Q4

Year
1
2
3
4
5

AMR
GMR
VAR
SD
CV

Q6
Boom
Normal
Rece

Q7

Boom
Normal
Rece

Q8
1
2
3
4
5
6
7
8
9
10
 SCL
Jbar = α +βMbar
7.6 = α+0.39*6.2
α = 5.50

Q9
1
2
3
4
5
6
7
8
9
10

SCL
Jbar = α +βMbar
12 = α+0.76*13
α = 2.12

Vus=60%Vs
Q10
Vi
σm^2 Vm

Vs=σm^2*β^2

Vi=Vs+Vus
Vi=160Vs
 225=160*125*β^2
β^2 =225/160*125
β = 1.06

Vs
Q11
Vm
Vs=σ
25=16β^2
β=1.25

Q12
Expected Return
Standred Deviation
Correlation Coff, r
Beta

1 Security A is more risky than B as Coo

2 Investor should invest in Security B b

Q13
Expected Return E (R)m
Market SD σm
Risk Free return Rf
Correlation coff. Of A with market ra
Correlation coff. Of B with market rb
SD of A σa
SD of B σb

Beta of Stock A βa =ra*(σa/σm)

Beta of Stock B βb =rb*(σb/σm)

Stock A required Return Ra =Rf+βa(E (Rm) - Rf)

Stock A required Return Rb =Rf+βb(E (Rm) - Rf)

Q14 Yr
Stock cost is 100 Rs 1
2
3
4
5
Q15
Expected Return R)m 10%
Risk Free return Rf 4.5%
Risk Premium(Rm-Rf) 5.50%
Beta 0.875
Required rate of return on beta 0.875 9.3125
Required rate of return on beta 1.08 10.44

Q16
Expected Return R)m 12%
Risk Free return Rf 8%
Risk Premium 4%
Required Return 15%
Beta 1.75

Q17

Risk Free return Rf 9%

Beta 1.5
Required Return Rr 15%
Expected Return Rm 13

Q18
Risk free Rate 5%
Return on Market portfolio 10%
Last divident paid/share 2
Current market price per share 40
Expected growth rate in divident 6%
Required rate of return
PV of Share=D0(1+g)/R-g 40=2*(1.06)/R-0.06
R-0.06= 2.12/40
Required rate of return 11.3
What is Beta Cofficent
Rr=Rf+β*(ER m- Rf)
11.3=5+Beta*(10-5)
Beta 1.26

Q19 ONGC
Expected Return next year 14%
Risk Free return 6%
Beta 1.1
Slope (E (Rm)-Rf) 7.27
Expected Return on Market 13.27

Q20
Expected Return market(Rm) 15%
Risk Free return 8%
Expected return on security(Rs) 17%
Beta of security 1.25
Rs=α+Rm*β
17=α+(15-8)*1.25
α=17-18.75 -1.75

Q21
Risk free return(Rf) 10%
Expected Return on Market(Rm) 15%
Beta 1.5
Divident grow rate 8%
Previous divident price 2%
Required rate of return= Rr=Rf+β*(ER m- Rf)
Rr=10+1.5*(15-10)
Rr 17.5
Value of Shre=Divident*(1+g)/Rr-g ==2*1.08/(0.175-0.08) 22.7368421

Q22

Q23
Risk free return(Rf) 9%
Expected Return on Market portffolio(Rm) 13%
Growth of divident( g) 7% Perpetuity
Last Divident 2
Beta A stock 1.2
Required Rate of return on Stock A Ra=Rf+β*(R m- Rf)
Ra=9+1.2*(13-9) 13.8
Equilibrium Price= Divedent*(1+g)/(Ra-g) = =2*1.07/(0.138-0.07) 31.4705882
If Inflation increase by 2% than (Rf) (9+2) 11%
Than Rm-Rf(13-11) 2%
If growth rate increse by 3% (g) 10%
If Beta rises to 1.3 than β 1.3
Than Change in required rate Ra=Rf+β*(R m- Rf) =11+(1.3*2) 13.6
Equilibrium Price= Divedent*(1+g)/(Ra-g)=2*1.10/(0.136-0.10) 61.11

