sketch.

**Part – C**

**Attempt 5 questions**

**Each question carries 10 Marks **(10 X 5)

17. Vigilant company stock is currently selling at Rs. 25 per share. The stock is 10 expected to pay Rs. 1 as dividend per share at the end of the next year. It is reliably estimated that the stock will be available for as Rs. 29 at the end of the year.

a. If the forecasts about the dividend and price are accurate, is it advisable to buy

at the present price? His required rate of return is 20%.

b. If the investor requires 15% return when the dividend remains constant, what

should be the price at the end of the first year?

**OR**

17. How would you assess **the **present value of a bond? Explain the various bond value 10

theorems with examples

18. A Rs 1000 par value bond carrying a coupon rate of 9 % and maturing after 8 10

years has a market price of **Rs **800. What rate of return would the bond holder earn if he buys the bond and holds it till maturity?

**OR**

18. A retired civil servant is planning to invest **his **savings in different financial

products to take care of his future family expenses. Please propose what are the types of investments that he can consider, and give reason for the same.

19. Please roughly reproduce the below chart in your answer script. Examine the chart and draw the the Support & Resistance lines. Please explain briefly what happens at the Support & Resistance levels and type of buy or sell signals which the technical analyst infers from this chart by drawing a circle at these points.

**OR**

19. Vardhman Ltd’s earnings and dividends have grown @18% p.a.

This growth rate is expected to continue for 4 years. After that the growth is expected to fall to 12% for the next 4 years.

Thereafter the growth is expected to be 6% forever. If the last dividend was Rs2 per share and investor’s required rate of return on equity is 15%, what is the intrinsic value of the share?

20. The following details are given for companies X and Y and the SENSEX for one 10

year.

Parameter average return | X | Y | Sensex |

Variance of return | 0.15 | 0.25 | 0.06 |

B | 6.30 | 5.86 | 2.25 |

Corelation Co-efficient | 0.71 | 0.27 | |

Co-efficient ofdetermination r2 | 0.424 | ||

0.18 |

a. Using the Sharpe’s Single Index Model, calculate the systematic and

unsystematic risk for X and Y stocks.

b. If equal funds are allocated to X and Y what would be the portfolio risk?

OR

20. Please roughly reproduce the below chart in your answer script. Examine the chart 10

and draw the Double Top lines and neck line. Please explain briefly what happens

at the Double Top levels and type of buy or sell signals which the technical analyst infers from this chart by drawing a circle at these points.

21. **The following **table gives data **on four **stocks:

Stock | Alpha | Systematic variance Unsystematic | Variance |

A | -.06 | 5 | 4 |

B | .01 | 2 | 6 |

C | .00 | 3 | 1 |

D | -14 | 3 | 2 |

The **market **is expected **to have **a 12 % return over a **forward period **with a return **variance **of 6%. **Calculate the expected return for a **portfolio consisting **of **equal proportion **of **stocks A, B, C and D

**OR**

21. Arvind is considering buying a Rs 1000 par value bond bearing a coupon rate of 11% that matures after 5 years. His required yield to maturity is 15%. The bond is currently sold at Rs 870. Should he buy the bond?

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