BA5012 Security Analysis and Portfolio Management Dept of MBA 2019-20

BA5012 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT LTPC

3 0 0 3
OBJECTIVES :
Enables student to
 Understand the nuances of stock market operations.
 Understand the techniques involved in deciding upon purchase or sale of securities.

UNIT I INVESTMENT SETTING 8

Financial and economic meaning of Investment – Characteristics and objectives of Investment –
Types of Investment – Investment alternatives – Choice and Evaluation – Risk and return
concepts.
UNIT II SECURITIES MARKETS 10
Financial Market - Segments – Types - Participants in financial Market – Regulatory
Environment, Primary Market – Methods of floating new issues, Book building – Role of
primary market – Regulation of primary market, Stock exchanges in India – BSE, OTCEI , NSE,
ISE, and Regulations of stock exchanges – Trading system in stock exchanges –SEBI.
UNIT III FUNDAMENTAL ANALYSIS 9
Economic Analysis – Economic forecasting and stock Investment Decisions – Forecasting
techniques. Industry Analysis : Industry classification, Industry life cycle – Company Analysis
Measuring Earnings – Forecasting Earnings – Applied Valuation Techniques – Graham and
Dodds investor ratios.
UNIT IV TECHNICAL ANALYSIS 9
Fundamental Analysis Vs Technical Analysis – Charting methods – Market Indicators. Trend –
Trend reversals – Patterns - Moving Average – Exponential moving Average – Oscillators –
Market Indicators – Efficient Market theory.
UNIT V PORTFOLIO MANAGEMENT 9
Portfolio analysis – Portfolio Selection –Capital Asset Pricing model – Portfolio Revision
Portfolio Evaluation – Mutual Funds.
TOTAL: 45 PERIODS
OUTCOME
 Become a good investment analyst

REFERENCES :
1. Donald E.Fischer & Ronald J.Jordan, Security Analysis & Portfolio Management, PHI
Learning., New Delhi, 8th edition, 2011.
2. Prasannachandra, Investment analysis and Portfolio Management, Tata McGraw Hill, 2011.
3. Reilly & Brown, Investment Analysis and Portfolio Management, Cengage, 10th edition,
2016.
4. S. Kevin , Securities Analysis and Portfolio Management , PHI Learning , 2012.

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Course Outcomes (COs):

Units
No. Description
covered
Understanding the basic environment of Indian financial systems
CO230. 1 1
especially investment options and their risk and return.
Understanding the mechanism and functioning of primary and secondary
CO230. 2 2
markets of capital market and intermediaries
Ability to analyze and predict securities risk and return using
CO230. 3 3
fundamental analysis.
Skill to predict share price movements and make decisions using
CO230. 4 4
different methods of technical analysis.
Ability to analyze, evaluate and manage portfolio of securities based on
CO230. 5 5
various techniques.

Attainment of POs and PSOs through COs (Legends : 1 – Low , 2 – Medium, 3 – High)

PSO 3

PSO 5
PSO 1

PSO 2

PSO 4
PO 1

PO 2

PO 3

PO 4

BA7206 PO 5

CO230. 1 3 3 3 2 1 3 2 1 3 1

CO230. 2 3 3 3 2 1 3 2 1 3 1

CO230. 3 3 3 3 2 1 3 2 1 3 1

CO230. 4 3 3 3 2 1 3 2 1 3 1

CO230. 5 3 3 3 2 1 3 2 1 3 1

RELATION BETWEEN COURSE CONTENT / EXPERIMENTS WITH CO

S.No Knowledge UNIT Course

1 level
R,U,E,An&Ap Investment Setting Outcomes
CO230. 1
2 U,Ap,An,E&C Securities Markets CO230. 2
3 R,U,E,Ap,An&C Fundamental Analysis CO230. 3
4 R,Ap,An&E Technical Analysis CO230. 4
5 U, Ap,An,E&C Portfolio Management CO230. 5
R – Remember, Ap – Apply, An – Analyze, U- Understand, E-Evaluate, C-Create

