Review questions

MGT603- SECURITIES ANALYSIS AND PORTFOLIO MANAGEMENT MBA III

Part - A
1. What is investment? Is investment different from Speculation and Gambling?
2. What are the advantages of listing securities in the stock exchanges?
3. The debt component in capital structure has no impact on the share valuation of a
company Comment.
4. Explain the term Stock Indices.
5. What is : Oscillators and Stochastic?
6. State the significance of Beta in an individual Portfolio.
7. What are all the assumptions used in the Arbitrage Pricing Theory.
8. What is a Market correction and Bear Trap?
9. What is the basic premise of value investing?
10. How does bought out deal differ from an offer through prospectus?
11. What are the basic factors to be considered in the Indices?
12. What is beta? Is it better measure of risk than the Standard deviation?
13. Strategies help the investor to overcome being emotionally attached to the stock
Explain
14. Explain any four common objectives of Investments.
15. What do you mean by Demutualization of Stock exchanges and state its advantages.
16. Explain the functions of the Primary Market.
17. Write the objectives and functions of SEBI.
18. Describe various Triangles in the Technical Analysis.
19. Why is industry analysis important in stock market investments?
20. Explain CAPM.
21. How are portfolios evaluated?
22. What is an index fund?
23. What is the difference between SML AND CML.?
24. How Beta is computed using CAPM?
25. What do you mean by the term AMC?
26. What do you mean by diversification?

27. Explain the constraints in the formation of objectives.

28. What is superfluous diversification?
29. State Jensen measure.
30. List out the ways in which Beta can be calculated.
31. Define NAV. What are formula plans?
32. What do you mean by risk aversion?
33. What is a open ended fund and closed ended fund?
34. What is entry and exit load in mutual fund?
35. What is gilt edged fund?
36. State Treynors index.
37. What are the criteria for evaluation of portfolio?
38. Explain portfolio revision. What is portfolio selection?
39. What is CML? Define its role.
40. What are Graham and Dodds investor ratios?
41. What do you understand by fundamental approach to security analysis?
42. Define multiplier. What is Market Equilibrium?
43. How is weighted value index computed?
44. Define the industry life cycle stages.
45. What is the importance of P/E ratio?
46. What is Value vs. Growth investing?
47. What is opportunistic building model? What is Economic Forecasting?
48. Distinguish between historical return and expected return.
49. List the significance of ROI in company analysis.
50. State the ratios listed by Graham and Dodd for value investing.
51. What is the quality of growth stocks? Give an example for growth stock.
52. What do you mean by leading and lagging indicators of the economy? Give 2 Examples
53. What are the mechanisms adopted by RBI to check liquidity?
54. What is fiscal policy? Define GNP
55. What is competitive advantage?
56. What is the use of ratio analysis? How will you calculate intrinsic value of a share?
57. What is balance of payment?
58. Classify industry according to business cycle.
59. Differentiate fundamental analysis from technical analysis.
60. Explain the importance of Oscillators in technical analysis.
61. Explain the three types of trends in stock prices
62. What do you infer from the moving average theory of technical analysis?
63. How is PE ratio used to interpret growth opportunities?
64. Define Moving Averages. What are Line Charts?
65. How is moving average computed?
66. What is technical analysis?

67. Define RSI and its usage.

68. What are the two major market indicators considered as a barometer of Indian capital
market?
69. How do the leverage policies affect the company performances?
70. What do you mean by security market line? Define efficient frontier?
71. Explain Random Walk Hypothesis. What are the various levels of market Efficiency?
72. What patterns helps us identify the trend reversal?
73. What do you mean by support level?
74. What do you mean by resistance level?
75. What oscillators indicate?
76. What is odd lot trading?
77. What is short sale? What is trend reversal?
78. What is Beta? Is it a better measure of risk than the standard deviation?
Part -B & C
1. (i)Explain the steps in portfolio / investment management.
(ii)Explain the concept of Systematic Risk? Why is it call Systematic Risk

2. (i)Explain the different types of investment alternatives available for a common

investor with moderate risk taking capabilities?
(ii)Explain the Characteristics of Investment. Elucidate if there will be a tradeoff between
Risk and Return in Investments.
3. As an investment advisor what features would you suggest to be included in the investment
bunch of a client explain the features briefly.
4. Security analysis requires as first step the sources of information on the basis of which
analysis is made. What are different types of information used for security analysis?
5. Discuss the different kinds of long term investment opportunities available for corporate
investors with their pros and cons.
6. Explain with example how investment opportunities should be evaluated on the basis of riskreturn trade off.
7.Why do people invest? Explain the characteristics and objectives of investment based on type
of Investors.

8. What factor should an Investor consider while making investment decisions? 8. The returns
on securities A and B are given below.
security
Probability

security A

0.5

0.4

0.1

Give the security of your preference. The Security has to be selected on the basis
of return and risk.
9. Without adequate information the investor cannot carry out his investment programme.
Elucidate
10.What are the main Advantages and disadvantages to a company by raising finance
through issuing the ordinary shares?
11.Explain the portfolio return and portfolio risks.

12.Distinguish between Investing and Speculating. Is it Possible to incorporate Investment

and Speculation within the same security? Explain with Examples.

