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Investment Analysis Management
Downloaded Data of Bank of Baroda and HDFC Bank
from www.nseindia.com of last 11 years
has been summarized as follows. You are required to analyze the data using
appropriate statistical tools, interpret the results and provide necessary
advice to the investors as research analyst.
CASE STUDY 2 (20 Marks)
Given below are the returns on the three stocks
Supertex, Colourtex and Wivetex for a four year period. Compute the average
returns, variance and standard deviation if a portfolio is constructed such
that the stock has lowest standard deviation accounts for 50% of the funds, a
stock having the next lowest standard deviation accounting for 30% and the
third stock accounting for 20% of the funds.
In September 2006, Mafatlal Ltd.
Paid 10% dividend and in October, 2006 Nataraj Ltd. Paid 30% dividend. On
31-3-2007, market price of shares of Mafatlal Ltd. And Nataraj Ltd. Were Rs.220
and Rs.290 respectively.
Pruthvi Hardware ltd. have been informed by their investment advisor
that :-
1)
Dividend s from
Mafatlal L Ltd. And Nataraj Ltd. For the year ending 31-03-2008 are likely to
be 20% and 35% respectively.
You are required to
1) Calculate the average return from the portfolio for the year ended
31-03-2007.
2)
Advice P Ltd. Of
the comparative risk of two investments by calculating the standard deviation
in each case.
CASE STUDY 4 (20 Marks)
A) The
following table provides details about three mutual fund portfolios. Find out
the Sharpe, Treynor and Jensen Index and rank them. What are your
suggestions to the investors?
- The beta of Equity fund is higher than the
Beta of Mid Cap fund but the returns are higher in Mid Cap Fund than
Equity Fund. Do you agree with this statement? If yes, explain with
reasonable examples.
- The beta of
Infra – Fund is the highest among all three fund but the returns is the
lowest among all three fund. Explain with reasonable examples.
B) Share of HDFC and BANK of Baroda display the
following returns over the past two years:-
1) What is the expected return on a portfolio made up of 40% of Pepsi and
60% of Coca-Cola?
2) What is the standard deviation of each share?
3) What is the covariance of Share of Pepsi and Coca-Cola?
4) What is the correlation coefficient?
5) Interpret the results in each case and advice the investors for
investment decision?
Investment
Analysis Mgmt
1. What is
the relationship between securitization and the role of financial
intermediaries in the economy? What happens to financial intermediaries as securitization
progresses?
2. What are some advantages and disadvantages of
top down various bottom up investing styles ?
3. Give the examples of three financial
intermediaries and explain how they act as bridge between small investors and
large capital market of corporations?
4. Why money market securities are sometimes
referred to as Cash equivalents ?
5. If the offering price of an
open end fund is Rs. 12.30 per share and the fund is sold with front end load
of 5 % what its net asset value
6. The new fund had average
daily assets of Rs. 2.2 billion last year. The fund sold Rs. 400 million worth
of stock and purchased Rs. 500 million during the year. What was its turn over
ration ?
7. Suppose that borrowing is restricted so that
the zero beta version of the CAPM holds. The expected return on the market
portfolio is 17 % and on the zero beta
portfolio it is 8 % what is the expected return on a portfolio with beta of 0.6
%.
8. Outline how you would
incorporate the following in to the CCAPM
a. Liquidity b. Nominated
assets ( Do you have to worry about labor income )
INVESTMENTS MANAGEMENT
Q1) Suppose that there are two
closed-end mutual funds, A and B. Both trade at $8, where the net asset value
per share is $10. Fund A is a terminated fund. (A terminated fund is a fund
with a termination date, the date at which the assets are liquidated and
distributed to the shareholders. Its termination date is in 1 year from now.
Fund B is not a terminated fund.
a. Calculate the premium or discount corresponding to these two
funds.
b. Suppose that the net asset value of both funds will increase to
$12 one year from now.
Calculate the rate of return to the investor in Fund A for this
year. Can you calculate the rate
of return corresponding to Fund B under these circumstances?
Q2) An ADR of Honda Motor is
traded on the NYSE for $22. The exchange rate is 100 yen per
dollar. Suppose that Honda Motor is trading in Japan for 2,500
yen. How can you use this
information to make a profit? Explain.
Q3) Suppose a bond is sold for
$1,000 and pays an annual interest rate of 10% on the par value,
which is also $1,000. The bond was issued 20 years ago and will
mature in one week. You own
some of these bonds. The yield on these bonds suddenly goes way
up, to 15%. Calculate your
loss. Explain your results?
Q4) Suppose a bond has a par
value of $1,000 and a market value of $1,100. It is convertible into 40
shares of stock, and the current stock price is $26.
a. What is the conversion ratio?
b. What is the conversion price?
c. What is the conversion value?
Q5) Suppose you buy a stock for
$100. You receive $4 as a cash dividend at the end of the year. The stock price
at the end of the year is $95.
a. What is the rate of return on your investment?
b. What is the dividend yield as measured at the beginning of the
year? At the end of the year?