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UNIT I
PART A
1. What is Investment? (Jun 2013, Dec 2015, Jun 2017, Dec 2017, Dec 2018)
Investment is the employment of funds on assets with the aim of earning income or capital
appreciation. Investment means conversion of cash or money into monetary asset or a claim for a
return. Investment has two attributes namely time and risk. Present consumption is sacrificed to
get a return in the future, hence it involves time factor.
2. Distinguish between Investment and speculation. (Dec 2012, Dec 2011, Dec 2015)
Investor Speculator
Plans for a longer time horizon Plans for a very short period. Holding
Time period varies from few days to
months
Risk Assumes moderate Willing to undertake high risk
Return Likes to have moderate return Like to have high return
Decision Considers fundamental factors Consider inside information
Uses his own funds and avoids Use borrowed funds
Funds
borrowed funds
3. Distinguish between Investment and Gambling? (June 2013)
The time horizon involved in gambling is shorter than speculation and investment. People
gamble as a way to entertain those earning incomes would be secondary factor. Gambling
employs artificial risk whereas commercial risks are present in the investment activity.
4. Define “Security” as per security contract regulation act.(Dec 2013)
Security provides a claim on the asset and any future cash flows that the asset may generate.
According to the Securities Contracts Regulation Act 1956, securities include shares, scrips and
bonds, debentures or other marketable securities of any incorporated company or other body
corporates, or government.
5. State the features of preference shares.(Dec 2013)
The claim on the company’s income is limited and they receive fixed dividend. In the event of
liquidation of the company their claims on the assets of the firm are also fixed. These
shareholders do not enjoy any of the voting powers except when any resolution affects their
rights. At the same time like equity, it is a perpetual liability of the corporate.
6. What are the different types of mutual fund schemes?
Open end scheme and Closed end Scheme, Income scheme and growth scheme and Balanced
Scheme, Sectoral Scheme, Money Market Mutual Fund and Tax Saving Fund
7. What are the money market instruments available for investment?
Money market securities have short term maturity say less than a year. Common money market
instruments are treasury bills, commercial papers and certificate of deposits.
8. What is demutualisation of stock exchanges?
“Demutualisation” means the segregation of ownership and management from the trading rights
of the members of a recognised stock exchange in accordance with a scheme approved by the
Securities and Exchange Board of India.
9. What are three components of an investor’s required rate of return on an investment?
(Dec 2010)
Components of required rate of return are dividend, purchase price and selling price
10. What are the agencies involved in investor protection?
Securities Exchange Board of India, Company Law Board and Stock Exchanges

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11. What is security analysis?

It is the process of analyzing the individual securities and the market as a whole and estimating
the risk and return expected from each of the investments with a view to identifying undervalued
securities for buying and overvalued securities for selling.
12. Distinguish between real and financial assets. (May 2011)
Real assets are physical assets such as land, building, machinery etc where as financial assets are
securities namely shares, bonds, derivatives etc.
13. How is expected return calculated? (May 2011)
Expected return = ∑PiRi or ∑Ri/N Pi is probability of ith security return; R i stands for return of
ith security and N stands for number of securities.
14. What is a risk free asset? (May 2011)
Risk free rate refers to return earned on security or investment with zero risk. For example in
india treasury bill is considered to be risk free security.
15. A stock was purchased in the beginning of the year for Rs. 1110, the expected dividend
for the year was Rs.10. the stock was sold for Rs.1108 at the end of the year. Compute
the holding period return. (Dec 2011)
Return = [10+ (1110-1108)] = 0.72%
16. Define systematic risk (June 2012, May 2017)
Systematic risk is the risk due to fluctuations of market as a whole. It is known as beta.
17. What do you mean by hybrid security? (June 2012)
Hybrid securities are the securities which have positive features of both debt and equity
18. Why do so many types of equity securities exist? (Dec 2012)
As needs of investors are different from each other in terms of return, risk, time of maturity etc,
many types of securities are created to suit their requirements.
19. What is capital appreciation? (Dec 2014)
It is the difference between purchase price and current price or selling price.
20. Why do investors invest in gold and silver? (Dec 2014)
Price of gold and silver are highly stable. The liquidity is very high and risk is very less.
21. Write the economic meaning of investment (Dec 2016)
It is a net addition to the stock of capital for a particular period of time.
22. What is risk in investment management? (Dec 2016, Dec 2017, Dec 2018)
Risk in variability in return or the difference between expected return and actual return.
PART B
1. Explain the term investment in economic sense and financial sense and investment process
and investment objectives? (Dec 2015,May 2017,Dec 2017)
2. What are different sources of investment information?
3. What are the provisions available in SCRA act with respect to recognition stock exchanges
and members?
4. Explain the different types of investment alternatives available for a common
investor(Dec2010,May2013,Dec2011,May2011,Dec2013,Dec2014,Dec2015, Dec2016)
5. Explain with example how investment opportunities should be evaluated on the basis of risk
return trade off. (May 2011)
6. Why do people invest? Explain the characteristics and objectives of investment based on type
of investors. (June 2012, Dec 2018)
7. “Without adequate information the investor cannot carry out his investment programme”
elucidate. (Dec 2012)

