Syllabus Year : 2021 - 2022

CHRIST (DEEMED TO BE UNIVERSITY), Bengaluru - 560029

End Trimester Examination May - 2022
MBA III TRIMESTER
Code : MBA341F Max. Marks : 50
Course : SECURITY ANALYSIS AND PORTFOLIO
Duration : 2Hrs
MANAGEMENT
General Instructions : Answer all questions from section A & B
SECTION A
Answer the following questions. Provide proper 4X10= 40
calculations for numerical
1 Rakesh opened a margin account at a local brokerage firm. Rakesh's initial investment was
to purchase 200 shares of Marginalia Ltd. on margin at Rs. 40 per share. Rakesh borrowed
Rs. 3,000 from a broker to complete the purchase.
a. At the time of the purchase, what was the actual margin in Rakesh's account?
b. If Marginalia's stock subsequently rises in price to Rs. 60 per share, what is the actual
margin in Rakesh's account?
c. If Marginalia's stock subsequently falls in price to Rs. 35 per share, what is the actual
margin in Rakesh's account? Assuming a maintenance margin of 30%, at what price will
Rakesh receive a margin call?

2 Sensex plunges 1,172 points as Infosys, HDFC twins play spoilsport (PTI) 18/04/2022
Equity benchmarks went into a tailspin on April 18, with the Sensex tumbling 1,172.19
points, dragged down by heavyweights Infosys and HDFC twins amid a weak trend in
Asian markets. The 30-share BSE Sensex tanked 1,172.19 points or 2.01% to settle at
57,166.74. During the day, it plummeted 1,496.54 points or 2.56% to 56,842.39. The
broader NSE Nifty plunged 302 points or 1.73% to finish at 17,173.65. Infosys, HDFC,
HDFC Bank, Tech Mahindra, Wipro and TCS were the major laggards in the Sensex
pack. In contrast, NTPC, Tata Steel, Maruti, Titan, Nestle, Titan and M&M were
among the gainers. Infosys plummeted 7.16% after its Q4 results failed to enthuse
investors. HDFC Bank declined 4.53% to ₹1,398.50 even as the largest domestic
private sector lender on Saturday posted a 22.8% jump in its standalone net profit at
₹10,055.2 crore for the quarter ended March 2022.
Meanwhile, the wholesale price-based inflation spiked to a four-month high of 14.55%
in March on rising prices of crude oil and other commodities due to disruption in global
supply chain in the wake of the Russia-Ukraine war, a development that may prompt
the RBI to raise interest rates to contain price rise. In Asia, markets in Seoul, Shanghai
and Tokyo settled lower. Hong Kong was closed for a holiday. International oil
benchmark Brent crude slipped 0.18% to $111.5 per barrel.
On Wednesday, the Sensex declined 237.44 points or 0.41% to settle at 58,338.93. The
NSE Nifty dipped 54.65 points or 0.31% to finish at 17,475.65. Stock markets were
closed on Thursday for Mahavir Jayanti and Dr. Babasaheb Ambedkar Jayanti, as well
as on Friday on account of Good Friday. Foreign institutional investors offloaded
shares worth a net ₹2,061.04 crore on Wednesday, according to exchange data.
i) What, in your opinion, are the factors behind the fall in the stock indices?
 ii) HDFC Bank has been in the news due to the proposed merger, which has been
received positively by the market. In addition, HDFC Bank declared very good results.
Despite these positive factors, the banks's shares fell 4.53%. How would you explain
this seemingly contradictory market reaction?
iii) The correction notwithstanding, the market has generally been trending up over the
last few months. This has happened despite headline inflation being at its highest level
for a few years and foreign investors being net sellers over the last few months. A hike
in interest rates is also a distinct possibility. What do you think are the reasons for the
continued uptrend in the market?
3 The following table provides the expected returns of a star analyst on two stocks in
two different scenarios.
Market Aggressive Defensive
Scenario
Return Portfolio Portfolio
Worst 5% -2% -4%
Best 25% 45% 12%
a. Compute the betas of the two stocks.
b. What is the expected return on each stock if the market return is equally likely to be
the worst or best scenario?
c. .If the risk-free rate is 2%, calculate the Treynor ratios of both the portfolios.
Comment on their performance.
4 a) Differentiate between Socially Responsible Investment (SRI) and ESG funds
b) Does driving the ESG agenda mean sacrificing company returns
c) Does ESG Funds have an impact on stock price volatility
SECTION B
Answer the following compulsory question. 1X10= 10
5 In light of the pandemic, the market analyst predicts that the chance of having a
booming stock market is 25%. The strong fundamentals in the economy offer hopes of
normal market performance for 75% of the time. Mr. Manoj has bought Techno and
Medico stocks in the Pharma sector.. The rate of return in case of normal performance-
12% for Techno and 11% for Medico. If boom condition prevails the rate of return is
18% for Techno and 13% for Medico. If Manoj invests 60% of his resources in Techno
and 40% in Medico stock
i) Expected return of his portfolio
ii) The correlation coefficient of Techno and Medico Stock returns
iii) Standard deviation of his portfolio
 Syllabus Year : 2019 - 2020
CHRIST (DEEMED TO BE UNIVERSITY), Bengaluru - 560029
End Trimester Examination March/April - 2020
MBA III TRIMESTER
Code : MBA3041F Max. Marks : 50
Course : SECURITY ANALYSIS AND PORTFOLIO
Duration : 2Hrs
MANAGEMENT
SECTION A
Answer any 6 Questions. 6X5= 30
1 Explain the different approaches to investment decision making process.
2 A mutual fund portfolio has the following composition
Stock Shares Price
P 5,00,000 35
Q 4,00,000 20
R 8,00,000 12
S 11,00,000 15
The fund has not borrowed any funds, but its accrued management fee with the portfolio
manager currently totals $20,000. There are 5 million shares outstanding. What is the net
asset value of the fund?

