SVKM’S NMIMS

School of Business Management

Programme: MBA Year: II, Trimester: V
Academic Year: 2020 - 2021
Course: Investment and Portfolio Management Marks: 40
Date: 2 Dec 2020
Time: 10.00 a.m. to 1 p.m.

Final Examination (2020 - 2021)

Instructions
1. This is an open-book, application- oriented, excel-based question paper.
2. The question paper consists of four questions, each carrying 10 marks. Answering all the questions
is compulsory.
3. You are being provided an Excel file DATA.xls for all the datasets required with the question paper.
4. You have to answer all the questions in a single Excel file which you have to submit. Even descriptive
(text) questions should be answered in the same Excel file.
5. You may use one or more worksheets for each answer, but begin the answer to each new question (Q1
to Q4) in a separate worksheet.
6. You have three hours to submit your excel files on the portal. Please adhere to the submission
guidelines which have been communicated to you.
7. There are no right or wrong answers. Grading will be based on originality of approach, understanding
of the relevant concepts, and the thought process.

Q1. (10 marks)

Data 1: Financial and valuation metrics for 30 index stocks.

Task: Select any 10 stocks out of the 30 stocks to form a portfolio.

a. Describe your investment strategy, providing a rationale for the same. Explain how your strategy is
consistent with either the theories or your beliefs regarding market behaviour (market efficiency/
behavioural biases/asset pricing).

Note: There is no one right strategy, but you have to justify the one that you are using. The value of
your strategy will be assessed based on the soundness, originality and appeal of your description. Do
not use the investment strategy that you used for the portfolio assignment.

b. Describe your stock selection methodology step-wise. The methodology must follow from your
investment strategy described in your answer to Q1a above. It can be involve either quantitative
screening or alternatively can be judgement-based. Given the available information, your methodology
will be considered sound if it is either based on empirically established factors attributed to behavioural

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 biases or on relative valuation compared with fundamental ratios. Apply your methodology to select
any 10 stocks.

Q2. (10 marks)

Data 2: Beta, standard deviation and covariance matrix of the 30 index stocks.

Task: Determine an optimal portfolio consisting of the 10 stocks which you selected in Q1.

a. Determine the optimal portfolio (P) consisting of the 10 stocks. Use CAPM to determine expected
returns. Assume that you cannot borrow or short sell. Your optimization should ensure sufficient
diversification and you should try to mitigate the risk of unreliability of optimization inputs.

b. Now assume some objective and constraints for a target investor. Hence decide the optimal portfolio
(T) for the target investor.

Q3. (10 marks)

Data 3: Actual returns of the 30 index stocks next year after portfolio formation; sector-wise returns for the
index.

Task: Evaluate the performance of optimal portfolio (P) that you created in Q2a.

a. Estimate your portfolio’s annualised performance choosing any 3 performance measures which you
consider most relevant, and provide you comments on the same.

b. Attribute your portfolio’s performance to sector allocation and security selection components, using
the index as the benchmark and your portfolio’s weights versus the index weights.

Q4. (10 marks)

Data 4: Expected returns across asset classes. (For domestic stocks take the expected returns and standard
deviation of your optimal stock portfolio as estimated in Q2a.)

Task: Evaluate the impact of asset-class diversification on risk-return trade-off

a. Demonstrate the improvement in risk-return trade-off of your portfolio, if any, if you diversify across
the asset classes as compared to holding only the equity portfolio.

b. Explain with justification the rebalancing strategy you would prefer to adopt for the multi-asset class
portfolio, considering the trade-offs involved.

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