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8. Explain the portfolio risk and portfolio return (Dec 2012, Dec 2017)
9. Explain the concept of systematic risk. Why it is called systematic risk? (May 2013)
10. Explain the structure of Indian financial market.
11. Discuss the essential features of an investment program.(Dec 2014, Dec 2016)
12. Discuss the advantages of different types of investments. (May 2017)
13. The investment process involves a series of activities starting from the policy formulation.
Discuss.(Dec 2018)
UNIT II
PART A
1. What is capital market? (June 2013)
It is a market for long term securities
2. What is IPO and FPO?
IPO - stands for Initial Public Offering, when the company raises fresh capital from the public
for the first time. FPO stands for Follow on Public Offer. When the company raises capital after
an IPO has already been made and shares of company are held by public and are already listed
on the stock exchange.
3. What are the main service functions of the primary market?
The main service functions of the primary market are Origination, Underwriting and Distribution
4. Who are the parties involved in the New Issue Market?(Dec 2016)
The main agencies involved in the public issue are managers to the issue, registrars to the issue,
underwriters, bankers, advertising agencies, financial institutions and government/statutory
agencies.
5. What are the components of primary market issues? (Dec 2013)
Public issue, right issue and bonus issue, Private placement, and bought out deals.
6. What is book building? (Dec 2011,May 2017)
Book Building is essentially a process used by companies raising capital through Public
Offerings-both Initial Public Offers (IPOs) and Follow-on Public Offers (FPOs) to aid price and
demand discovery.
7. What is Listing of Securities?
Listing refers to the admission of the security of public limited company on a recognized stock
exchange for trading.
8. What are Functions of stock Exchange?
a) Maintains active trading, b) Fixation of price, c) The rules, regulations and by-laws of the
stock exchanges provide a measure of safety to the investors, d) Aid in Financing in Industry, e)
Dissemination of Information, f) Performance Inducer and g) Self –regulating Organization
9. What is over subscription? (June 2012)
Over subscription refers to applications received for more number of shares than the company
plans to issue.
10. What is rolling settlement? (May 2011)
Under rolling settlement system, the settlement takes place ‘n’ days after the trading day
11. What is dematerialization of securities?
It is the process of conversion of physical certificates of an investor into electronic form. The
physical certificates are taken back by the registrar and destroyed and equivalent number of
securities is credited in the electronic holdings of that investor.

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12. What is depositories? Name the two depositories in India.

A Depository facilitates holding of securities in the electronic form and enables securities
transactions to be processed by book entry by a Depository Participant (DP). It is an agency for
keeping securities on deposit in electronic form and makes scripless trading possible. NSDL
(National Securities Depository Limited) and CDSL (Central Depository Services Limited)
13. What are the functions of Depository participant?
Conversion of holdings from physical to electronic form and vice versa, Maintenance of holding
in the electronic form, Settlement of market trades in electronic or book entry format, Settlement
of off market trades, Facilitating the pledge of securities and Electronic credit of new share
allotment such as rights, bonus and public issues.
14. List out some of the popular international stock market indices.
USA Dow Jones, UK FTSE 100, France CAC, Australia AS30, Singapore STI, Malaysia
KLCI, Hong Kong- HIS, Brazil IBOV, Mexico MEXBOL, South Africa JALSH, Japan
Nekkei, South Korea KOSPI, Indonesia JC, China, Russia- RTSI
15. What is insider trading?
Insider trading is trading done by the insider or at the instance of an insider who has in his
possession some secret price sensitive information before it is made public and by using such
information, he makes private gains at the cost of innocent investors.
16. What are some possible disadvantages of limit orders? (Dec 2012)
A limit order will prevent from paying more or selling for less than specified limit price but it
does not guarantee that your order will be filled.
17. Is trading on margin a good idea? (Dec 2012)
From investor point of view, it is good idea because only portion of investment is locked before
investment with broker instead of full amount. This system fetches more return comparatively.
18. How is a weighted value index computed? (May 2011)

