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Name: SWAMINATHAN K G Roll number: 521062517 Learning centre: 2744 Assignment No.

: Set 1

ASSIGNMENTS Subject code: MB0050

(Book ID: B1208) (4 credits)

Marks 60 SUBJECT NAME: RESEARCH METHODOLOGY Note: Each Question carries 10 marks Q1)a. Differentiate between nominal, ordinal, interval and ratio scales, with an example of each. b. What are the purposes of measurement in social science research? a. Types of scales: Ans) There are four types of data that may be gathered in social research, each one adding more to the next. Thus ordinal data is also nominal, and so on. Nominal The name 'Nominal' comes from the Latin nomen, meaning 'name' and nominal data are items which are differentiated by a simple naming system. The only thing a nominal scale does is to say that items being measured have something in common, although this may not be described. Nominal items may have numbers assigned to them. This may appear ordinal but is not -these are used to simplify capture and referencing. Nominal items are usually categorical, in that they belong to a definable category, such as 'employees'. Example The number pinned on a sports person. A set of countries.

Ordinal Items on an ordinal scale are set into some kind of order by their position on the scale. This may indicate such as temporal position, superiority, etc. The order of items is often defined by assigning numbers to them to show their relative position. Letters or other sequential symbols may also be used as appropriate.

Ordinal items are usually categorical, in that they belong to a definable category, such as '1956 marathon runners'. You cannot do arithmetic with ordinal numbers -- they show sequence only. Example The first, third and fifth person in a race. Pay bands in an organization, as denoted by A, B, C and D.

Interval Interval data (also sometimes called integer) is measured along a scale in which each position is equidistant from one another. This allows for the distance between two pairs to be equivalent in some way. This is often used in psychological experiments that measure attributes along an arbitrary scale between two extremes. Interval data cannot be multiplied or divided. Example My level of happiness, rated from 1 to 10. Temperature, in degrees Fahrenheit.

Ratio In a ratio scale, numbers can be compared as multiples of one another. Thus one person can be twice as tall as another person. Important also, the number zero has meaning. Thus the difference between a person of 35 and a person 38 is the same as the difference between people who are 12 and 15. A person can also have an age of zero. Ratio data can be multiplied and divided because not only is the difference between 1 and 2 the same as between 3 and 4, but also that 4 is twice as much as 2. Interval and ratio data measure quantities and hence are quantitative. Because they can be measured on a scale, they are also called scale data. Example A person's weight The number of pizzas I can eat before fainting

those that relate to states of nature those which relate to relationships between variables

In understanding the problem, it is helpful to discuss it with colleagues or experts in the field. It is also necessary to examine conceptual and empirical literature on the subject. After the literature review, the researcher is able to focus on the problem and phrase it in analytical or operational terms. The task of defining the research problem is of greatest importance in the entire research process. Being able to define the problem unambiguously helps the researcher in discriminating relevant data from irrelevant ones. Extensive literature review Review of literature is a systematic process that requires careful and perceptive reading and attention to detail. In the review of the literature, the researcher attempts to determine what others have learned about similar research problems. It is important in the following ways:

specifically limiting and identifying the research problem and possible hypothesis or research questions i.e. sharpening the focus of the research. informing the researcher of what has already been done in the area. This helps to avoid exact duplication.

If one had the literature and exercised enough patience and industry in reviewing available literature, it may well be that his problem has already been solved by someone somewhere some time ago and he will save himself the trouble. Nwana (1982).

Providing insights into possible research designs and methods of conducting the research and interpreting the results. Providing suggestions for possible modifications in the research to avoid unanticipated difficulties.

A thorough literature survey should demonstrate that you've carefully read and evaluated each article or book. Because research reports can be tedious and difficult to understand for new researchers, many tend to read others' conclusions or summaries and take the author's word that the data actually support the conclusions. Careful reading of both tables and text for awhile will convince you they don't always agree. Sometimes data are grossly misinterpreted in the text, but on other occasions authors are more subtle. Consider, for example, the following statements: Fully 30 percent of the sample said they did not vote. Only 30 percent of the sample said they did not vote.

