Amity MBA 3rd Sem ASODL Equity Research and Portfolio Management

Assignment A

Question 1.(i) Sweat equity is the best form of reward for those who contribute to the growth of a company. Discuss.

(ii) Why do investor add real estate in their portfolio?

(iii) What are the steps taken by SEBI in the primary market to protect investors?

Question 2 (i) Discuss the dematerialisation and rematerialisation processes in NSDL?

(ii) ‘Stock market indices are the barometers of the stock market’ – Discuss?

(iii) How can increasing short interest give a bullish interpretation Why?

Question 3.(i) Explain the utility of the economic analysis and state the economic factors considered for this analysis.

(ii) What is meant by fundamental analysis? How does fundamental analysis differ from technical analysis?

(iii) What “industry life cycle exhibits the status of the industry and gives the clue to entry and exit for investors” Elucidate.

Question 4.Stocks L and M have yielded the following returns for the past two years.

(i) What is the expected return on portfolio made up of 60 percent of L and 40 percent of M? Find out the standard deviation of each stock.

(ii) What is the covariance and co-efficient of correlation between stock L and M?

(iii) What is the portfolio risk of a portfolio made up of 60 percent of land 40 percent

Question5. For the first four years XYZ firm is assumed to grow at a rate of 10 per cent. After four years the growth rate of dividend is assumed to decline linearly to 6 per cent. After 7 years, the firm is assumed to grow at a rate of 6 per cent infinitely. The next year dividend is Rs.2 and the required rate of return is 14 per cent. Find out the value of the Stock.

Question 6.Mr. Rajan Tiwari is planning to invest in the equity stocks of Xerox India Limited. The current share price is Rs.150 per share. Xerox has declared a dividend of Rs.10 per share for the current year. Mr. Tiwari is of the opinion that the dividend per share will remain at the same level for the next two years, after which it will grown at the rate of 25% per annum in the third and fourth years. From the fifth year onwards, dividends are expected to grow at a

normal rate of 12% per annum. If the required rate of return of Mr. Tiwari is 14% per annum, do you suggest him to purchase the share at the current price.

a. Intrinsic value of the stock is Rs.551.98 and it is recommended to purchase the share

b. Intrinsic value of the stock is Rs.551.98 and it is nor recommended to purchase the share.

c. Intrinsic value of the stock is Rs.517.83 and it is recommended to purchase the share.

d. Intrinsic value of the stock is Rs.517.83 and it is not recommended to purchase the share

e. Intrinsic value of the stock is Rs.150 and it is recommended to purchase the share.

Question 7. Vishnu ltd, has just paid a dividend of Rs.16 per share. As a part of its major reorganization of its operations, it has stated that it does not intend to pay any dividend for the next two years. In three years time it will commence paying dividend at Rs.12 per share and the directors have indicated that they expect to achieve dividend growth at 14% p.a.thereafter.

If the reorganization does not take place, dividend will be paid in the next two years and the expected dividend growth will remain at the present level of 8% p.a. The firm’s cost of equity is 18% (i.e. the return expected by the equity investors) and will be unaffected by the reorganization. What will be the value of firm’s shares in both the situations? Moreover, advice the directors to which process they should adopt for?

Question 8. Sundaram finance Ltd. has an investment opportunity available which will involve a capital outlay in each of the next 2 years and which will produce benefits during the following 3 years. A summary of the financial implications of this investment is given below.

Assignment B

Read the case study given below and answer questions given at the end.

Case study

Question 1. Compute the beta and interpret it for Prashant. Examine different circumstances with analysis of data.

Assignment C

1. Which of the following is /are true?

a. All investments are speculative by nature

b. Genuine investments involve calculated risks which are consistent with the expected returns

c. The ultimate objective of an investment or speculative stock is to increase the terminal wealth of the person concerned

d. Both b and c above

2. Which of the following is not an investment constraint?

a. Liquidity

b. The absence of the need for regular income

c. the preferred time horizon

d. Risk tolerance

3. A straight debenture is one which

a. Offers straight interest payments and is redeemed at par

b. Can be transferred by simple endorsement and delivery

c. Does not have a charge on any of the company’s assets

d. Is automatically converted into a share at maturity

4. The issuing company has to create a Debenture Redemption Reserve up to _________ of the amount of debentures to be redeemed, before the date of redemption