Q(it) is number of outstanding shares of stock i at time t and Qi(base) is the number of
outstanding share on the base day, P(it) is the price of stock i at time t and Pi(base) is the price of
share on the base day.
19. Explain the current settlement system in NSE (Dec 2010)
Current settlement system is rolling settlement system that is T+2 which means settlement would
be made two days after trading day.
20. What is reverse book building? (Dec 2010, Dec 2014)
Contrary to book building, reverse book building is applied at time of delisting the company
when the firm invites price quote of shareholders for selling their shares to firm.
21. What is OTCEI?How it’s different from other stock exchange?(Dec2011,2015,2016 )
Over the counter exchange of India is exclusively meant for small companies who are not able to
list their shares in other stock exchanges. Each member counter is treated as a trading floor for
buying and selling scripts.
22. What is meant by underwriting? (Dec 2013)
“Underwriting” means an agreement with or without conditions to subscribe to the securities of a
body corporate when the existing shareholders of such body corporate or the public do not
subscribe to the securities offered to them
23. How is the new issue market complementary to the stock market?(Dec 2014)
The newly issued shares are listed in exchanges which would increase liquidity of market.

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24. Who is a depository participant? (June 2012)

It acts as a mediator between investor and depository
25. Define the term new issue market.(Dec 2015,Dec 2018)
It is also called primary market wherein first hand or fresh securities are issued by company for
mobilizing fund. This includes private placement, rights issue, bought out deal and public issue.
26. Distinguish between capital market and money market.(May 2017)
A capital market is a financial market in which long-term assets with maturities of more than a
year. Money markets are used by government and corporate entities as a means for borrowing
and lending in the short term, usually for assets being held for up to a year.
27. What is financial market?(Dec 2017)
Financial markets are where traders buy and sell assets such as stocks, bonds, derivatives,
foreign exchange, and commodities.
28. Name the participants in financial market.(Dec 2017)
There are two basic financial market participants, Investor vs. Speculator and Institutional vs.
Retail
29. What is NSE? (Dec 2018)
National Stock Exchange is one of the major stock exchange in India which is providing screen
based trading facility.
PART B
1. What is meant by “Listing of Securities”? What are its advantage from the point of view of
the company and investors?
2. What are the roles played various intermediaries in new issue market?
3. What are the structure and functions of SEBI?
4. Explain the factors which are taken in to account when an investor decides to invest in the
primary market. (June 2013,May 2017)
5. Explain mechanics of stock trading (June 2013, Dec 2017)
6. Elaborate different stock valuation models (Dec 2012)
7. What are steps taken by SEBI to protect investors in secondary market?(Dec 2012)
8. Explain the different methods of floating new issues in market.(May 2012,Dec 2011)
9. What is the role and development of OTCEI in the Indian capital market? (June 2012)
10. Discuss the role of SEBI in regulating stock exchanges in India (May 2011,Dec 2011)
11. Write a note on book building process used to float new issues (May 2011)
12. Discuss major indices and how it helps investors. (Dec2013,May 2017)
13. What are the SEBI guidelines on pricing of a security? Explain. (Dec 2013)
14. Discuss major reforms in Indian capital market. (Dec 2013)
15. What are the requirements to become member of the stock exchange? Explain the role of
brokers in the trading of stock. (Dec 2015)
16. Explain the types of financial market. (Dec 2016)
17. Explain in detail about the role of primary market. (Dec 2017)
18. Explain the investors protector measures taken by the regulatory authorities in the primary
market. (Dec 2018)
19. Explain the functions of stock Exchange. (Dec 2018)