Q3) a. What are the characteristics of a good research design? b. What are the components of a research design?
Ans) Research Design Definition

A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose witheconomy in procedureIs the conceptual structure within which research is conducted; it constitutes theblueprint for the collection, measurement and analysis of data more explicitly: i.What is the study about? ii.Why is the study being conducted? iii.Where will the study be carried out? iv.What type of data is required? v.Where can the required data be found?
Components of research design

http://www.google.co.in/url?sa=t&rct=j&q=components%20of%20research %20design&source=web&cd=3&ved=0CDIQFjAC&url=http%3A%2F %2Fposta.marmara.edu.tr%2F~sozmen%2F2003-2004%2Fresearch_methodology %2Fweek_4.doc&ei=KgOgTo-aEofqrAeFkbWNAw&usg=AFQjCNG1ctNqNjUq_ilsO4muicz4Z2eBA&sig2=RFuXRcsnlsSIOe9zWHhr5A&cad=rja 4. a. Distinguish between Doubles sampling and multiphase sampling.

b. What is replicated or interpenetrating sampling?

[ 5 marks] [ 5 marks]

[ 5 marks]
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b. What are the criteria used for evaluation of secondary data?

http://www.steppingstones.ca/artman/publish/article_60.shtml http://www.change.freeuk.com/learning/resmeth/secondary.html 6.

[ 5 marks]

What are the differences between observation and interviewing as methods of data collection? Give two specific examples of situations where either observation or interviewing would be more appropriate. [10 marks].

http://www.differencebetween.com/difference-between-observation-and-vs-interviewing-asmethods-of-data-collection/

Assignment Set- 1 (60 Marks) Note: Each question carries 10 Marks. Answer all the questions.
Question 1: Distinguish between fraud and misrepresentation. Answer: Distinction between fraud and misrepresentation: Sometimes the terms fraud and misrepresentation are used inter-changeably by readers however they are actually different. There is not a much difference between the two but a little one as misrepresentation does not directly mean fraud. Below is a table on the salient points to distinguish the terms: Fraud The word fraud comes from the Middle English word fraude taken from the Old French and derived from the Latin fraus. The word fraud means a deliberate form of deception that is practiced to secure some sort of unlawful and unfair gain. Implies on intention to deceive, hence it is intentional or willful wrong. A civil wrong which entitles a party to claim damages in addition to the right to rescind the contract. In fraud, the person making the representation does not himself believe in the truth of the statement he is making. n cases of fraud, the person making the statement is a complete liar and is making the statement to deceive others to enter into a contract Deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage. Misrepresentation Misrepresentation is a type of lying or falsehood in which a person says or does something that would lead another person to believe something that is not in accordance with the facts. It is an innocent wrong without any intention to deceive. The person making the statement believes it to be true. It gives only the right to rescind the contract and there can be no suit for damages. In situations of innocent misrepresentation the person making the statement may believe that what he is saying is true. This is due to the fact that the person making the statement is simply repeating what another person has asserted to be true A misrepresentation or concealment with reference to some fact material to a transaction that is made with knowledge of its falsity or in reckless disregard of its truth or falsity and with the intent to deceive another and that is reasonably relied on by the other who is injured thereby. Misrepresentation may not have malicious intent to deceive if it happens negligently through a misstatement and/or omission of a material fact(s). Types of misrepresentation are: Fraudulent misrepresentation Negligent misrepresentation

Fraud always has malicious intent.

Types of fraud are: Fraud is fraud until you get into a legal issue. Then there are differences but there

is only one type of fraud in realty.

