Security Analysis and Capital Markets Prof PDF

COC 111
SECURITY ANALYSIS AND CAPITAL

MARKETS
By : Prof. B. Ramesh,
Department of Commerce
Goa Business School
Goa University
Department of Commerce, Goa University

By: Prof. B. Ramesh
UNIT - I
INTRODUCTION TO SECURITY ANALYSIS

By: Prof. B. Ramesh
What is Investment?
• It is the employment of funds on the
asset with the aim of earning income
or capital appreciation.
• It has two attributes, namely, time and
risk.
• Present consumption is sacrificed to
get a return in the future.
By: Prof. B. Ramesh
Investment Objective
• Maximizing the return
• Minimizing the risk
• Subsidiary objectives
• Maintaining Liquidity
• Hedging against Inflation
• Increasing Safety
• Saving Tax
By: Prof. B. Ramesh
Characteristics of Investment
• Risk
• Return
• Safety
• Liquidity
• Marketability

By: Prof. B. Ramesh
Difference Between Investor and
Speculator
Investor Speculator
• Plans for a longer time • Plans for a very short
horizon. Holding period period. Holding period
varies from one year to few varies from few days to
years. months.
• Assumes moderate risk • Willing to undertake high
• Likes to have moderate rate risk.
of return associated with • Likes to have high rate of

limited risk. return for assuming high
• Considers fundamental risk.
factors and evaluates

Department ofthe • GoaConsiders
Commerce, University inside
By: Prof. B. Ramesh
Investment Avenues
➢ Securities
➢ Deposits
➢ Postal Schemes
➢ Insurance
➢ Real Assets

By: Prof. B. Ramesh
Securities
• Stocks
• Bonds/Debentures
• G-Securities
• Money Market Instruments
• Derivatives
• Mutual Funds

By: Prof. B. Ramesh
Deposits
• Bank Deposits
• Non Banking Financial Company
(NBFC) deposits

By: Prof. B. Ramesh
Postal Schemes
• Post Office Savings Account (4%)
• 5-Year Post Office Recurring Deposit Account (RD) (7.3%)
• Post Office Time Deposit Account (TD) (7%)
• Post Office Monthly Income Scheme Account (MIS)(7.3%)
• Senior Citizen Savings Scheme (SCSS) (8.7%)
• 15 year Public Provident Fund Account (PPF) (8%)
• National Savings Certificates (NSC) (8%)
• Kisan Vikas Patra (KVP) (7.7%)
• Sukanya Samriddhi Accounts (SSA) (8.5%)

By: Prof. B. Ramesh
❑ Insurance
❑ Life Insurance Policies
❑ ULIP Unit Linked Insurance Plan
❑ Real Assets
❑ Real Estate
❑ Precious Metals
❑ Art and Antiques

By: Prof. B. Ramesh
Risk
• Variability or volatility in returns
• Chance of Actual Return < Expected Return
• Any deviations from expected returns (mean).
• Probability that, the returns from any asset will
differ from the expected yields is the risk inherent
in that asset.
• Components of Risk:
• Systematic Risk
• Unsystematic RiskDepartmentBy:ofProf.
Commerce, Goa University
B. Ramesh
SYSTEMATIC RISK
• Risk caused to company due to external factors
• Company is not able to control this risk
• It affects the market as a whole
• Systematic risk is unavoidable
• Economic conditions, political situation or
sociological changes affect the securities market.
• It is further divided into :
• Market Risk, Interest Rate Risk and Purchasing
power risk Department of Commerce, Goa University
By: Prof. B. Ramesh
Unsystematic Risk
• Unsystematic risk is unique and peculiar to

a firm or an industry.
• It stems from financial leverage,
managerial inefficiency, technological
change in the production process,
availability of raw material, change in
consumer preferences and labour
By: Prof. B. Ramesh
❑ Unsystematic risk can be classified as:
❑ Business Risk:- which refers to the
difference between revenue and earnings
before interest and taxes (EBIT)
❑ Financial Risk:- which refers to the

difference between EBIT and earnings
before tax (EBT).
By: Prof. B. Ramesh
Business Risk
Internal Business Risk External Business Risk
• Fluctuations in sales • Social and regulatory
• R&D factors
• Personnel Management • Political Factors
• Fixed Cost • Business Cycles
• Single Product