Q 24
Required Rate of return on Stock ( Ra) 18%
Expected Return on Market portffolio(Rm) 12%
Growth of divident 5% Perpetuity
Price/Share 30
Beta A stock 2
Required Rate of return on Stock A Rr=Rf+β*(R m- Rf)
Risk free return(Rf) = 18-(12*2)/(1-2)
Rf 6%
Due to 2% increse in inflation new Rf(Rf+inflation premium) 8%
Than Rm-Rf(12-8) 4%
If growth rate decrese to 4% (g) 4%
If Beta falls to 1.8 β 1.8
Revised Rate of return Ra=Rf+β*(R m- Rf)= 8+1.8*4 15.2
Price of share=Divident*(1+g)/(Ra-g )
Divident= Price of share*(Ra-g)/(1+g) = 30*(0.18-0.055)/1.05 3.71428571
So new equilibrium price will be Divedent*(1+g)/(Ra-g) = 3.71*1.04/(0.152-0.04) 34.45

Q25
Equity Beta 1.1
Tax Rate 30%
Debt/Equity D/E =4/5
Equity Beta = Asset Beta*(1+(1-taxrate)*D/E
1.1 = Asset beta*(1+(1-0.30)*4/5
Asset Beta =1.1/1.56 0.705
Alpha Beta Alpha Beta Ri-AMRa
11 15 1.11 1.15 -1
13 9 1.13 1.09 1
-8 27 0.92 1.27 -20
27 -3 1.27 0.97 15
17 12 1.17 1.12 5

12 12
1.114 1.116
163 117
12.767 10.817
1.0639287779 0.9013878189

P R ER R-ER R-ER^2 p*(R-ER)^2

0.25 50 12.5 23.75 564.0625 141.015625
0.5 25 12.5 -1.25 1.5625 0.78125
0.25 5 1.25 -21.25 451.5625 112.890625
ER 26.25 Variance 254.6875
SD 15.9589317
CV 0.6079593
DSV 113.67
Bharat
P R ER R-ER (R-ER)^2 p*(R-ER)^2
0.3 25 7.5 4.5 20.25 6.075
0.5 20 10 -0.5 0.25 0.125
0.2 15 3 -5.5 30.25 6.05
ER Avg 20.5 Variance 12.25
SD 3.5
CV 0.17073171
DSV 6.175

j stock return market return j-Jbar m-Mbar (j-jbar)*(m-Mbar) (m-Mbar)^2

12 8 4.4 1.8 7.92 3.24
15 12 7.4 5.8 42.92 33.64
11 11 3.4 4.8 16.32 23.04
2 -4 -5.6 -10.2 57.12 104.04
-10 9.5 -17.6 3.3 -58.08 10.89
12 -2 4.4 -8.2 -36.08 67.24
16 15 8.4 8.8 73.92 77.44
5 7.5 -2.6 1.3 -3.38 1.69
9 6 1.4 -0.2 -0.28 0.04
4 -1 -3.6 -7.2 25.92 51.84
7.6 6.2 SUM 126.3 373.1
Jbar Mbar COV(j,m) 14.033333333333
 VAR(M) 41.455555555556
Ji=5.50+0.34*Jm Beta 0.34
bar = α +βMbar r 0.28
.6 = α+0.39*6.2 2.108
5.5

j stock return market return j-jbar M-Mbar j-jbar*M-mbar M-Mbar^2

10 12 -2 -1 2 1
6 5 -6 -8 48 64
13 18 1 5 5 25
-4 -8 -16 -21 336 441
13 10 1 -3 -3 9
14 16 2 3 6 9
4 7 -8 -6 48 36
18 15 6 2 12 4
24 30 12 17 204 289
22 25 10 12 120 144
12 13 SUM 778 1022
Jbar Mbar
Cov(j,m) 86.4444444
Var(m) 113.555556
bar = α +βMbar Beta 0.76125245
2 = α+0.76*13