Innocent misrepresentation

Question 2: What are the remedies for breach of contract? Answer: Businesses both individual and corporate enter into business relationships with either individuals or businesses to enable them to carry on their day-to-day commercial transactions. Most of these relationships result in contracts that have legal consequences. Most contracts do not have to be in writing to be enforceable. Definition of a Contract: A contract is a legally enforceable agreement between two or more parties. The core of most contracts is a set of mutual promises (in legal terminology, consideration). The promises made by the parties define the rights and obligations of the parties. For every contract there must be an agreement. An agreement is defined as every promise and every set of promises forming the consideration for each other and a promise is an accepted proposal. Contracts are enforceable in the courts. If one party meets its contractual obligations and the other party doesnt (breaches the contract), the nonbreaching party is entitled to receive relief through the courts. Generally, the non-breaching partys remedy for breach of contract is monetary damages that will put the non-breaching party in the position it would have enjoyed if the contract had been performed. Under special circumstances, a court will order the breaching party to perform its contractual obligations. Because contracts are enforceable, parties who enter into contracts can rely on contracts in structuring their business relationships. Essentials of a Contract: The Indian Contract Act -1872 defines contract as an agreement enforceable by law. The essentials of a (valid) contract are: intention to create legal relations; offer and acceptance; consideration; capacity to enter into a contract free consent of the parties lawful object of the agreement

Remedy Clauses: These clauses state what rights the non-breaching party has if the other party breaches the contract. In contracts for the sale of goods, remedy clauses are usually designed to limit the sellers liability for damages. In a contract the agreement being enforceable by law, each party to the contract is legally bound to perform his part of the obligation. The non-performance of the duty undertaken by a party in a contract amounts to breach of contract for which it can be made liable. Remedies for breach of contract: The legal remedies for breach of contract are: a) Damages

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b) Specific performance of the contract; and c) Injunction. When a contract has been breached, the party who suffers by such breach is entitled to receive, from the party who has breached the contract, compensation for any loss or damage caused to him thereby, being loss or damages which naturally arose in the usual course of things from such breach or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach. A person who rightfully rescinds a contract is entitled to compensation for any damage, which he has sustained through non-fulfillment of the contract. Liquidated damages and penal stipulations: If a sum is named in the contract as the amount to be paid in case of breach of contract, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage of loss is proved to have been caused thereby, to receive, from the party who has broken the contract, reasonable compensation, not exceeding the amount so named or the penalty stipulated for. A stipulation for increased interest from the date of default may be regarded as a stipulation by way of penalty. The court is empowered to reduce it to an amount which is reasonable in the circumstances. Specific performance: In certain special cases (dealt with in the Specific Relief Act, 1963), the court may direct against the party in default specific performance of the contract, that is to say, the party may be directed to perform the very obligation which he has undertaken, by the contract. This remedy is discretionary and granted in exceptional cases. Specific performance means actual execution of the contract as agreed between the parties. Specific Performance of any contract may, in the discretion of the court be enforced in the following situations When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done; or When the act agreed to be done is such that monetary compensation for its nonperformance would not afford adequate relief. Instances where compensation would be deemed adequate relief are: Agreement as a consequence of a breach by a landlord for repair of the rented premises; Contract for the sale of any goods, for instance machinery or goods.

Exceptions: A contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot enforce specific performance of its material terms, cannot be specifically enforced. Another situation when a contract cannot be specifically enforced is where the contract is in its nature determinable. A contract is said to be determinable, when a party to the

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contract can put it to an end. A contract the performance of which involves the performance of a continuous duty, which the Court cannot supervise, cannot be specifically enforced. Persons who cannot obtain Specific Performance: The specific performance of a contract cannot be obtained in favor of a person who could not be entitled to recover compensation for the breach of contract. Specific performance of a contract cannot be enforced in favor of a person who has become incapable of performing the contract that on his part remains to be performed, or who violates any essential term of the contract that on his part remains to be performed, or who acts fraudulently despite the contract, or who willfully acts at variance with, or in subversion, of the relation intended to be established by the contract. I hope this gives you a relevant overview into the key aspect of business contracts and if one takes adequate care when drafting contracts; needless to say relationships will be better and probably more profitable.