By: Prof. B. Ramesh
Financial Risk
• Refers to the variability in income vis-à-
vis the equity capital because of the debt
capital.
• It is associated with the capital structure
of the company.
• Structure consist of Equity Funds and
Borrowed Funds.
• It is an avoidable risk.
By: Prof. B. Ramesh
Minimizing Risk Exposure
❑ Protection against Market Risk :-
❑ Investor must study the price behaviour of the
stock.
❑ Standard deviation and beta indicate the
volatility of the stock.
❑ Investor should be prepared to hold stock for
minimum period to reap the benefits of rising
trends in the market.
❑ Time of purchase and By: Prof.sale
B. Ramesh of the stock.
❑ Protection against Interest rate risk
❑ Holding the investment to maturity
❑ Buying treasury bills and bonds of short
maturity
❑ Investing in bonds with different maturity
dates
❑ Protection against inflation
❑ To have investment in short term securities
and to avoid long term investments
❑ Investment diversification can also solve this
By: Prof. B. Ramesh
❑ Protection against Business and Financial
risk
❑ Analysing strength and weaknesses of the
industry to which company belongs
❑ Analysing profitability trend of the
company, the investor must choose a stock
with a consistent track record.
❑ Analysing capital structure of the company.
By: Prof. B. Ramesh
Standard Deviation
• It is a measure of the values of the variable
around its mean.
• It is the square root of the sum of the
squared deviations of variable values from
the mean divided by the number of
observances.
• Standard deviation is simply the square
root of the variance.
By: Prof. B. Ramesh
Correlation (r)
• The correlation coefficient measures the
nature and the extend of relationship
between the stock market index return and
the stock return in a particular period.

By: Prof. B. Ramesh
Returns On Securities A and B
PROBABILITY SECURITY A SECURITY B
0.5 4 0
0.4 2 3
0.1 0 3
• Give the security of your preference. The

security has to be selected on the basis of
return and risk. Department of Commerce, Goa University
By: Prof. B. Ramesh
An investor has a choice of four stocks for
investment. Their rates of return and
probabilities are given below.
A B C D
r p% r p% r p% r p%
-30 20 -20 15 -20 20 -10 10
0 40 0 35 10 40 0 25
30 30 20 45 40 30 10 40
70 10 40 5 80 10 20 25
a) Are all these stocks attractive investments? Give

reasons.
b) Of those that are attractive, how should the
investor choose one to buy?
By: Prof. B. Ramesh
Returns of two assets under possible
stocks of nature returns are given below:
State/condition Probability Return on Asset
A B
Recession 0.10 5% 0%
Normal 0.30 10% 8%
Growth 0.50 15% 18%
Peak 0.10 20% 26%
a) What is S.D. of return on asset A and B?

b) What is the co-variance returns on asset A and
B?
c) What is the coefficient
Department of Commerce,of correlation between
Goa University
the asset A and asset B.

By: Prof. B. Ramesh
The estimated rates for return and their chances of
occurrence for the next year given below:
Probability of Rate of Return Rate of Return

Occurrence on Y on Z
0.20 22 5
0.60 14 15
0.20 -4 25
1. Determine each alternatives expected rate of
return, variance and S.D.
2. Is ‘Y’ comparatively risky?
3. Find out the total portfolio expected return and
variance if investor wishes to invest half in ‘Z’ and
half in ‘Y’. Department of Commerce, Goa University
By: Prof. B. Ramesh
Event Probability Return on Security X Return on Security Y
(60%) (40%)
A 0.20 -10% 5%
B 0.40 25% 30%
C 0.30 20% 20%
D 0.10 10% 10%
• Find variance & standard deviation for security X &Y.