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UNIT III
PART A
1. What is the quality of growth stocks?
The growth industries have special features of high rate of earnings and growth in expansion,
independent of the business cycle. Irrespective of performance of industry and economy the
earning and profit of this stock would be on uptrend.
2. What is intrinsic value of the share?
Intrinsic value is a measure of value based on the future earnings a company is expected to
generate for its investors - it attempts to measure the total net assets a company is expected to
build in the future.
3. Differentiate between cyclical industries and defensive industries
Defensive industry defies the movement of business cycle. They expand and earn income in
the depression period too where as cyclical industry follows the path of business cycle.
4. Mention some of the coincidental indicators
Employees on non agricultural pay rolls, personal income less transfer payments, index of
industrial production, manufacturing and trade sales.
5. Give examples of lagging indicators
Average duration of unemployment, ratio of manufacturing and trade inventories to sales,
average prime rate, commercial and industrial loans outstanding and change in consumer
price index for services.
6. What is industry life cycle analysis? (Dec 2010, May 2017)
A form of fundamental analysis involving the process of making investment decisions based
on the different stages an industry is at during a given point of time. The type of position
taken will depend on firm specific characteristics as well as where the industry is at its life
cycle.
7. What are Graham and Dodd’s investor’s ratios? (Dec 2010)
Per share ratio, profitability ratio, credit ratio, price ratio, growth ratio, payout ratio and so
on.
8. Define the industry life cycle stages. (May 2011, Dec 2014)
Pioneering phase, growth phase, mature phase and stabilization phase
9. How is PE ratio used to interpret growth opportunities?(May 2011, Dec 2011, May
2012)
Lower the PE ratio means undervaluation of shares and vice versa.
10. What is meant by leading indicator? Give two examples (Dec 2013)
The leading indicators indicate what is going to happen in the economy whereas lagging
indicators are reflected by leading and coincidental indicators. Money supply, manufacturing
index, stock indices, contracts and orders for plant and machinery, weekly unemployment
claims etc
11. List the significance of ROI in company analysis (Dec 2011)
It shows the efficiency of the company. It is very simple to calculate and compare the
different companies with each other.
12. What is opportunistic model building? (Dec 2012)
It is most widely used forecasting techniques. It is also known as GNP model building or sect
oral analysis. Initially an analyst estimates the total demand in the economy and based on this
he estimates GNP for the forecast period. This initial estimate takes into consideration the

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prevailing economic environment. After this, the analyst now begins building up forecast of
GNP figure by estimating levels of various components of GNP.
13. What is value Vs Growth investing? (June 2012)
Value investing suggests to buy stocks that have low price earnings ratio, low price to book
value, below average earnings growth and high dividend yield whereas growth investing
advocates to buy stocks that currently enjoy high rates of earnings growth and are expected
to experience high rates of earnings growth in future as well.
14. Distinguish between historical return and expected return(Dec 2012)
Historical returns are past returns whereas expected return is future return.
15. How do the leverage policies affect the company performances? (Dec 2012)
Leverage policy of the company affects the financial risk of the company. If debt is more,
risk of the company is high and vice versa.
16. What is economic forecasting? (June 2013, Dec 2016, Dec 2017)
Economic forecasting is forecasting through econometric method using leading, lagging and
coincidental indicators.
17. Define GNP (June 2013)
Total money value of goods and services produced by nationals of country for a particular
period.
18. How will you calculate intrinsic value of share?( Dec 2013)
Intrinsic value of share is estimated by converting the future earnings in to present value
19. What do you mean by EIC framework?
Economic analysis, industry analysis and company analysis
20. What are exchange rates?( Dec 2014)
It is the rate at which Indian rupee is converted in to foreign exchange for example US dollar.
21. What is fundamental analysis? (Dec 2015, May 2017, Dec 2018)
Fundamental analysis is the analysis of critical factors that affect the value of the stock. Thus
it is a combination of economic, industry and company analysis.
22. Write the classification of industry?
Industry is classified based on product, phase of cycle.
23. What is industry analysis? (Dec 2017)
Industry analysis is a tool that facilitates a company's understanding of its position relative to
other companies that produce similar products or services.
PART B
1. Explain the salient features you will take in to account while doing fundamental analysis
(Dec 2010)
2. Explain some of the key ratios that you will be considering before investing in a stock. Can
you depend only on these ratios for making decision?(Dec 2010,Dec 2013)
3. Discuss Graham and Dodd’s applied valuation techniques (May 2011)
4. Discuss the key tools used in company analysis (Dec 2011, May 2011)
5. Consider a industry of your choice and make an industry analysis explaining the various
steps involved (Dec 2011)
6. Discuss at what stage in the industrial cycle you would like to discover an industry. Justify
your decision (June 2012, June 2013, Dec 2017)
7. Why would you expect a relationship between economic activity and stock price movement?(
June 2014)
8. Distinguish between technical analysis and fundamental analysis (Dec 2012)

