Question Bank Security Analysis And Investment Management
UNIT – I
Q.1 What do you mean by the investment and speculation? Distinguish between the invester and speculater?
Q.2 How do you evaluate a security? How is security analysis different from portfolio analysis?
Q.3 What do you understand by primary market and what are its components?
OR
What do you understand by primary market and what are its components?
OR
What do you mean by the primary equity market or new issue market?
Q.4 Write in detail a note on the current state of the Indian Stock Markets. How is the Indian Stock Market influenced by the International events? Give suitable examples of events in support of your answer.
Q.5 Discuss the relationship between the Primary and Secondary Market?
Q.6 Discuss in detail the measures taken by SEBI for protecting the rights of small investors in stock market.
Q.7 What are the guidelines issues by the SEBI in pricing and allotment of new issue?
Q.8 What are the powers vested with SEBI to promote the development of securities market and protect interests of investor?
Q.9 What is the procedure for buying and selling of shares?
Q.10 What do you mean by SEBI? Discuss its objectives and functions.
Q.11 How does SEBI regulate the primary market?`
Q.12 What is the bases meaning of Risk. Also discuss the compounds of systematic and unsystematic risk.
Q.13 What are the statistical tools used to measure the risk of the securities return? Explain.
Q.14 Explain the Random-walk Theory of EMH.
Q.15 What is the nature of equity instruments? Also discuss the various Equity valuation models.
Q.16 What do you mean by the Macroeconomic Analysis?
Q.17 Explain the uses of industry life cycle approach to an industry analyst. Which stage of it is mose appropriate and why?
Q.18 What do you mean by the Company Analysis?
Q.19 “Fundamental analysis helps in analyzing the fundamentals whereas technical analysis helps in analyzing the timing of the market” – Discuss.
OR
What are the basic dimensions of Fundamental analysis? How fundamental analysis is different from technical analysis?
OR
What is the Technical Analysis? Also discuss its basic assumptions and distinguish between the Technical Analysis and Fundamental Analysis.
Q.20 Explain the Dow Theory of Technical Analysis.
Q.21 Discuss the various Bond Value Theorems.
Q.22 Discuss the term structures of the interest rate. How do theories explain the term structure of the interest rate?
Q.23 Discuss various characteristic features of futures contracts. What is the role of clearing corporations in trading of such contracts?
OR
What do you mean by futures? Also discuss the features of futures contract.
Q.24 What do you mean by Portfolio? Also discuss the Portfolio Risk and Return.
Q.25 Define Beta as a measure of risk.
Q.26 Discuss the various calculation of Beta.
Q.27 Explain the Markowitz’s Theory of Portfolio selection.
Q.28 Explain the Single Index model of Portfolio Selection.
Q.29 What do you mean by CAPM? Discuss its basic assumptions.
Q.30 Explain the Arbitrage Pricing Theory.
Q.31 What do you mean by the interrelationship among various phases of portfolio management?
Q.32 How can you evaluate the performance of existing portfolio?
Q.33 What do you mean by the Portfolio Revision?

NUMERICALS

Q.1 The returns on securities A and B are given below:
Probability Security A Security B
0-5 4 0
  
  
Give the security you preference. The security has to be selected on the basis of return and risk.
Q.2 An investor has a choice of four stocks for investment. Their rates of return and probabilities are given below:
A B C D
r p% r p% r p% r p%
–30 20 –20 15 –20 20 –10 10
0 40 0 35 10 40 0 25
30 30 20 45 40 30 10 40
70 10 40 5 80 10 20 25
(a) Are all these stacks attractive investments? Give reasons.
(b) Of those that are attractive, how should the investor choose on to buy?
Q.3 Following data give the market return and the Sun Company Scrip’s return for a particular period.
Index return (Rm)
Return (Ri) Scrip
0.50
0.60
0.50
0.60
0.80
0.50
0.80
0.40
0.70 0.30
0.60
0.40
0.50
0.60
0.30
0.70
0.50
0.60