225% Variance of returns on Stock

125% Variance of Market return

Vs=σm^2*β^2
25=160*125*β^2
^2 =225/160*125

25 Systematic risk
16 Market Risk(σm^2)
Vs=σm^2*β^2
1.5625

Security A Security B
10% 12%
15% 10%
0.6 0.4
0.7 0.8

ecurity A is more risky than B as Coorelation cofficent of A is More than B and although its Beta is lower than B

nvestor should invest in Security B because its co relation cofficent is lower, also SD is less

12%
21%
8%
0.8
0.6
25%
30%

βa =ra*(σa/σm) 0.9523809524
βb =rb*(σb/σm) 0.8571428571 3.8
11.8
a =Rf+βa(E (Rm) - Rf) 11.8
b =Rf+βb(E (Rm) - Rf) 11.4

Yr end Pr Probablity Return% Expected R R-ER Avg (R-ER Avg)^2

90 0.1 -10 -1 -11.5 132.25
95 0.2 -5 -1 -5 25
100 0.4 0 0 0 0
110 0.2 10 2 10 100
115 0.1 15 1.5 15 225
E R avg 1.5 SUM
 SD

0=2*(1.06)/R-0.06
r=Rf+β*(ER m- Rf)

% Perpetuity

a=Rf+β*(R m- Rf)
% Perpetuity

r=Rf+β*(R m- Rf)

%
Rb-AMRb Ri-AMRa^2 Rb-AMRb^2
3 1 9
-3 1 9
15 400 225
-15 225 225
0 25 0
Sum 652 468
VAR 163 117
SD 12.767 10.817

dislike risk risk aversion

Risk per unit of return Minimize risk for investment lower the risk better
Dowanside variance
Oriental
P R ER R-ER (R-ER)^2
0.3 40 12 27 729
0.5 10 5 -3 9
0.2 -20 -4 -33 1089
ER Avg 13 Variance
SD
CV
DSV

SUMMARY OUTPUT

Regression Statistics α
Multiple R 0.281798190735732 β
R Square 0.079410220301932 σ
Adjusted R Square -0.03566350216033
Standard Error 7.87119382137678
Observations 10

ANOVA
df SS MS F
Regression 1 42.75446 42.7544626105602 0.690081
Residual 8 495.6455 61.95569217368
Total 9 538.4

Coefficients Standard Error t Stat P-value

Intercept 5.50120611096221 3.546658 1.5510957791004 0.159477
market 0.33851514339319 0.4075 0.830711302395629 0.430229

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.957498
R Square 0.916802
Adjusted R Square 0.906403
Standard Error 2.591949
Observations 10

ANOVA
df SS MS
Regression 1 592.254403131116 592.2544
Residual 8 53.7455968688845 6.7182
Total 9 646

Coefficients Standard Error t Stat

Intercept 2.103718 1.33519853249958 1.575585
X Variable 1 0.761252 0.081077622253881 9.389181
Beta is lower than B

p*(R-ER Avg)^2
13.225
5
0
20
22.5
60.725
7.79
risk aversion

lower the risk better

p*(R-ER)^2 20.11666
218.7
4.5
217.8
441
21
1.61538461538
222.3

Significance F
0.43022934731
 Lower 95% Upper 95%Lower 95.0%
Upper 95.0%
-2.677401691 13.67981 -2.677402 13.67981
-0.6011823402 1.278213 -0.601182 1.278213

F Significance F
88.1567142441 1.356E-05

P-value Lower 95%Upper 95%Lower 95.0%

Upper 95.0%
0.15377057157 -0.975255 5.182692 -0.975255 5.182692
1.3560946E-05 0.574287 0.948218 0.574287 0.948218
1150 143 0.124348
1200 265 0.220833
1175 84 0.071489
1165 58 0.049785