ASSIGNMENT - INVEST IN STOCKS COMPRISING OF DJIA

1 2 Amount of own funds - INR 1,00,00,000 Convert own finds in INR into USD Currency conversion rate shall be the rate prevailing on 7th December 2012 as reported in the newspapers next day. (Which newspaper to refer can be decided subsequently) Amount of borrowing in USD - 25% to 100% of own funds Total amount to be invested = Own funds + Borrowed funds Invest in stocks comprising of DJIA Investment in stocks shall be made on the same day, i.e., 7th December 2012. The investment shall be made taking the closing rate for the said day. Information should be collected from the website of the exchange or any other reliable source. Maximum investment in any one company's stock shall not exceed 30% of the total amount available. Minimum investment in any one company's stock shall not exceed 5% of the total amount available. The portfolio shall comprise of a minimum of stocks of five entities and maximum of stocks of 10 entities. The portfolio shall be liquidated in the first week of March 2013. The stocks are to be sold on the basis of the closing rate prevailing on the date of portfolio liquidation.

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The conversion of the liquidated USD value of the portfolio into INR shall be made on the basis of the rate prevailing on that date as reported in the newspaper next day.

The expected receipt in INR on the liquidation date shall be compulsory hedged after one month 13 in the first week of January 2013. On the same day the portfolio can be revised for better performance. This is the only revision that shall be permitted. 14 There will be three reports submitted for this assignment. The first report shall be submitted before 15th of December 2012. This report shall indicate the amount invested in various stocks. It should also indicate the following: 1 2 3 4 5 reasons for investment in each company's stock, the expected value for each stock and the portfolio on the date of liquidation the exchange rate (USD/INR) on the date of liquidation, the value in INR after conversion on the date of liquidation, the profit / (loss) on liquidation reported in INR [how pessimist can you be if you are reporting a loss in the first report?!]

The second report shall be submitted in the second week of January 2013. This report shall contain the hedged position using either currency futures or currency options or both. Currency futures and options shall be the ones traded on NSE. A revision and reallocation of funds to various stocks of the portfolio can be made on the day of the hedge. This report too shall contain the estimates of the stock and exchange rate values on the date of liquidation and the profit loss expected.

The third report shall be submitted immediately on liquidation of the portfolio and repatriation of the sums after conversion into INR. This report shall contain: 1 2 3 the value realised on the sale of stocks that comprise of the portfolio on liquidation in USD the converted value of the portfolio in INR the profit / (loss) on the portfolio. Analysis of the profit / (loss) after conversion into INR. What part of the profit loss is due to appreciation / (depreciation) of the portfolio and what part is due to the appreciation / deprecation of the USD / INR currencies. Analysis of what would be the profit / (loss) had there been no hedge. 1

Initial Cash Flows

Own money (INR) Conversion rate Own money in USD Borrowing in USD Total amount available for investing (USD) 10,000,000 54.34 184,026.50 55,207.95 239,234.45

Borrowing details
Loan amount ($) Interest rate (Libor rate for 3 month $ + 6%) Interest for 3 months ($) Loan repayment amount with interest ($) 55,207.95 0.063095 871 56,079

Portfolio Details
S N 1 2 3 4 5 6 7 8 9 10 239221.04 239221.04 100 242,482.54 Code CAT PFE GE PG Company Caterpillar Inc. Pfizer Inc. General Electric Co Proctor & Gamble Number of Shares 690 936 2,220 512 1,237 562 124 Rate ($) 86.99 25.56 21.46 70.29 19.34 42.56 191.95 Amount ($) 60023.1 23924.16 47641.2 35988.48 23923.58 23918.72 23801.8 Proportion (%) 25 10 20 15 10 10 10 Estimated rate ($) 87.99 25.99 21.79 71.39 19.61 43.15 193.64 Estimated Amount ($) 60714.97786 Why are you investing in this stock? Highest market cap and increase in growth. Good Fundamentals

24329.02287 Leading pharmaceutical. Planning to invest in the future. Highest Market Cap. 48370.88347 36551.05834 Increase in EPS and sales growth FMCG industry and increase in market price

CSCO Cisco JPM IBM JP Morgan Chase& Co. International Business Machinery & Co.

24257.1821Earnings of the company are expected to increase. Highest market cap 24247.89328 24011.51999 Increasing market price. Increase in sales growth. Estimated increase in EPS.

Estimated Terminal Cash Flows

A B C D E F G H Maturity proceeds of investment ($) Cash in hand ($) Loan repayment with interest ($) Cash Flows net of loan repayment ($) Expected exchange rate ($/) Cash flows in INR Initial Investment (own money) () Profit / (Loss) 242,483 13 56,079 186,417 186,417.16 55.60 10,364,794 10,000,000 364794.096 13.41

CAT PFE GE PG CSCO JPM IBM

2.08 0.88 0.68 2.25 0.56 1.2 3.4

0.023 0.035 0.031 0.032 0.028 0.028 0.018

86.99 25.56 21.46 70.29 19.34 42.56 191.95

1.046911 1.069429 1.062687 1.06401 1.056956 1.056195 1.035713

87.99272 25.99255 21.78869 71.38879 19.60969 43.14572 193.6413