ABES IT Group of Institutions MBAFM 02: SECURITY ANALYSIS AND INVESTMENT MANAGEMENT MBA MODEL TEST PAPER-1 2011-12

Max. Marks: 100 Max. Time : 3 Hours ---------------------------------------------------------------------------------------------------------------Note: The question paper contains three Sections. All Sections are compulsory.

Section-I : Attempt all question.

(2 X 10 = 20)

1. What are different types of securities? 2. What do you mean by Expectation theory of Term structure of Interest rate? 3. Explain the relevance of factor in the investment analysis? 4. What is the relationship between primary and secondary market? 5. Write function of SEBI? 6. Write the assumption of Arbitage pricing theory? 7. Define Mutual Funds. 8. What do you mean by Passive Management of Portfolio? 9. Differentiate between Investment and Speculation. 10.Write for dividend based model of Equity Valuation Model.

Section-II : Attempt any three question.

(10 X 3 = 30)

1. Antique Arts company would pay Rs.2.50 as dividend per share for the next year and expected to grow indefinitely at 12%, What would be the equity value if the investor requires 20% return? 2. Arun buys a bond with four years to maturity. The bond has a coupon rate of 9% and is priced Rs.100 in the market. (a) What is the duration of the bond? (b) What is the percent change in the price of the bond if the interest rate rises to 10%? 3. Determine the price of a Rs.1000 zero coupon bond with a YTH of 15% and 10 year to maturity. 4. Pearl and Diamond are the two mutual funds. Pearl has a mean success of .15 and Diamond has .22. The Diamond has double the beta of Pearl funds 1.5. the standard deviations of Pearl and Diamond funds are 15% and 21.43%. The mean return of market index is 12% and its Standard deviation is 7. The risk free is 8%. (a) Compute the Jensen Index for each fund. (b) Compute the Treynor and Sharpe indices for the funds. Interpret the results.

5. The CAPM was estimated for some period in the market. The actual return of Two portfolios is given below: Portfolio A: Actual return = 14 per cent Beta = 0.8 Portfolio B: Actual return = 20 per cent Beta = 1.2 The equation of the CAPM is Ri = .07 + 10 bi What can be said about the portfolios performance?

Section-III : Attempt all question.

(10X5 = 50)

1- Mr. Mohan wants to buy Ant company stock which is currently selling at Rs

60without dividend payment. There is equal probability for the Ant stock to be sold at Rs 65 and Rs 80 during the next year. What is the expected return and risk if 300 shares are bought? Transaction cost is ignored. OR Cite an example of political or economic event that have affected the Indian stock market and company of your choice. 2- What is the value of Rs 1,000 bond that paying 5 per cent annual coupon rate in semi-annual payments over 5 years until it matures if its yield to maturity is 7 per cent? OR Bonds A and B have similar characters except the maturity period. Both the bondscarry 9 per cent coupon rate with the face value of Rs 10,000. The yield to maturityis 9 per cent. If the yield to maturity is to rise to 11 per cent what will be the respective price change in bond A with 7 years to maturity and B with 10 years to maturity?

3- Joan wants to buy Morning Star Co., shares that have paid a dividend of Rs 1.50 during the last financial year. Joan traditionally requires 18 per cent return from his investment. Analyst suggests that earnings and dividends on the stock will grow at a rate of 15 per cent for the next five years and thereafter at a rate of 10 per cent. What is the fair price expected by Joan? OR Equity shares of XYZ Ltd are currently traded at Rs. 22.50/share. The growth rate is expected at 12% & dividend at the end of the current year at Rs.2.50. Finds out the expected rate of return. What is the expected return if it is purchased at Rs. 25/share? If an investor requires a return of 18%, What maximum price he should be ready to pay for the share?

4- The CAPM was estimated for some period in the market. The actual return of two portfolios is given below: Portfolio A: Actual return = 14 per cent Beta = 0.8 Portfolio B: Actual return = 20 per cent Beta = 1.2 The equation of the CAPM is Ri = .07 + 10 bi What can be said about the portfolios performance? OR

The Joey and Sunil Corporations have the following probability distribution of returns for next year. State Boom Recesion Normal Recovery Slow Growth Probability .1 .2 .4 .1 .2 Return Joey Corp 16 -7 12 11 14 Sunil 22 -4 11 16 20

(a) Determine the expected returns for both the Corporations? (b) What is the covariance of returns? OR If the AB companys expected return is 18 per cent, the market return is 20 percent and the risk free rate is 6 per cent. (a) Determine the beta value for the stock AB. (b) What is stocks return if beta value for the stock is 1.1?

5- Following table provides the details about 3 portfolios. Portfolio 1 2 3 Market Index Return on Portfolio 18 14 15 13 Standard Deviation 27 18 8 12 r 0.8 0.6 0.9 ---

Risk free rate of interest is 9% (a) Rank these portfolios using Sharpess and Trenyor methods. (b) Compare both the indices. OR The Equity fund, T. Bills and BSE Sensex are assumed to have had the following returns over the past 5 years. Period Equity Fund Return percent 9 -3 15 14 18 Sensex Return percent 7 -1 12 13 16 T. Bill Return percent 5 4 6 9 8

20 2 20 3 20 4 20 5 20 6

(a) Determine the Equity Funds and coefficients for the 5 year period of time. (b) If the market return is 20 per cent and the risk free rate of return is 10 percent, what will be the value for the assured return of 25 per cent from the fund?