Question 3: Distinguish between indemnity and guarantee. Answer: Introduction: Guarantees and indemnities are both long established forms of what the law terms surety ship. There are important legal distinctions between them. Append below some salient points pertaining to the difference/distinction between Indemnity and Guarantee: Distinction between Indemnity and Guarantee: Indemnity Section 124 of the Indian Contract Act 1872 defines a "contract of indemnity" as a contract by which one party promises to save the other from loss caused to him by the conduct of the Promisor himself, or by the conduct of any other person. e.g. = 'x' contracts to indemnify 'y' against the consequences of any legal proceedings which may take against B in respect of a certain sum of Rs.200/=. Guarantee Section 126 of the Indian Contract Act 1872 defines a contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. The person who gives the guarantee is called the surety; the person in respect of whose default the guarantee is given is called the principal debtor, and the person to whom the guarantee is given is called the creditor. A guarantee may be either oral or written. e.g., 'P' lends Rs. 5000/= to 'Q' and 'R' promises to 'P' that if 'Q' does not pay the money back then 'R' will do so. There are three parties namely the surety, principal debtor and the creditor The liability of the surety is secondary. The surety is liable only if the principal debtor makes a default. The primary

Indemnity comprise only two parties- the indemnifier and the indemnity holder. Liability of the indemnifier is primary

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The indemnifier need not necessarily act at the request of the indemnified. The possibility of any loss happening is the only contingency against which the indemnifier undertakes to indemnify. An indemnity is for reimbursement of a loss In a contract of indemnity the liability of the indemnifier is primary and arises when the contingent event occurs. The indemnifier after performing his part of the promise has no rights against the third party and he can sue the third party only if there is an assignment in his favor. In a contract of indemnity, the indemnifier promises without the request of debtor.

liability being that of the principal debtor. The surety give guarantee only at the request of the principal debtor There is an existing debt or duty, the performance of which is guarantee by the surety A guarantee is for security of the creditor. In case of contract of guarantee the liability of surety is secondary and arises when the principal debtor defaults. Whereas in a contract of guarantee, the surety steps into the shoes of the creditor on discharge of his liability, and may sue the principal debtor. Contract of Guarantee is for security of a debt or performance of promise

Question 4: What is the distinction between cheque and bill of exchange? Answer: Exchange of goods and services is the basis of every business activity. Goods are bought and sold for cash as well as on credit. All these transactions require flow of cash either immediately or after a certain time. In modern business, large number of transactions involving huge sums of money takes place every day. It is quite inconvenient as well as risky for either party to make and receive payments in cash. Therefore, it is a common practice for businessmen to make use of certain documents as means of making payment. Some of these documents are called negotiable instruments. In this lesson let us learn about these documents. Distinction between Cheque and bill of exchange Cheque Bill of Exchange It is drawn on a banker It may be drawn on any party or individual. It has three parties - the drawer, the There are three parties - the drawer, the drawee, and payee. drawee, and the payee. The drawer can also draw a bill in his own name thereby he himself becomes the payee. Here the words in the bill would be Pay to us or order. In a bill where a time period is mentioned, just like the above specimen, is called a Time Bill. But a bill may be made payable on demand also. This is called a Demand Bill. t is seldom drawn in sets It does not require acceptance by the drawee. Days of grace are not allowed to a banker No stamp duty is payable on checks Broadly speaking, cheques are of four types. a) Open cheque, and b) Crossed cheque. c) Bearer cheque d) Order cheque Foreign bills are drawn in sets It must be accepted by the drawee before he can be made liable to pay the bill. Three days of grace are always allowed to the drawee. Stamp duty has to be paid on bill of

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It is usually drawn on the printed format

exchange. It may be drawn in any paper and need not necessarily be printed.