Q6) The net asset value of a
mutual fund is $12. The share price is $13.
a. Is it an open-end fund or a closed-end fund?
Calculate the premium or discount.
Q7) Bill buys a $1000 par value
10-year bond for $850. It pays $75 a year in interest. Calculate Bill’s yield
to maturity on the bond using a financial calculator or software.
Q8) Alex holds a convertible
bond with a market value of $1700. If the conversion ratio is 50 and the stock’s
price is $39 per share, should he convert the bond or sell the bond?
Q9) Classify each of the
following types of assets as either money market securities or capital market securities.
U.S. Treasury
notes __________ Commercial paper __________
Municipal bonds __________ Mortgages __________
Federal funds __________ Treasury bills __________
Eurodollars __________ Corporate bonds __________
Common stocks __________ Negotiable CDs __________
Q10) Arrange the following from
earliest to latest:
Ex-dividend date
Declaration date
Payment date
Date of record
Q11) Bravo Company stock
currently sells for $100 per share. Bravo’s board of directors’ has
declared a $1 per share dividend, and the ex-dividend date is
tomorrow. Ignoring the effect of
any other new information, what would you expect to happen to the
price of Bravo stock
tomorrow?
Q12) Jeff owns 300 shares of
Cappa Company stock. Each share is worth $30. If the stock splits 3- for-1, how
many shares will Jeff own? What will each share be worth? Reconsider the
preceding problem. How many shares will Jeff own, and what will
each share be worth, if the
stock splits 5-for-2?
Q13) Forest Company has
convertible bonds outstanding with a $1,000 par value and a 6% coupon. Forest’s
common stock currently sells for $80 per share. The bonds’ conversion ratio is
20. Calculate the bonds’ conversion price and conversion value. Do you think
the bonds’ conversion premium is large or small?
Q14) What is the difference
between buying a call option and buying a futures contract? Distinguish among
interest rate risk, price risk, and reinvestment rate risk for bondholders?
Q16) What are the advantages and
disadvantages of investing in bonds?
Q17) A junk bond is trading for
$800 and matures exactly 1 year from now at $1,000. There is no interest paid
between now and maturity.
a. Calculate the yield to maturity on the bond.
How do you explain your results, knowing that the interest rate on
government bonds is only
5% a year?
Q18) What is the P/E ratio, and
how is it calculated?
Q19) Give an example of how
futures are used to hedge financial price risk and to speculate on the direction
of future prices.
Q20) The prices of the stock of
Alamo Rent-A-Car and the S&P 500 index are as follows:
Year 1 2 3 4
Alamo $100 $114 $110 $112
S&P $300 $280 $240 $260
Is Alamo's stock a defensive stock? Why?
Q21) Divide the following assets
into marketable and non-marketable assets: common stock, stamps, art, bonds,
real estate, super computers, and mutual funds
Q22) You are considering opening
up a department store or purchasing shares of stock in a national chain of
department stores such as Dayton Hudson traded on the NYSE. Which of the two investments
have a more flexible investment holding period? Which is more liquid?
Q23) Joe-Bob from L.A. decided
to invest $950 (price) in a 12% semiannual, 3-year bond. What is the yield to
maturity (internal rate of return, or IRR) if the par value is $1,000?
Q24) A bond is sold for $700 and
matures in 5 years. It pays $20 at the end of each year. The par value is
$1,000. Calculate the yield to maturity (IRR) on the bond using a calculator or
software.
INVESTMENTS
ANALYSIS MANAGEMENT
Q1)
Why would you expect securitization to take place only in highly developed
Capital Market?
Q2)
In what ways is preferred stock like long term debt? In what ways is it like
equity?
Q3)
What purpose does the NEAT system serve on the National Stock Exchange?
Q4)
Would you expect a typical open-end fixed-income mutual fund to have higher or
lower operating expenses than a fixed income unit investment trust? Why?
Q5)
What are the advantages of the index model compared to the Markowitz procedure
for obtaining an efficiently diversified portfolio? What are its disadvantage?
Q6) A
successful firm like Infosys has consistently generated large profits for
years? Is this a violation of the EMH?
Q7)
Why do bond prices go down when interest rates go up?
Q8)
What monetary and fiscal policies might be prescribed for an economy in deep
recession?
Q9)
In what circumstances would you choose to use a dividend discount model rather
than a free cash flow model to value a firm?
Q10)
Is a put option on a high-beta stock worth more than one on a low beta stock?
INVESTMENTS MANAGEMENT
1) How securities are being traded in
share market?
2) What is
the difference between mutual fund and other investment companies
3) What is adjustable and non-adjustable
capital?
4) How finance
statement analysis is being done from investor’s point of view?
What is the importance of security analysis?
5 )
What are call options? Give in brief
information about put option
6)
What is the theory of active portfolio management ? How it is monitored?
7 )
What are the different types of risks with regard to debt securities?
WE PROVIDE CASE STUDY ANSWERS, ASSIGNMENT SOLUTIONS, PROJECT REPORTS AND THESIS
ARAVIND - 09901366442 – 09902787224
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