a. 10%

b. 25%

c. 30%

d. 50%

5. Which of the following is not a non-security form of investment?

a. National savings scheme

b. Purchase of gold and art objects

c. Bank deposits

d. Corporate fixed deposits

6. Corporate fixed deposits

a. Are secured by the fixed assets of the issuing company

b. Have no upper limit on the interest rate they offer

c. Have a minimum maturity of 3 years

d. Cannot exceed 10% of the share capital plus free reserves

7. The threshold limit for total FII investments in an Indian company is

a. 10%

b. 24%

c. 30%

d. none

8. Risk(s) affecting all the securities in the market is/are

a. Risk due to variability in returns due to changed investors’ expectations

b. Financial risk

c. Inflation risk

d. both a & c

9. The risk for the whole market as measured by ‘Beta’ is

a. 1

b. b. 0

c. c. -1

d. Greater than 1

10. Of the following, systematic risk encompasses

a. Business risk

b. Inflation risk

c. Interest rate risk

d. Both b and c

11. Securities which are plotted above the SML line are

a. Under priced

b. Over priced

c. Favourable investments

d. Both a and c

12. Covariance between a stock and a market index and the variance of the market

index were found to be 33.56 and 19.15 respectively. The Beta of the stock is

a. 1.55

b. 1.75

c. 1.85

d. 1.95

13. The beta of a stock is 1.12 and its covariance with the market is 220. The

standard deviation of market returns is

a. 16%

b. 14%

c. 12%

d. 11.30%

14. The characteristic line established the relationship between

a. Return on a security and its beta

b. return on a security and its standard deviation

c. Return on the security and return on the market

d. Risk of the security and risk of the market

15. Which of the following statements is true?

a. Slope of SML is known as beta

b. Slope of CML is known as beta

c. CML includes inefficient portfolios

d. CML is a relationship between total risk and required return.

16. Government securities are free from

a. Default risk

b. Purchasing power risk

c. Interest rate risk

d. Reinvestment risk

17. Riskiness’ of a security in the context of security analysis essentially means

a. Variability of the security’s returns

b. Variability of returns above a benchmark mentioned by clients

c. Variability of returns below a benchmark mentioned by clients

d. Market risk

18. Market Indicators are employed in

a. Studying the behavior of the stock market

b. Evaluating the performance of the portfolios

c. Calculating betas of the securities

d. All of the above

19. As the business cycle enters the initial phase of economic recovery the stock

prices generally

a. Decline

b. Maintain the same trend as before

c. Rise

d. Rise to an extent and then take a downturn

20. Cyclical industries are those

a. Which experience high growth rates when economy is booming

b. Which perform irrespective of the economic conditions

c. Which experience downtrend when economy is in recession

d. Both a and c

21. High growth rates in earnings and market shares is a characteristic of companies which are in

a. Maturity stage

b. Expansion stage

c. Pioneering stage

d. Declining stage

22. Which among the following is not volatile?

a. Cyclical growth industries

b. Growth industries

c. Cyclical industries

d. Defensive industries

23. In a balance sheet, equity and fixed assets are expressed in terms of their

a. Market value

b. Cost

c. Book value

d. Replacement value

24. The measurement of leverage is

a. PAT/Equity

b. Equity/Debt

c. Total assets/Equity

d. Total assets/Debt

25. Which of the following is/are cyclical industries?

a. Steel and Iron

b. Construction

c. Shipping

d. Cement

26. An industry in the expansion stage of its life cycle is indicated by

a. High P/E ratios

b. High dividend pay out ratios

c. High dividend yield

d. High investment in R & D

27. A business division with high growth but low relative market share is referred

to as a

a. Cash cow

b. Profit center

c. Question Mark

d. Star

28. during an inflationary period a company can artificially show higher profits by

a. Moving from FIFO and LIFO method of inventory valuation

b. Moving from LIFO to FIFO method of inventory valuation

c. Shifting from FIFO to the weighted method of inventory valuation

d. None of the above

29. An industry in the growth stage of its life cycle is indicated by

a. High P/E ratios

b. High dividend pay out ratios

c. High dividend yield

d. High investment in R & D

30. Which of the following is not an entry barrier?

a. Profit differentiation

b. Switching costs

c. Capital requirements

d. Low value addition

31. For a symmetrical triangle to be formed in a series of rallies

a. The succeeding peaks are lower than the preceding ones at the top

b. The succeeding crest at the bottom are lower than the preceding ones

c. The succeeding crest at the bottom are higher than the preceding ones

d. Both a and c

32. If a vertical rally or decline comes to a temporary halt to consolidate the

gain/loss after which the prices move in the same direction, give rise to

a. Flag

b. Rectangle

c. Gap

d. Both a and b

33. Which of the following is a measure of momentum against itself?

a. Relative strength indicator

b. Rate of change

c. MACD

d. Stochastic

34. In a technical analysis the exponent value for calculating a 10 day Exponential

Moving Average will be

a. 0.2

b. 0.1

c. 2

d. 20

35. In technical analysis the odd-lot theory is a classic example of

a. Oscillator

b. Breadth of market indicator approach

c. Contrarian opinion theory

d. Dow Theory

36. The argument that when stock prices increase, the closing prices have a tendency to be closest to the peaks of the period, forms the basis of

a. Exponential moving average

b. Confidence index

c. Elliott wave theory

d. Stochastic

37. Which of the following best measures the strength of market advances of

declines?