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9. “Fundamental analysis provides an analysis framework for rational investment decision

making” Explain. (June 2013, May 2017)
10. Describe two commonly used ways of decomposing ROE in to the underlying determinant.
(Nov/Dec 2013)
11. Enumerate the significance of economic forecasting in fundamental analysis. (Nov/Dec 2014,
Dec 2016, Dec 2017)
12. Describe the various characteristics of an industry that an analyst must consider while doing
industry analysis. (May 2017)
13. Discuss the factors considered to be most important in appraising companies in different
industries. (Dec 2018)
14. How do various indicators predict the prospect for investment in stocks? (Dec 2018)
UNIT IV
PART A
1. What is technical analysis? (May 2011, Dec 2017, Dec 2018)
It is a method of evaluating securities by analyzing statistics generated by market activity,
such as past prices and volume. Technical analysts do not attempt to measure a security's
intrinsic value, but instead use charts and other tools to identify patterns that can suggest
future activity.
2. What is the principle stated by random walk theory?
Stock price changes have the same distribution and are independent of each other, so the past
movement or trend of a stock price or market cannot be used to predict its future movement
3. What is trend reversal?
The change in the direction of trend is referred to as trend reversal
4. What are the assumptions used in technical analysis?
The market discounts everything, price moves in trends and history tends to repeat itself.
5. What is bearish trend in a market?
Suppose the prices of shares move downwards, then it is called as bearish trend in a market.
A bearish trend would be indicated by the formation of lower tops and lower bottoms.
6. What is support level and Resistance level?
Support and resistance are price levels at which the downtrend or uptrend in price
movements is reversed. Support occurs when price is falling but bounces back or reverses
direction every time it reaches a particular level.
7. What are the trends described in Dow Theory?
Primary trend, secondary trend and minor trends
8. What is market breadth?
A technique used in technical analysis that attempts to gauge the direction of the overall
market by analyzing the number of companies advancing relative to the number declining.
Positive market breadth occurs when more companies are moving higher than are moving
lower, and it is used to suggest that the bulls are in control of the momentum. Conversely, a
disproportional number of declining securities is used to confirm bearish momentum.
9. What are Oscillators?(Dec 2014, Dec 2015, May 2017, Dec 2017, Dec 2018)
Oscillators are mathematical indicators calculated with the help of closing price data. They
help to identify overbought, oversold conditions & possibility of trend reversals.
10. Define RSI and its usage (June 2012)
It is an oscillator used to identify the inherent technical strength and weakness of a particular
scrip or market. It also signals buying & selling opportunities ahead of market.

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11. What are the different types of charts used in technical analysis?
Line chart, Bar chart, Candlestick charts, and point and figure charts
12. What is exponential moving average?
A type of moving average that is similar to a simple moving average, except that more
weight is given to the latest data. The exponential moving average is also known as
"exponentially weighted moving average.
13. What interpretation can be derived by using moving average?
The market indices do not rise or fall in straight line. The upward and downward movements
are interrupted by counter moves. The underlying trend can be studied by smoothening of the
data. To smooth the data moving average technique is used.
14. Explain the importance of Oscillators in technical analysis (Dec 2010)
Oscillators are mathematical indicators calculated with the help of the closing price data.
They help to identify overbought and oversold conditions and also the possibility of trend
reversals.
15. Differentiate fundamental analysis from technical analysis (Dec 2010, Dec 2016)
Fundamental analysis tries to determine the true worth or intrinsic value of a share based on
the current and future earning capacity of the company. While technical analysis concentrates
on movements of share prices. It believes that by examining past share price movements,
future share prices can be predicted.
16. Define moving averages. (May 2011, Dec2014, Dec 2015, Dec 2016)
An average is the sum of prices of a share for a specific number of days divided by the
number of days
17. How is moving averages computed? (Nov/Dec 2011)
An average is the sum of prices of a share for a specific number of days divided by the
number of days. Each average is being calculated by including a new price and excluding an
old price.
18. Explain random walk hypothesis (Dec 2011)
Each price changes is independent of other price changes because each is caused by a new
piece of information.
19. What are the two major market indicators considered as a barometer of Indian capital
market? (June 2012)
Sensex and Nifty
20. What are line charts? (June 2013)
It is a line in XY graph, which connects closing price of each day and indicate the trend of
the market.
21. What are the various levels of market efficiency? (June 2013)
The levels of market efficiency are weak, semi strong and strong.
22. What are price charts? (May 2017)
A price chart is a graphical representation of the price action of an asset for analysis and
decision-making support.
PART B
1. Explain in detail the Dow theory and how is it used to determine the direction of the stock
market.(June 2014, Dec 2018)
2. What are the market indicators used in Technical analysis?
3. How does Relative Strength Index indicate the technical strength and weakness of the stock
price movement?