(a) What is the beta value of the Sun company Scrip?
(b) If the market return is 2, what would be the scrip return?
Q.4 Arvind considers Rs. 1000 per value bond bearing a coupon rate of 11% that matures after …..years. He wants a minimum yield to maturity of 15. The bond is currently sold are Rs. 870. Should he buy the bond?
Q.5 A bond of Rs. 1000 face value, bearing a coupon rate of 12% will mature after 7 years. What is the value of the bond if the discount rtes are 14% and 12%?
Q.6 Arun buys a bond with four years to maturity. The bond has a coupon rate of 9 percent and is priced Rs. 100 in the market.
(a) What is the duration of the bond?
(b) What will be the percentage change in the price of the bond if the interest rate rises to 10 percent?
Q.7 Anand owns Rs. 1,000 face value bond with five years to maturity. The bond has an annual coupon of Rs. 75. The bond is currently priced at Rs. 970. Given an appropriate discount rate of 10% should Anand hold or sell the bond?
Q.8 Prem is considering the purchase of a bond currently selling at Rs. 878.50 The bond has four years to maturity, face value of Rs. 1,000 and 8% coupon rate. The next annual interest payment is due after one year from today. The required rate of return is 10%.
(a) Calculate the intrinsic value (Present value) of the bond. Should prem buy the bond?
(b) Calculate the yield to maturity of the bond.
Q.9 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?
Q.10 Anil has bought the Everest company stock that has paid Rs. 3.00 as dividend per share during the last financial year. He anticipates two situations either a 5 per cent decline in the dividend or 5% growth in the dividend in the next year. His anticipated return in 20% . Fix the price for both the situation.
Q.11 The common stock of Bulls corporation is currently selling for Rs 70 per share. Dividend per share has grown from Rs. 2 to the current level of Rs. 6 over the past ten years and this dividend growth is expected to continue in future. What is the required rate of the Bulls corporatior?
Q.12 The Grace & Co. has common shares outstanding in the market with price earnings ratio of 15. The annual expected growth in earnings, dividends and price is 7 percent. The earnings per share is Rs. 2.5, the dividend payout is 60% and the investor wants to hold the stock for 4 years. The required rate of return in 15 percent. What would be the present value?
Q.13 In a hypothetical condition, Ajit, an active stock broker purchases one contract in June on NSE index futures and in Marck 1999. The contract size is assumed to be 500. The NSE 50 market index in March was 1025. In June, the index has risen to 1060. What is his profit? Ignore the commissions and margin interest costs. If the stock price index has fallen to 1010, what would be the loss of Ajit?
Q.14 Mr. Kirthi is bearish on the stock of Vinayl corporation. Therefore, he purchase 5 put option contracts on Vinayl shares for a premium of Rs. 3. The exercise price is Rs. 41 and it has a maturity period of 3 months. The current market price of the stock is Rs 40. If Mr. Kirthi is correct and the Vinayl’s price fall to Rs. 30, how much profit will he earn over 3 month period?
Q.15 Mr. Sekhar wants to earn by writing call option on Mahima Corporation’s Stock. The current price of the stock in Rs 28 and Shekhar wants to write a 4 month call option with the striking price of Rs. 30. Sekhar wants to determine the appropriate premium to charge for the call option. The stock’s standard derivation is 3. The riskless rate of interest is assumed to be 10 percent. Determine the premium value.
Q.16 An investor has obtained the following details regarding Orge Corporation call option. The current price of the stock is Rs. 45. And the strike price is its. 40 for a three month option. The standard deviation is .52, the risk less rate of interest is assumed to be 10 percent.
(a) Determine the value of the call option.
(b) If the current price of a call on Orge’s Corporation stock is Rs. 7. What should an investor do to make money?
Q.17 Anand is considering the purchase of three securities A, B and C for the next year. The returns of the securities depend on next year’s state of the stock market. The estimated rates of return are shown in the table.
State of Market
Probability of occurrence Rates of Return of securities
A B C
Recession Average Boom 0.25
0.50
0.25 10%
14%
16% 9%
13
16% 14%
12%
10%
(a) Find each stock’s expected rate of return standard deviation, and co-efficient of variation.
(b) Apply mean, variance criterion to the alternative investments.
(c) If Anand invest one third on each security what would be his portfolio return?
(d) What are the convariances between security A and B, B and C and A and C?
Q.18 Using the details given in question 5, if equal amount of funds are invested in these securities, what will be portfolio risk?
Q.19 The SAL and GAL Corporations have the following risk and return status.
Rs = 15%, RG = 17%
σS = 30% σG = 25%
rSG = .5
Determine the minimum risk portfolio.
Q.20 Taking the previous example, what are the stocks to be held long and short assuming short sales?