BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, PILANI - K. K.

BIRLA GOA CAMPUS

Second Semester 2020-21, Comprehensive Examination May, 2021
Security Analysis & Portfolio Management (ECON F412/FIN F313)
(Answer all questions)
Date: 23/05/2021 Time: 120 Minutes Total Marks: 45

1. Analyse the trend identification of the following indicators with appropriate graph
(5*3=15 Marks)
a. Morning Star Pattern
b. Three Black Crows
c. Bollinger Band with Volume
d. Bollinger Band with RSI
e. Stochastic Oscillator
2. Explain the basic principles of Dow Theory. (5 Marks)
3. Suppose that the index model for stocks A and B is estimated from excess returns with the
following results: (8 Marks)

RA = 5% + 0.9 RM + eA
RB = -4% + 1.5 RM + eB
σM = 15%; R-SQRA = .30; R-SQRB = .18
a. What is the standard deviation of each stock?
b. Break down the variance of each stock to the systematic and firm-specific
components.
c. What are the covariance and correlation coefficient between the two stocks?
d. What is the covariance between each stock and the market index?
e. For portfolio P with investment proportions of .60 in A and .40 in B, rework question
a, b, and d for portfolio P.

4. Consider the following table, which gives a security analyst’s expected return on two stocks
for two particular market returns: (8 Marks)
Market Return Aggressive Stock Defensive Stock
10% -5% 9%
30 35 15
a. What are the betas of the two stocks?
 b. . What is the expected rate of return on each stock if the market return is equally
likely to be 10% or 30%?
c. If the T-bill rate is 6% and the market return is equally likely to be 10% or 30%,
draw the SML for this economy.
d. Plot the two securities on the SML graph. What are the alphas of each?
e. What hurdle rate should be used by the management of the aggressive firm for a
project with the risk characteristics of the defensive firm’s stock?

5. Identify the buy and sell points based on Moving Average Convergence and Divergence (MACD) on
the chart provided. Comment on the trend identification based on moving average crossover.
(4 Marks)

6. Analyse the case and answer the question. (1*5 =5 Marks)

India’s Covid-19 crisis has so far failed to spark a deep stock selloff like that seen last
year, and some asset managers point to less stringent curbs on activity as one factor at
least for now.
 Even as the nation reports more than 300,000 confirmed infections and over 4,000
deaths a day, India’s benchmark equity index has been moving in line with regional
peers. The S&P BSE Sensex index has declined 6.6% from a mid-February peak, about as
much as the MSCI AC Asia Pacific index. That compares with a 23% tumble in the Sensex
in March last year when the coronavirus pandemic started to rage globally. The Sensex
is also heading for a 1% decline this week, less than the 3.5% fall for the MSCI AC Asia
Pacific index. The surprisingly muted stock market reaction to India’s virus disaster can
also be seen in net outflows of foreign investors, which totaled about $1.5 billion in April
versus $8.4 billion during the height of the rout last March. They turned net buyers of
Indian equities this week after four straight weeks of outflows.
1. Why is the second wave of India’s Covid-19 crisis not priced into the market?