a. Moving average analysis

b. Stochastic

c. Gap analysis

d. Breadth of market indicators

38. Which of the following is an assumption of technical analysis?

a. market value is determined by the interaction of different judgmental value parameters

b. Supply and demand are governed by factors which are only rational

c. Stock prices tend to fluctuate widely over appreciable period of time and hence

cannot be predicated

d. Chart patterns tend to repeat themselves

39. An investor buys an option contract for a premium or Rs. 200. The exercise price is Rs. 20 and the current market price of the share is Rs. 17, if the share

price after three months reaches Rs. 25, what is the profit made by the option

holder on exercising the option. Contract is for 100 shares. Ignore the transaction charges

a. Rs. 200

b. Rs. 250

c. Rs. 300

d. Rs. 350

40. A put option was written at a premium of Rs. 400. The current market price of

the stock is Rs. 38 and the exercise price of the contract is Rs. 35. After a

period of two months the price of the stock is Rs. 30. The amount of the profit

made by the option holder is Rs. ___________

a. 325

b. 250

c. 150

d. 100

Or

 

1. India’s largest stock exchange is
2. Stock exchanges have  roles in the economy
3. There is usually…….compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange.
4. Buyers and sellers come together to trade ………specific hours on business days.
5. If a particular company is traded on an exchange, it is referred to as ……….
6. When people draw their savings and invest in shares, it leads to a more …………. allocation of resources
7.   Exchanges ……… rules and regulations on the firms and brokers that are involved with them.  
8. investing in shares is open to ……… the large and small stock investors
9. Companies that are not listed on a stock exchange are sold ……..
10. An exchange is an institution, organization, or association which hosts a market where stocks, bonds, options and futures, and commodities are traded. 
11. Listing requirements are the set of conditions imposed by a given ……… upon companies that want to be listed on that exchange
12. Stock exchanges originated as ……. organizations, owned by its member stock brokers.
13. Some exchanges are physical locations where transactions are carried out on a ……….. floor, by a method known as open outcry
14. Actual trades are based on an auction market model where a potential buyer bids a specific price for a ………and a potential seller asks a specific price for the stock. 
15. The stocks are listed and ,……….on stock exchanges 
16.   When a company is delisted, it is a serious sign of financial or managerial trouble and generally causes the stock price to ……………
17. The exchanges provide real-time trading information on the listed securities, facilitating price discovery.
18. Companies that have shares traded OTC are usually …………… and riskier 
19.   The ……… monitors the transactions to avoid illegal activity and / or stock price manipulation.
20. The NASDAQ is a …… listed exchange, where all of the trading is done over a computer network
21. The ……….. that an exchange provides affords investors the ability to quickly and easily sell securities. 
22. the price of shares and other assets is an important part of the dynamics of ….activity
23.   Stock exchange “specialists” play a ………. role in the process, helping to keep an orderly market by deftly matching buy and sell orders.
24. Exchanges also act as the………… for each transaction
25. stock exchanges are……… of a global market for securities.
26. Stock valuation models are methods to value ……..
27. ……….is probably the most common model that you ever heard when it comes to stock valuation
28. The discounted rate normally includes a risk …….. which is commonly based on the capital asset pricing model.
29. Some feel that if the stock is listed in a well organized stock market, with a……….. volume of transactions, the listed price will be close to the estimated fair value
30. Fundamental analysis of a business involves analyzing its financial statements and health, its management and ….. advantages, and its competitors and markets.
31. Fundamental analysis is performed on historical and present data, but with the goal of making …..forecasts. 
32. the discounted cash flow (DCF) method, involves …….. of the profits
33. Investors may use fundamental analysis within different …..management styles.
34. Technical analysis is a security analysis discipline for forecasting the……..direction of prices through the study of past market data, primarily price and volume.
35. Technical analysts may employ models and trading rules based on price and volume transformations, such as the relative strength index, ……. averages, regressions
36. in addition to fundamental economic criteria, ………….. criteria also have to be taken into account market-based valuation.
37. Technical analysis ….. that prices already reflect all such influences before investors are aware of them
38. The term business cycle (or economic cycle) refers to economy-wide fluctuations in production or ………….activity over several months or years. 
39. economic theory has moved towards the study of ………. fluctuation rather than a ‘business cycle
40. managing economic policy to smooth out the cycle is a ……….. task in a society with a complex economy.

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