MBA183F1

USN 1 M
RAMAIAH
Institute of Technology
(Autonomous Institute, Affiliated to VTU)
(Approved by AICTE, New Delhi & Govt. of Karnataka) Accredited by NBA & NAAC with ‘A’ Grade

SEMESTER END EXAMINATIONS – DECEMBER 2019

Program : Master of Business Administration Semester : III
Course Name : Security Analysis and Portfolio Management Max. Marks : 100
Course Code : MBA183F1 Duration : 3 Hrs
Instructions to the Candidates:
 Answer one full question from each unit.
 PV Tables may be provided.
 Question No.9 is Compulsory.

UNIT- I
1. a) Distinguish between the financial and economic meaning of investment. CO1 (03)
b) Discuss the common errors in investment management. CO1 (07)
c) Explain the stock trading system prevailing in India. CO1 (10)

2. a) What are the various types of stock market indices? CO1 (03)
b) Explain how a transaction is settled under the rolling system. CO1 (07)
c) Describe briefly the steps involved in investment process. CO1 (10)

UNIT- II
3. a) What is bond duration? CO2 (03)
b) “Systematic risk behaves unsystematically”. Discuss. CO2 (07)
c) The returns of two assets under four possible states of nature are given below: CO2 (10)
State of nature Probability Return on asset 1 Return on asset 2
1 0.10 5% 0%
2 0.30 10% 8%
3 0.50 15% 18%
4 0.10 20% 26%
i) What is the standard deviation of the return on asset 1 and
asset 2?
ii) What is the covariance between the returns on assets 1 and 2?
iii) What is the coefficient of correlation between the returns on
assets 1 and 2?

4. a) Mention various types of bonds. CO2 (03)

b) Given the following variance-covariance matrix for three securities, as wells as CO2 (07)
the percentage of the portfolio that each security comprises, calculate the
portfolio’s standard deviation.
Security A B C
A 425 -190 120
B -190 320 205
C 120 205 175
WA= 0.35 WB= 0.25 WC= 0.40
c) Jaya Ltd. has a 14 per cent debenture with a face value of Rs.100 that CO2 (10)
matures at par in 15 years. The debenture is callable in five years at
Rs.114. it currently sells for Rs.105. Calculate each of the following for
this debenture:
i) Current yield ii) Yield to call iii) Yield to maturity.

UNIT- III
5. a) What do you mean by intrinsic value of a share. CO3 (03)
b) Discuss the behavioral biases of an investor. CO3 (07)
c) Describe the important market indicators that are useful in studying CO3 (10)
the trend of the market.

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 MBA183F1
6. a) What are the key differences between ‘traditional finance’ and CO3 (03)
‘behavioral finance’?
b) Explain the basic principles and hypotheses of Dow theory. CO3 (07)
c) “Fundamental are Fundamentals”. How do you select a share. Explain CO3 (10)
the difference between fundamental analysis and technical analysis.

UNIT- IV
7. a) How many parameters must be estimated to analyse the risk-return CO4 (03)
profile of a 30-stock portfolio using (i) the original Markowitz model
and (ii) the Sharpe single index model?
b) Consider a portfolio of six securities with the following characteristics: CO4 (07)
Security Weighting αi βi Residual variance (per cent) (σ2ei)
1 0.10 -0.28 0.91 23
2 0.15 0.76 0.87 60
3 0.20 2.52 1.17 52
4 0.10 -0.16 0.97 86
5 0.25 1.55 1.07 67
6 0.20 0.47 0.86 82
Assuming the return on market index to be 14.5 per cent and the
standard deviation of return on market index to be 16per cent,
calculate the portfolio return and risk under single index model.
c) ‘CAPM can be used to evaluate the pricing of securities’. Explain using CO4 (10)
illustration.

8. a) Mention various types of mutual funds. CO4 (03)

b) Explain the concept of efficient frontier in the context of portfolio CO4 (07)
selection.
c) The following table gives an analyst’s expected return on two stocks for CO4 (10)
particular market returns.
Market Return Aggressive Stock Defensive stock
6% 2% 8%
20 30 16
i) What are the betas of the two stocks?
ii) What is the expected return on each stock if the market return is
equally likely to be 6% or 20%?
iii) If the risk free rate is 7% and the market return is equally likely to
be 6% or 20% what is the SML?
iv) What are the alphas of the two stocks?

UNIT- V
9. CASE Study – (Compulsory)
The stock of Box Limited performs well relative to other stocks during
recessionary periods. The stock of Cox Limited, on the other hand, does well
during growth periods. Both the stocks are currently selling for Rs.100 per share.
You need to assess the rupee return (dividend plus price) of these stocks for the
next year as follows:
Economic Condition
High growth Low growth Stagnation Recession
Probability 0.3 0.4 0.2 0.1
Return on 100 110 120 140
Box’s stock
Return on 150 130 90 60
Cox’s stock
Calculate the expected return and standard deviation of investing:
i) Rs.1000 in the equity stock of Box Limited. CO5 (08)
ii) Rs.1000 in the equity stock of Cox Limited. CO5 (08)
iii)Rs.500 each in the equity stock of Box Limited and Cox Limited. CO5 (04)
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