3 You manage a risky portfolio with an expected rate of return of 18% and a standard
deviation of 28%. The T-bill rate is 8%. Your risky portfolio includes the following
investments in the given proportions: Stock A 25%; Stock B 32%; Stock C 43%.

i. What is the reward-to-volatility ratio (Sharpe) of your risky portfolio?

ii. Your client Riddhi chooses to invest 70% of a portfolio in your fund and 30%
in a T-bill money market fund. What are the investment proportions of her
portfolio in A, in B, in C?
iii. What is the expected value and standard deviation of the rate of return and
Sharpe ratio on Riddhi's portfolio?

4 In the real-world, an investor has to typically consider many asset classes to identify his
optimal portfolio. Applying Modern Portfolio Theory to equity is challenging enough but
extending it to other asset classes especially alternative investments seems to be almost
impossible. In your opinion, what are the challenges an investor is likely to face if he tries
to generate the expected return, standard deviation and correlation data for asset classes
other than equity?

5 I am buying a firm with an expected perpetual cash flow of Rs.5,000 but I am unsure of
its risk. If I think the beta of the firm is 0.4, when in fact the beta is really 1, how much
more will I offer for the firm than it is truly worth? Assume the risk-free rate of interest
is 5% and the expected rate of return on the market is 13%.
6 The market portfolio is composed of four securities. Given the following data, calculate
the market portfolio's standard deviation:
Security Covariance with market The proportion in the market portfolio
A 242 0.2
B 360 0.3
C 155 0.2
D 210 0.3

What is meant by the duration of the bond? Explain its significance.

7
8 An analyst wants to evaluate portfolio X, consisting entirely of U.S. common stocks,
using both the Treynor and Sharpe measures of portfolio performance. The following
table provides the average annual rate of return for portfolio X, the market portfolio (as
measured by the S&P 500), and U.S. Treasury bills during the past 8 years:
Average Annual Rate of Return Standard Deviation Beta
Portfolio X 10% 18% 0.6
S&P 500 12% 13% 1
T-bills 6% NA NA
(a)Calculate the Treynor and Sharpe measures for both portfolio X and the S&P 500.
Briefly explain whether portfolio X underperformed, equaled, or outperformed the S&P
500 on a risk-adjusted basis using both the Treynor measure and the Sharpe ratio.
(b)On the basis of the performance of portfolio X relative to the S&P 500 calculated in
part ( a ), briefly explain the reason for the conflicting results when using the Treynor
measure versus the Sharpe ratio.
SECTION B
Answer any 2 Questions. 2X10= 20
9 Explain the different steps involved in asset allocation decision.
10 Suppose that you are considering two potential stocks for investment: stock A and stock
B.
(a) Stock A is expected to be worth $200 per share one year from today. How much
are you willing to pay for one share today if the risk-free rate is 5%, the
expected rate of return on the market is 15%, and the company's beta is 1.8?
Assume that no dividends are paid.

(b) Further, suppose that the correlation coefficient between the rates of return on
stock B and the market portfolio is 0.7. The standard deviations of the rates of return
are 0.25 for stock B and 0.20 for the market portfolio. How would you combine stock
B and the risk-free asset to obtain a portfolio with a relative systematic risk (beta) of
1.6?
 To combine stock B and the risk-free asset to obtain a portfolio with a relative
systematic risk (beta) of 1.6, we need to use the formula for the beta of a portfolio.
The beta of a portfolio is the weighted sum of the betas of its constituent assets.