Question 5: Distinguish between companies limited by shares and companies limited by guarantee. Answer: The Companies Act, 1956 defines the word company as a company formed and registered under the Act or an existing company formed and registered under any of the previous company laws (Sec.3). This definition does not bring out the meaning and nature of the company into a clear perspective. Also Sec.12 permits the formation of different types of companies. These may be: Companies limited by shares Companies limited by guarantee and Unlimited companies. The vast majority of companies in India are with limited liability by shares. Distinction between Cheque and bill of exchange Companies limited by shares Companies limited by guarantee A company limited by guarantee is Limited by shares is defined by: a normally incorporated for non-profit company that has shareholders, and that making functions. The company has no the financial obligation of the shareholders share capital. A company limited by to creditors of the company is restricted to guarantee has members rather than the capital invested in the first place (i.e. shareholders. The members of the the specified value of the shares and any company guarantee/undertake to premium paid off in exchange for the issue contribute a predetermined sum to the of the shares by the company). liabilities of the company which becomes Shareholder's individuals assets are due in the event of the company being thereby secured in the case of the wound up. company's insolvency, but revenues invested in the company will be The Memorandum normally includes a unrecoverable. non-profit distribution clause and these Limited companies could be either private companies are usually formed by clubs, or public. A private Ltd. (limited company professional, trade or research disclosure) involves are less demanding, associations. but for this reason its shares might NOT be provided to the general public (and consequently can't be listed on a national stock market exchange). This is the wellknown distinctive characteristic between a private limited company and a public limited company. The absolute majority of trading corporations are private companies limited by shares. Companies limited by shares are more Companies limited by guarantee are less popular popular than companies limited by shares. Companies limited by shares are profit Companies limited by guarantee are nonmaking companies. profit making

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In case of companies limited by shares, there are shareholders. Companies limited by shares can engage in legal trades and have general clauses.

Companies limited by guarantee have members, and not share holders There is no share capital in case of companies limited by guarantee and it also has self-imposed restrictions

Question 6: What is the definition of cyber-crime? Answer: Introduction: Crime and criminality have been associated with man since his fall. Crime remains elusive and ever strives to hide itself in the face of development. Different nations have adopted different strategies to contend with crime depending on their nature and extent. One thing is certain, it is that a nation with high incidence of crime cannot grow or develop. That is so because crime is the direct opposite of development. It leaves a negative social and economic consequence. Cybercrime: Cybercrime is defined as crimes committed on the internet using the computer as either a tool or a targeted victim. It is very difficult to classify crimes in general into distinct groups as many crimes evolve on a daily basis. Even in the real world, crimes like rape, murder or theft need not necessarily be separate. However, all cybercrimes involve both the computer and the person behind it as victims; it just depends on which of the two is the main target. Hence, the computer will be looked at as either a target or tool for simplicitys sake. For example, hacking involves attacking the computers information and other resources. It is important to take note that overlapping occurs in many cases and it is impossible to have a perfect classification system. Computer as a tool: When the individual is the main target of Cybercrime, the computer can be considered as the tool rather than the target. These crimes generally involve less technical expertise as the damage done manifests itself in the real world. Human weaknesses are generally exploited. The damage dealt is largely psychological and intangible, making legal action against the variants more difficult. These are the crimes which have existed for centuries in the offline. Scams, theft, and the likes have existed even before the development in high-tech equipment. The same criminal has simply been given a tool which increases his potential pool of victims and makes him all the harder to trace and apprehend. Computer as a target: These crimes are committed by a selected group of criminals. Unlike crimes using he computer as a tool, these crimes requires the technical knowledge of the perpetrators. These crimes are relatively new, having been in existence for only as long as computers have - which explains how unprepared society and the world in general is towards combating these crimes. There are numerous crimes of this nature committed daily on the internet. But it is worth knowing that Africans and indeed

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Master in Business Administration Semester 3 MF0010 Security Analysis and Portfolio Management - 4 Credits
(Book ID: B1208)

Assignment Set- 1 (60 Marks) Note: Each question carries 10 Marks. Answer all the questions.
Q.1 Frame the investment process for a person of your age group.

