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Winter-2014
Master of Business Administration- MBA Semester 3
MF0010Security Analysis and Portfolio Management-4 Credits
(Book ID: 1754)
Assignment (60 Marks)
Note: Answers for 10 marks questions should be approximately of 400
words. Each question is followed by evaluation scheme. Each Question
carries 10 marks 6 X 10=60.
Q1. Financial markets bring the providers and users in direct contact
without any intermediary. Financial markets permits the businesses and
governments to raise the funds needed by sale of securities. Describe the
money market/capital market features and its composition.
Answer. Features Money Market:
Securities
Money markets specialize in short-term--less than one year--debt securities. This
short maturation time provides the same benefits as liquid cash for the investor.
Basically, a money market security is an IOU from a government, financial institution
or other large corporation. Money market securities are safer than most other
securities and therefore offer lower returns.
Q2. Risk is the likelihood that your investment will either earn money or
lose money. Explain the factors that affect risk. Mr. Rahul invests in equity
shares of Wipro. Its anticipated returns and associated probabilities are
given below:
Return

-15

Probabili 0.05
ty

-10

10

15

20

30

0.10

0.15

0.25

0.30

0.10

0.05

You are required to calculate the expected ROR and risk in terms of
standard deviation.
Answer. Risks:
Systematic Risk
Systematic risk is also known as market risk and relates to factors that affect the
overall economy or securities markets. Systematic risk affects all companies,
regardless of the company's financial condition, management, or capital structure,
and, depending on the investment, can involve international as well as domestic
factors.
Nonsystematic Risk
Nonsystematic risk, in contrast to systematic risk, affects a much smaller number of
companies or

Q3. Explain the business cycle and leading coincidental & lagging
indicators. Analyse the issues in fundamental analysis.
Answer. Business Cycle:
Composite of leading, lagging and coincident indexes created by the Conference
Board and used to forecast changes in the direction of the overall economy of a
country. They can be used to confirm or predict the peaks and troughs of the
business cycle and are published for the U.S., Mexico, France, the U.K., South Korea,
Japan, Germany, Australia and Spain.
Q4. Discuss the implications of EMH for security analysis and portfolio
management.
Answer. Passive Captures the Return of an Entire Market
When you take this analogy, and apply it to investing, first you look at the entire
market of available stocks. A passive investor wants to own all the stocks, because
they think as a whole, over long periods of time, capitalism works, and they are
likely to receive higher returns from investing in the entire stock market than by

Q5. Explain about the interest rate risk and the two components in it. An
investor is considering the purchase of a share of XYZ Ltd. If his required
rate of return is 10%, the year-end expected dividend is Rs. 5 and year-end
price is expected to be Rs. 24, Compute the value of the share.

Answer. Interest Rate Risk'

The risk that an investment's value will change due to a change in the absolute level
of interest rates, in the spread between two rates, in the shape of the yield curve or
in any other interest rate relationship. Such changes usually affect securities
inversely and can be reduced by diversifying (investing in fixed-income securities
with different durations) or hedging (e.g. through an interest rate swap).
The headquarters is located in Berlin, Germany.
International financial reporting standards (IFRS) represent a set of generally
accepted accounting principles (GAAP) used by companies to prepare financial
statements, a critical source of information published annually, at a minimum, and
useful to various stakeholders (shareholders, debtors, clients, employees and
governments) in understanding a company's financial performance and
managements stewardship of the companys resources.

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