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4. What are the important points that you will be taking into account while doing technical
analysis a substitute for fundamental analysis? Discuss (Dec 2010)
5. Explain the concept of EMH and discuss its implications for investment policy as it applies
to fundamental and technical analysis (May 2011, May 2012, Dec 2017)
6. Explain how charts are used to interpret performance of stocks in technical analysis (Dec
2011, Dec 2013, June 2014, May 2017)
7. “Moving averages not only smoothen the data, but also predict the market” discuss. (Dec
2012)
8. Explain the weak form of the efficient market hypothesis. Describe the empirical tests used
for testing the weak form efficiency. (June 2013, May 2017)
9. How would you use ROC to predict the stock price movement? Elucidate with an example.
(Dec 2013)
10. Compare and contrast fundamental analysis and technical analysis. (Dec 2017)
11. How do volume and breadth of the market indicate the trend of market? (Dec 2018)
UNIT V
PART A
1. What is Portfolio?
A group of securities held together as an investment is what is known as portfolio.
2. State the criteria for evaluation of portfolio?
Risk and return
3. What are the two types of risk?
Systematic risk or market risk and unsystematic risk
4. What is optimum portfolio?
Portfolio that earns highest return with given risk or lowest risk with given return is said to be
optimum portfolio.
5. Define unsystematic risk?
When variability of returns occurs because of firm specific risk, then it is called unsystematic
risk. It is unique or peculiar to a company.
6. What is beta? Is it a better measure of risk than the standard deviation? (Dec 2013)
The systematic risk of a security is measured by a statistical measure called beta. A measure
of the volatility or systematic risk, of a security or a portfolio in comparison to the market as
a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the
expected return of an asset based on its beta and expected market returns.
7. What is Alpha in security analysis?
The abnormal rate of return on a security or portfolio in excess of what would be predicted
by an equilibrium model like the capital asset pricing model (CAPM).
8. Define efficient frontier. (Dec 2013)
A line created from the risk-reward graph, comprised of optimal portfolios.The optimal
portfolios plotted along the curve have the highest expected return possible for the given
amount of risk.
9. What is an Index fund?(Dec 2013)
Equity Index Funds have the objective to match the performance of a specific stock market
index. The portfolio of these funds comprises of the same companies that form the index and
is constituted in the same proportion as the index.

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10. What is corner portfolio?