Answer: It is rare to find investors investing their entire savings in a single security. Instead, they tend to invest in a group of securities. Such a group of securities is called a portfolio. Most financial experts stress that in order to minimize risk; an investor should hold a well-balanced investment portfolio. The investment process describes how an investor must go about making.
Decisions with regard to what securities to invest in while constructing a portfolio, how extensive the investment should be, and when the investment should be made. This is a procedure involving the following five steps: Set investment policy Perform security analysis Construct a portfolio Revise the portfolio Evaluate the performance of portfolio 1. Setting Investment Policy This initial step determines the investors objectives and the amount of his investable wealth. Since there is a positive relationship between risk and return, the investment objectives should be stated in terms of both risk and return. This step concludes with the asset allocation decision: identification of the potential categories of financial assets for consideration in the portfolio that the investor is going to construct. Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds and cash. The asset allocation that works best for an investor at any given point in his life depends largely on his time horizon and his ability to tolerate risk. Time Horizon The time horizon is the expected number of months, years, or decades that an investor will be investing his money to achieve a particular financial goal. An investor with a longer time horizon may feel more comfortable with a riskier or more volatile investment because he can ride out the slow economic cycles and the inevitable ups and downs of the markets. By contrast, an investor who is saving for his teen-aged daughters college education would be less likely to take a large risk because he has a shorter time horizon. Risk Tolerance - Risk tolerance is an investors ability and willingness to lose some or all of his original investment in exchange for greater potential returns. An aggressive investor, or one with a high-risk tolerance, is more likely to risk losing money in order to get better results. A conservative investor, or one with a low-risk tolerance, tends to favour investments that will preserve his or her original investment. The conservative investors keep a "bird in the hand," while aggressive investors seek "two in the bush." While setting the investment policy, the investor also selects the portfolio management style (active vs. passive management). Active Management is the process of managing investment portfolios by attempting to time the

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market and/or select undervalued stocks to buy and overvalued stocks to sell, based upon research, investigation and analysis.

Passive Management is the process of managing investment portfolios by trying to match the performance of an index (such as a stock market index) or asset class of securities as closely as possible, by holding all or a representative sample of the securities in the index or asset class. This portfolio management style does not use market timing or stock selection strategies.
2. Performing Security Analysis This step is the security selection decision: Within each asset type, identified in the asset allocation decision, how does an investor select which securities to purchase. Security analysis involves examining a number of individual securities within the broad categories of financial assets identified in the previous step. One purpose of this exercise is to identify those securities that currently appear to be mispriced. Security analysis is done either using Fundamental or Technical analysis (both have been discussed in subsequent units). Fundamental analysis is a method used to evaluate the worth of a security by studying the financial data of the issuer. It scrutinizes the issuer's income and expenses, assets and liabilities, management, and position in its industry. In other words, it focuses on the basics of the business. Technical analysis is a method used to evaluate the worth of a security by studying market statistics. Unlike fundamental analysis, technical analysis disregards an issuer's financial statements. Instead, it relies upon market trends to ascertain investor sentiment to predict how a security will perform. 3. Portfolio Construction This step identifies those specific assets in which to invest, as well as determining the proportion of the investors wealth to put into each one. Here selectivity, timing and diversification issues are addressed. Selectivity refers to security analysis and focuses on price movements of individual securities. Timing involves forecasting of price movement of stocks relative to price movements of fixed income securities (such as bonds). Diversification aims at constructing a portfolio in such a way that the investors risk is minimized.

The following table summarizes how the portfolio is constructed for an active and a passive investor.

4. Portfolio Revision This step is the repetition of the three previous steps, as objectives might change and previously held portfolio might not be the optimal one. 5. Portfolio performance evaluation

This step involves determining periodically how the portfolio has performed over some time period (returns earned vs. risks incurred).
Q.2 From the website of BSE India, explain how the BSE Sensex is calculated.

