I.A.P.M. Solution SCOrE G The Best M.

: 9324343830
Con. 1499 11 (REVISED COURSE) MS 5027
(2 Hours) [Total Marks : 60]
Section - I
Q.1) Explain in brief the following :-
(b) Present Value of Annuity
Many times, investors like to know the present value which grows to a given future
value. Suppose, you want to save some money from your salary to buy a scooter after 5 years.
You should know how much money should be put into bank now in order to get the future value
after 5 years. The present value is simply the inverse of compounding used in determining future
value. The general relationship between future value and present value is given in the following
Formula:
t
) R 1 (
1
x FV DF x FV PV

(c) Secondary Market
The securities originally issued in primary market is traded on secondary market.
The origin of the stock market in India goes back to the end of the eighteenth century when long-
term negotiable securities were first issued. However, for all practical purposes, the real
beginning occurred in the middle of the nineteenth century after the enactment of the Companies
Act in 1850, which introduced the feature of limited liability and generated investors interest in
corporate securities.
At present, NSE and BSE account for almost 100 percent of the total turnover on the Indian
stock market, thanks to three factors: advent of automated trading and the nation wide reach of
NSE and BSE, introduction of a common rolling settlement system, and abolition of regional
listing requirement.
(d) Technical Analysis
Technical analysis is a study of market data such as prices, volume of trading etc. in order to
determine the future direction of price movement.
I.A.P.M. Solution SCOrE G The Best M.: 9324343830
The financial data and past behavior of the share prices of a company are presented on charts and
graphs in order to find out the history of the price movement.
Technical analysis is mostly helpful for day trades and short term investors who are interested in
the short term movement in stocks to make quick profit. Long term investor considers
fundamental (mainly) as well as technical analysis for investment decision making.
Section - II
Q.3)
Role of SEBI in Investors Protection.
Securities and Exchange Board of India (SEBI) was set up as an administrative arrangement in
1988. In 1992, the SEBI Act was enacted, which gave statutory status to SEBI. It mandates SEBI
to per- form a dual function: investor protection through regulationof the securities market, and
fostering the development of this market. SEBI has been delegated most of the functions and
powers under the Securities Contract Regulation (SCR) Act, which brought stock exchanges,
their members, as well as contracts in securities which could be traded under the regulations of
the Ministry of Finance. It has also been delegated certain powers under the Companies Act. In
addition to registering and regulating intermediaries, service providers, mutual funds, collective
investment schemes, venture capital funds, and takeovers, SEBI is also vested with power to
issue directives to any person(s) related to the securities market or to companies in areas of issue
of capital, transfer of securities, and disclosures. It also has powersto inspect books and records,
suspend registered entities, and cancel registration.
On April 12, 1988, the Securities and Exchange Board of India (SEBI) was established with a
dual objective of protecting the rights of small investors and regulating and developing the stock
markets in India.
In 1992, the Bombay Stock Exchange (BSE), the leading stock exchange in India, witnessed the
first major scam masterminded by Harshad Mehta. Analysts unanimously felt that if more
powers had been given to SEBI, the scam would not have happened.
As a result, the government of India brought in a separate legislation by the name of SEBI Act
1992 and conferred statutory powers to it. Since then, SEBI had introduces several stock market
reforms. These reforms significantly transformed the face of Indian stock markets.
SEBI introduced on-line trading and demat of shares which did away with the age-old paper-
based trading, thus bringing more transparency into the trading system.
Objectives of SEBI
As an important entity inthe market it works with following objectives:
1. It tries to develop the securities market.
I.A.P.M. Solution SCOrE G The Best M.: 9324343830
2. Promotes Investors Interest.
3. Makes rules and regulations for the securities market.
Functions of SEBI
1. Regulates Capital Market.
2. Checks trading securities.
3. Checks the malpractices in securities market.
4. It enhances investors knowledge on market by providing education.
5. It regulates the stockbrokers and sub-brokers.
6. To promote Research and Investigation.
SEBI from time to time have adopted many rules and regulations for enhancing the Indian
capital market. The recent initiatives undertaken are as follows:
Sole Control on Brokers
Under this rule in India every brokers and sub-brokers have to get registration with SEBI
and Stock exchange.
For Underwrites
For working as an underwriter an asset limit of 10 crore has been fixed.
For Shares Prices
According to this law all Indian companies are free to determine their respective share
prices and premiums on the share prices.
For Mutual Funds
SEBIs Introduction of SEBI (Mutual Funds) Regulation in 1993 is to have direct control
on all mutual funds of both public and private sector.
This all results into investors protection by SEBI.
Q.5)
Kuber
Year CIF PV@10% PVCIF
1 10,000 0.9091 9091
2 11,000 0.8264 9090.40
3 12,000 0.7513 9015.60
4 13,000 0.6830 8879
5 15,000 0.6209 9313.50
PVCIF 45389.50
.: Present value of Investment is $ 45389.50
NPV = PVCIF PVCOF
= 45389.50 50,000
= (4610.50)
Advice
Since NPV is negative the Investment is not profitable.
I.A.P.M. Solution SCOrE G The Best M.: 9324343830
Q.6)
Particulars Jay Vijay
PBT
(-) Tax @30%
PAT
(-) Pref. Dividend
Earning for ESH (i)
No. of Eq. Shares (ii)
(a) .: EPS (i) (ii)
(b)
EPS
MPS
ratio E P /
(c) 100 x
EPS
DPS
Ratio Payout Dividend
(d) 100 Re x
PSC ESC
NPAT
Capital Total on turn

400
120
280
12
268
600
180
420
24
396
80
3.35
35 . 3
150

=44.78 times
100
35 . 3
3
x
=89.55%
100
100 800
280
x

=31.11%
100
3.96
96 . 3
120

=30.30 times
100
96 . 3
2
x
=50.51%
100
200 1000
420
x

=35%
Advice
Other factors remaining same on the basis of above ratios, mainly P/E ratio it is preferred to
Invest in Vijay Ltd.
Q.7)
P
0
= (2500x 20) 50,000 +1000 (50,000 x 2%)
= 51,000
D = (5 x 50%) 2.5 x 2500
= 6250
P
1
= (2500x 25) 62500 1200
= 61300
100
0
0 1
x
P
D P P
return period Holding


100
51000
) 2 6250 ( 51000 61300
x
x

I.A.P.M. Solution SCOrE G The Best M.: 9324343830
100
51000
12500 51000 61300
x

100
51000
22800
x
= 44.71%
Holding Period 01.01.2009
To 2 Years
31.12.2010

2
71 . 44
return Annnual
=22.35% p.a.
AlternativeInvestment return =12% p.a.
Conclusion
Since Annual return on investment is higher that AlternativeInvestment return
i.e. (22.35% >12%), His decision to go for share investment is right.