The entry or exit of a new stock in the portfolio generates a series of corner portfolio. What is
arbitrage pricing theory?
11. What are the different formula plans available in portfolio revision?
The dollar cost averaging plan, constant dollar plan, constant ratio plan and variable ratio
plan.
12. What is active management in portfolio revision?
It is holding securities based on the forecast about the future.
13. Explain CAPM (Dec 2010, Dec 2015)
The capital asset pricing model derives the relationship between the expected return and risk
of individual securities and portfolio in the capital markets if everyone behaved in the way
the portfolio theory suggested.
14. How are the portfolios evaluated? (Dec 2010)
It is the process of comparing the return earned on a portfolio with the return earned on one
or more other portfolios or on a benchmark portfolio. Portfolio evaluation essentially
emphasizes two functions, performance measurement and performance evaluation.
15. How is Beta computed using CAPM? (May 2011) (Dec 2011)
Beta = covariance between market return and security return/variance of market return
16. State Jensen measure (Nov/Dec 2011)
αp = Rp- [Rf + βp (Rm –Rf)]
Rp – Portfolio return, Rm – Market return, Rf – Risk free return, βp – Portfolio risk
17. What do you mean by the term AMC? (June 2012)
Asset Management Company is a separate company appointed by the trustees to run the
mutual fund. It is also referred as the investment manager. The AMC handles all operational
matters such as designing the schemes, launching the schemes, managing investments and
interacting with investors.
18. What do you mean by diversification? (June 2012)
The process of combining securities in a portfolio is known a diversification.
19. What do you mean by security market line(SML)? (Dec 2012)
SML provides relationship between expected return and beta of a security or portfolio.
20. Explain the constraints in the formation of objectives (Dec 2012)
In pursuing investment objective in terms of return requirement and risk tolerance, the
constraints relating to liquidity, investment horizon, taxes, regulations, and unique
circumstances must be taken in to account.
21. What is superfluous diversification? (Dec 2012)
Inclusion of 10 to 15 stocks in the portfolio makes simple diversification. If we add further
more assets in the portfolio, such diversification is superfluous diversification. This will not
reduce any further risk instead it arouses more portfolio management problems like high
research cost, high transaction costs etc. Hence, the superfluous diversification should be
avoided.
22. Explain CML and define its role.(Dec 2013)
The capital market line measures the relationship between the risk and return of efficient
portfolio. The CML is derived by drawing a tangent line from the intercept point on the
efficient frontier to the point where the expected return equals the risk-free rate of return. The
CML is considered superior to the efficient frontier because it takes into account the
inclusion of a risk-free asset in the portfolio.

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23. What are formula plans? (June 2013)

Formula Plans are certain predefined rules and regulations deciding when and how much
assets an individual can purchase or sell for portfolio revision. Securities can be purchased
and sold only when there are changes or fluctuations in the financial market.
24. State the meaning of portfolio revision (June 2013)
The sale and purchase of assets in an existing portfolio over a certain period of time to
maximize returns and minimize risk is called as Portfolio revision.
25. What are formula plans? (June 2013)
Formula Plans are certain predefined rules and regulations deciding when and how much
assets an individual can purchase or sell for portfolio revision. Securities can be purchased
and sold only when there are changes or fluctuations in the financial market.
26. Define the term mutual funds (Dec 2015, Dec 2017, Dec 2018)
A mutual fund is an investment vehicle that is made up of a pool of funds collected from
many investors for the purpose of investing in securities such as stocks,bonds, money
market instruments and similar assets.
27. What is portfolio selection? (May 2017)
Portfolio Selection is the process of selecting the Portfolio Requests that will be included in
scope for execution through a series of leadership investment decisions.
28. State the importance of mutual funds. (May2017)
Supports capital market, Affordability, liquidity & tax benefits
29. Define portfolio management. (Dec 2016, Dec 2017)
Portfolio management is the art of selecting the right investment tools in the right proportion
to generate optimum returns from the investment made.
30. What is passive management? (Dec 2018)
Passive management is the opposite of active management in which a fund’s manager
attempt to beat the market with various investing strategies.
PART B
1. Discuss the process of portfolio construction (May 2011)
2. Enumerate the various measures used for portfolio evaluation and explain how is interpreted.
(May 2011)
3. Give the basic assumptions of CAPM. How can securities be evaluated with the help of the
CAPM theory? (Dec 2011, Dec 2017)
4. What are the advantages of adopting CAPM model in the portfolio management?(Dec 2018)
5. Explain Arbitrage pricing theory and its assumptions (June 2012)
6. Distinguish between CAPM and Arbitrage pricing theory (May 2012, Dec 2012)
7. Present a detailed account on the Markowitz’s risk diversification (Dec 2012)
8. Explain the steps in portfolio constructions as per traditional approaches.(Dec 2012)
9. Discuss the growth of mutual funds in India (May 2013, May 2017)
10. Explain the different stages involved in portfolio management.(Dec 2013)
11. Explain the scope and objectives of investment portfolio management. (Dec 2018)
12. What are the prominent mutual funds schemes available in India? Explain its features.(May
2014)
13. “Formula plans help the investor to overcome being emotionally attached to the stock”-
Explain.(Dec 2015)
14. Explain in detail about evaluation of portfolio.(Dec 2016)
15. Explain the concept and process of portfolio analysis. (May 2017, Dec 2017)

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