( c) Now assume that Stock A has an expected return of 14.05% and a beta of 2.2. Stock
B has an expected return of 7% and a beta of 1. What must be the expected return on a
risk-free asset?
(d) Given the return on stock B(beta of 1) and return on the risk-free asset as estimated
in part ( c), compute the return expected on an investment with a beta of 0.75?
11 You are a consultant to a large manufacturing corporation that is considering a project
with the following net after-tax cash flows (in millions of dollars):
Years from now After-tax cash flow
0 -40
1-10 15
The project’s beta is 1.8. Assuming that the risk-free rate is 8% and the expected
market return is 16%, what is the net present value of the project? What is the highest
possible beta estimate for the project before its NPV becomes negative?
 Syllabus Year : 2018 - 2019
CHRIST (DEEMED TO BE UNIVERSITY), Bengaluru - 560029
End Trimester Examination March - 2019
MBA III TRIMESTER
Code : MBA341F Max. Marks : 50
Course : SECURITY ANALYSIS AND PORTFOLIO
Duration : 2Hrs
MANAGEMENT
SECTION A
Answer any 6 Questions. 6X5= 30
1 The composition of the Finbest portfolio is as follows:
Stock Shares Price
A 400,000 $17
B 600,000 20
C 800,000 10
D 1,200,000 12
The fund has not borrowed any funds, but its accrued management fee with the
portfolio manager currently totals $30,000. There are 4 million shares outstanding.
What is the net asset value of the fund?
2 Open-end equity mutual funds find it necessary to keep a significant percentage of
total investments, typically around 5% of the portfolio, in very liquid money market
assets. Closed-end funds do not have to maintain such a position in “cash equivalent”
securities. What difference between open-end and closed-end funds might account
for their differing policies?
3 A growth company is a firm that has the opportunities and ability to invest capital in
projects that generate rates of return greater than the firm's cost of debt. Do you
agree with the statement? Elucidate.
4 Stock A has an expected return is 28% and standard deviation of 14.9%. Stock B has
an expected return of 16% and standard deviation of 8.2%. Form a $10,000 portfolio
(P) by investing $9,000 in Stock A and $1,000 in Stock B.

i. What is the expected return and risk on portfolio P if correlation between

the stocks is 0.6?
ii. An investor has a degree of risk aversion of 3. Calculate the utility
derived by the investor by investing in stock A, in stock B and in
Portfolio P.
iii. Which one should be investor's investment preference given the
respective utilities?

5 Suppose you find that prices of stocks before large dividend increases show on
average consistently positive abnormal returns. Is this a violation of the efficient
market hypothesis?
6 I am buying a firm with an expected perpetual cash flow of Rs.1,000 but am unsure
of its risk. If I think the beta of the firm is .5, when in fact the beta is really 1, how
 much more will I offer for the firm than it is truly worth? Assume the risk-free rate
of interest is 6% and the expected rate of return on the market is 16%.
7 Prices of long-term bonds are more volatile than prices of short-term bonds.
However, yields to maturity of short-term bonds fluctuate more than yields of long-
term bonds. How do you reconcile these two empirical observations?
8 Consider the following data for a particular sample period:
Mutual
Market M
Fund A

Average return 10% 11%

Beta 0.9 1

Standard deviation 15% 17%

The T – bill rate during the period was 6%.

i. Calculate the following performance measures for the mutual funds A and
the market: Sharpe, Jensen, and Treynor.
ii. According to which measure(s), mutual fund A outperforms the market?
Give reasons.

SECTION B
Answer any 2 Questions. 2X10= 20
9 Given below are two investments- S and L, along with their risk return
characteristics.
Probability of Stock Stock
Date Scenario
scenario S L
Price ($) Jan 1, 2019 50 32
During
Dividend ($) 5 2
2019
Expected Price
Jan 1, 2020 Good 0.6 64 41
($)
Expected Price
Jan 1, 2020 Poor 0.4 43 25
($)
Which of the above two investments do you prefer and why? You can use the
average expected return, risk and co-efficient of variation for your interpretation.
10 Suppose that you are considering two potential stocks for investment: stock A and
stock B.
(a) Stock A is expected to be worth $100 per share one year from today. How much
are you willing to pay for one share today if the risk-free rate is 8%, the expected rate
of return on the market is 17%, and the company's beta is 1.9? Assume that no
dividends are paid.
(b) Further, suppose that the correlation coefficient between the rates of return on
stock B and the market portfolio is 0.7. The standard deviations of the rates of return
 are 0.25 for stock B and 0.20 for the market portfolio. How would you combine
stock B and the risk-free asset to obtain a portfolio with a relative systematic risk
(beta) of 1.6?
( c) Now assume that Stock A has an expected return of 14.05% and a beta of 2.2.
Stock B has an expected return of 7% and a beta of 1. What must be the expected
return on a risk free asset?
(d) Given the return on stock B(beta of 1) and return on risk free asset as estimated in
part ( c), compute the return expected on an investment with a beta of 0.75?
11 The Behavioural finance theory undermines the Efficient market hypothesis. Explain
by describing five types of investors' biases and behaviour in investment decision
making.