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Following is the list of the component companies of SENSEX as on Feb 26, 2010. Code Name 50041 0 50010 3 53245 4 53286 8 50030 0 50001 0 50018 0 50018 2 50044 0 50069 6 53217 4 50020 9 50087 5 53253 2 50051 0 50052 0 53250 0 53254 1 53255 5 50030 4 50031 2 53271 2 ACC BHEL Bharti Airtel DLF Universal Limited Grasim Industries HDFC HDFC Bank Sector Housing Related Capital Goods Telecom Housing related Diversified Finance Finance Adj. Factor 0.55 0.35 0.35 0.25 0.75 0.90 0.85 0.50 Weight Index(%) 0.77 3.26 3 1.02 1.5 5.21 5.03 1.43 1.75 2.08 7.86 10.26 4.99 1.25 6.85 1.71 1.71 2.03 2.03 2.03 3.87 0.92 in

Metal,Metal Products & 0.7 Mining 0.50 1.00

Hindustan Lever Limited FMCG ICICI Bank Infosys ITC Limited Jaiprakash Associates Larsen & Toubro Mahindra Limited & Mahindra Finance

Information Technology 0.85 FMCG Housing Related Capital Goods Transport Equipments Transport Equipments 0.70 0.55 0.90 0.75 0.50

Information Technology 0.15 Oil & Gas Telecom 0.20 0.35

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50032 5 50039 0 50011 2 50090 0 52471 5 53254 0 50057 0 50040 0 50047 0 50768 5

0.50 0.65 0.45

12.94 1.19 4.57 2.39 1.03 3.61 1.66 1.63 2.88 1.61

Metal, Metal Products, 0.45 and Mining

Sun Pharmaceutical Healthcare 0.40 Industries Tata Consultancy Information Technology 0.25 Services Tata Motors Tata Power Tata Steel Wipro Transport Equipments Power 0.55 0.70

Q.3 Perform an economy analysis on Indian economy in the current situation.

Economic analysis is done for two reasons: first, a companys growth prospects are, ultimately, dependent on the economy in which it operates; second, share price performance is generally tied to economic fundamentals, as most companies generally perform well when the economy is doing the same. 1 Factors to be considered in economy analysis The economic variables that are considered in economic analysis are gross domestic product (GDP) growth rate, exchange rates, the balance of payments (BOP), the current account deficit, government policy (fiscal and monetary policy), domestic legislation (laws and regulations), unemployment (the percent of the population that wants to work and is currently not working), public attitude (consumer confidence) inflation (a general increase in the price of goods and services), interest rates, productivity (output per worker), capacity utilization (output by the firm) etc . GDP is the total income earned by a country. GDP growth rate shows how fast the economy is growing. Investors know that strong economic growth is good for companies and recessions or fullblown depressions cause share prices to decline, all other things being equal. Inflation is important for investors, as excessive inflation undermines consumer spending power (prices increase) and so can cause economic Security Analysis and Portfolio Management stagnation. However, deflation (negative inflation) can also hurt the economy, as it encourages consumers to postpone spending (as they wait for cheaper prices). The exchange rate affects the broad economy and companies in a number of ways. First, changes in the exchange rate affect the exports and imports. If exchange rate strengthens, exports are hit; if the exchange rate weakens, imports are affected. The BOP affects the exchange rate through supply and demand for the foreign currency. BOP reflects a countrys international monetary transactions for a specific time period. It consists of the current account and the capital account. The current account is an account of the trade in goods and services. The capital account is an account of the cross-border transactions in financial assets. A current account deficit occurs when a country imports more goods and services than it exports.

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directly with the economy. Example includes industrial production, manufacturing and trade sales etc.