13.Primary and Secondary markets are complementary, but their organization structures are
different Explain.
14.Explain the concept of CML and SML with suitable examples.
15.You are given the following information and asked to choose the best portfolio for your client
Portfolio

Beta

Correlation of the return

with index return

1.3

1.0

-0.7

-0.8

1.1

0.7

a. Advise him on which portfolio has unsystematic risk.

b. Suggest the highest yielding return portfolio in normal market conditions based on
CAPM and explain your choice
16.How does technical analysis differ from the fundamental analysis?
17.Arun has made some forecast regarding Jasmine Companys dividend and price. According to
him, the company will pay a dividend of Rs 3 per share in the future and at the end of five years
holding period the stock could be sold at Rs 80. His required rate of return is 12 per cent per
annum. What should be the price of the Jasmine stock?
18.The stock market analyst has analyzed the stock market and given his opinion regarding J.J.
Steel company and the market in the follow table.
Growth

Likely Return

Probability

J.J Steel

Market

Boom

20%

24%

0.4

Fair

13%

15%

0.5

Depression

5%

-7%

0.1

The Risk free rate is 7%. It advisable to buy J.J. Steel Companys Stock ?

19.With a 9 per cent risk free rate of return, the NSE- Nifty portfolio is having an expected return
of 21 per cent and a standard deviation of 8. In the X portfolio, the mean is 15 per cent and
standard deviation is 8. In the Y portfolio, the mean is 20 per cent and the standard deviation is
20. For portfolio Z, the return is 21 per cent and standard deviation is 16. Choose the best
portfolio.
21. Explain in briefly the various forms investment avenues? Give a detailed account of any five.
22. Explain the role of SEBI in the Primary Market to Protect the Investors Interest.
23.What are the different types of charts used by technical analysis?
24.Explain the functions of Stock Exchanges in India and how they are managed through the
Regulation?
25.The risk free rate of return is 9 per cent, the expected return on NSE-Nifty is 20 per cent and
the variance of the index is 25 per cent. Portfolio return is 15 percent. Estimate the risk of it. If

the investor borrows 25 per cent funds at the risk free rate of return, what will be the return and
risk of the portfolio?
26.An investor wants to choose either X or Y companys stock. Both the companies are not
paying dividends. X company stock is currently selling for Rs 150 and Y for Rs 200. At the end
of the year ahead there is a probability for X to be sold either for Rs 171 or Rs 167 and Y either
for Rs 227 or Rs 223. Which companys scrip should the investor buy? Justify your answer.
27.With a 9 per cent risk free rate of return, the NSE- Nifty portfolio is having an expected return
of 21 per cent and a standard deviation of 8. In the X portfolio, the mean is 15 per cent and
standard deviation is 8. In the Y portfolio, the mean is 20 per cent and the standard deviation is
12. For portfolio Z, the return is 21 per cent and standard deviation is 16. Choose the best
portfolio.
28.Explain the functions of Stock Exchanges in India and how they are managed through the
Regulation?
29.No Investment is risk-free, In view of this statement, write an essay on the meaning and
types of investment risk. Can this risk be eliminated or minimized?
30.In what are the circumstances the Applied Valuation techniques are used in the Fundamental
analysis - Discuss
31.How does RSI indicate the technical strength and weakness of the stock price movement?
32.A stock costing Rs 50, pays no dividend. The possible prices of the stock at the end
of year and their probabilities are given below.
End year Price

Probability

60

0.1

65

0.2

70

0.4

75

0.2

80

0.1

(a) Find out the expected return.

(b) Find out the standard deviation of the returns.
33.Bonds A and B have similar characters except the maturity period. Both the bonds carry 9 per
cent coupon rate with the face value of Rs 10,000. The yield to maturity is 9 per cent. If the yield
to maturity is to rise to 11 per cent what will be the respective price change in bond A with 7

years to maturity and B with 10 years to maturity?

34.The mean returns for the stocks during the year 1998 are given below. The variances of the
returns are also given below.
Stocks

Mean Return

Variances

Anil Electricals

20%

Soruba Ltd

25%

18

K Ltd.,

35%

22

Arul Ltd.,

32 %

21

The Treasury bill rate is 7%. Which security is a best buy?

35.Stocks X and Y display the following return over the past three years.
Year
Return
X
Y
1994
14
12
1995
16
18
1996
20
15
(a) What is the expected return on portfolio made up of 40 per cent of X and 60 per cent of Y?
(b) What is the standard deviation of each stock?
(c) Determine the correlation co-efficient of stock X and Y.
(d) What is the portfolio risk of a portfolio made up of 40 per cent X and 60 per cent Y?

36.With the given details, evaluate the performances of the different funds using sharp, treynor
and Jenson performance evaluation techniques.
Funds
Return
Standard Deviation
Beta
A
12
20
0.98
B
12
18
0.97
C
8
22
1.17
D
9
24
1.22
Risk free rate of return is 4%, Market return is 10%

37. Stocks L and M have yielded the following returns for the past two years.
Years
1995
1996

L
12
18

Return (%)
M
14
12

a. What is the expected return on portfolio made up of 60 percent of L and 40 Percent of

M?
b. Find out the standard deviation of each stock
c. What is the covariance and co-efficient of correlation between stock L and M?
d. What is the portfolio risk of a portfolio made up of 60 percent and L and 40 percent
of M?
38. the Dow Theory and its three components. Which component is most important? What is the
reason for an intermediate reversal?

39. Stocks L and M have yielded the following returns for the past two years.
Years
1995
1996
a.
b.
c.
d.

L
12
18

Return (%)
M
14
12

What is the expected return on portfolio made up of 60 percent of L and 40 Percent of M?

Find out the standard deviation of each stock
What is the covariance and co-efficient of correlation between stock L and M?
What is the portfolio risk of a portfolio made up of 60 percent and L and 40 percent of
M?