Lagging Indicators are economic indicators that change after the economy has already begun to follow a particular pattern or trend. Lagging Indicators tend to follow (lag) economic performance. Examples: ratio of trade inventories to sales, ratio of consumer installment credit outstanding to personal income etc.
Q.4 Identify some technical indicators and explain how they can be used to decide purchase of a companys stock.

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closing price in relation to the period's high and low prices. The closer the closing price is to the period's high, the higher is the buying pressure, and the closer the closing price is to the period's low, the more is the selling pressure. The idea behind this indicator is that in an uptrend, the price should be closing near the highs of the trading range, signaling upward momentum in the security. In downtrends, the price should be closing near the lows of the trading range, signaling downward momentum. The stochastic oscillator is plotted within a range of zero and 100 and signals overbought conditions above 80 and oversold conditions below 20.

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Q.5 Compare Arbitrage pricing theory with the Capital asset pricing model.

Arbitrage Pricing Theory (APT) Arbitrage Pricing Theory (APT) are two of the most commonly used models for pricing all risky assets based on their relevant risks. Capital Asset Pricing Model (CAPM) calculates the required rate of return for any risky asset based on the securitys beta. Beta is a measure of the movement of the securitys return with the return on the market portfolio, which includes all the securities that are available in the world and where the proportion of each security in the portfolio is its market value as a percentage of total market value of all the securities. The problem with CAPM is that such a market portfolio is hypothetical and not observable and we have to use a market index like the S&P 500 or Sensex as a proxy for the market portfolio. However, indexes are imperfect proxies for overall market as no single index includes all capital assets, including stocks, bonds, real estate, collectibles, etc. Another criticism of the CAPM is that the various different proxies that are used for the market portfolio do not fully capture all of the relevant risk factors in the economy. An alternative pricing theory with fewer assumptions, the Arbitrage Pricing Theory (APT), has been developed by Stephen Ross. It can calculate expected return without taking recourse to the market portfolio. It is a multi-factor model for determining the required rate of return which means that it takes into account a number of economy wide factors that can affect the security prices. APT calculates relations among expected returns that will rule out arbitrage by investors. The APT requires three assumptions: 1) Returns can be described by a factor model. 2) There are no arbitrage opportunities. 3) There are large numbers of securities that permit the formation of portfolios that diversify the firm-specific risk of individual stocks. The Capital Asset Pricing Model (CAPM) is a model to explain why capital assets are priced the way they are. William Sharpe, Treynor and Lintner contributed to the development of this model. An important consequence of the modern portfolio theory as introduced by Markowitz was that the only meaningful aspect of total risk to consider for any individual asset is its contribution to the total risk of a portfolio. CAPM extended Harry Markowitzs portfolio theory to introduce the notions of systematic and unsystematic (or unique) risk. Arbitrage Pricing Theory vs. the Capital Asset Pricing Model The Arbitrage Pricing Theory (APT) and the Capital Asset Pricing Model are the two most influential theories on stock and asset pricing today. The APT model is different from the CAPM in that it is far less restrictive in its assumptions. APT allows the individual investor to develop their model that explains the expected return for a particular asset. Intuitively, the APT makes a lot of sense because it removes the CAPM restrictions and basically states that the expected return on an asset is a function of many factors and the sensitivity of the stock to these factors. As these factors move, so does the expected return on the stock - and therefore its value to the investor. However, the potentially large number of factors means that more factor sensitivities have to be calculated. There is also no guarantee that all the relevant factors have

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been identified. This added complexity is the reason arbitrage pricing theory is far less widely used than CAPM. In the CAPM theory, the expected return on a stock can be described by the movement of that stock relative to the rest of the stock market. The CAPM theory is really just a simplified version of the APT, where the only factor considered is the risk of a particular stock relative to the rest of the stock market - as described by the stock's beta. From a practical standpoint, CAPM remains the dominant pricing model used today. When compared to the Arbitrage Pricing Theory, the Capital Asset Pricing Model is both elegant and relatively simple to calculate.
Q.6 Discuss the different forms of market efficiency.