• Findout Return on Portfolio
• Find expected Return on Portfolio
• Findout variance of portfolio
• Findout co-variance & correlation.
By: Prof. B. Ramesh
The expected rates of return and their possibilities
of occurrence for A & B company are given below:
Probability of
Return on A Return on B
Occurrence
0.05 -2 -3
0.20 9 6
0.50 12 11
0.20 15 14
0.05 26 19
• Find the expected rates of return for A and B scripts

• If an investor invest equal proportion both the script
what would be the return.
• If the proportion is changed to 25% to 75% and then to
75% to 25% what would be the expected rate of return.
By: Prof. B. Ramesh
• Beta describes the relationship between the stock’s
returns and the index returns.
• Beta is a measure of the volatility, or systematic risk, of a
security or a portfolio in comparison to the market as a
whole.
• Beta = +1.0
• 1% change in market index return causes exactly 1%
change in stock return. It indicates that the stock moves
in tandem with the market.
• Beta = +0.5
• 1% change in market index return causes 0.5% change
in the stock return. The stock is less volatile compared to
the market.
• Beta = +2.0
• 1% change in market index return causes 2% change in
the stock return.
• Beta = -1.0
Formula
•

By: Prof. B. Ramesh
•

By: Prof. B. Ramesh
Capital Asset Pricing Model
•

By: Prof. B. Ramesh
Capital Asset Pricing Model
• According to this model expected rate
of return is equal to the risk free plus
risk premium i.e. proportional to its
beta.
• Under this model it is assume that

market gives the premium only for
systematic risk and investor should
diversify to eliminate unsystematic
risk. Department of Commerce, Goa University
By: Prof. B. Ramesh
• Given the following information what is the
Co. B’s systematic risk, unsystematic risk
and Beta Value.
• S.D. of B Co.’s Security = 20%

• S.D. of market = 10%
• Correlation between stock and market =
+0.6

By: Prof. B. Ramesh
❑ The annual rates of return of B ltd. and the
market rates of return are given below:
Year B ltd. return Market

Return
1997 -5 -6
1998 14 16
1999 10 12
2000 12 14
2001 17 20
• Determine the beta coefficient of the companies
stock
By: Prof. B. Ramesh
• The Annual rates of return of B ltd and the
market rates of return are given below:
Year B ltd. return (%) Market Return

(%)
1997 -5 -6
1998 14 16
1999 10 12
2000 12 14
2001 17 20
• Determine the Beta Coefficient of the
companies stock.

By: Prof. B. Ramesh
Portfolio’s Beta
•
Security Weight Beta

A 20 0.9
B 10 1.25
C 15 1.10
D 20 1.15
E 35 0.7

By: Prof. B. Ramesh
By: Prof. B. Ramesh
Calculate expected return and standard deviation

By: Prof. B. Ramesh
By: Prof. B. Ramesh
By: Prof. B. Ramesh
UNIT 2
Fundamental and Technical

Analysis of Securities

By: Prof. B. Ramesh
UNIT - IiI
VALUATION OF EQUITY AND
DEBT

By: Prof. B. Ramesh
Problem (Single Period Valuation Model)
• A company stock is currently selling at Rs. 25
per share. The stock is expected to pay Rs.1 as
dividend per share at the end of the next year.
It is reliably estimated that the stock will be
available for as Rs. 29 at the end of the year.
a) If the forecasts about the dividend and price
are accurate, it is advisable to buy at the
present price? His required rate of return is
20%
b) If the investor requires 15% return when the
dividend remains constant, what should be
the price at the endBy:of Prof. B.the
Ramesh first year?
Problem (Multiple Period Model)
• Pankaj wants to buy Watchful Company’s
stock and hold on it for five years. He
estimates that Rs.3.44 dividend would be paid
by the company continuously for the next five
years. He hopes to sell the shares at Rs. 60 at
the end of the fifth year, What is the present
price? If his required rate of return is 10%.
• Answer:- Rs.50.29
By: Prof. B. Ramesh
Constant Growth Model
➢ Assumptions:
➢ Firm’s dividend policy will be stable.
➢ The firm will earn a stable return over
time.

By: Prof. B. Ramesh
Problem (Constant Growth Model)
• The company PQR’s next year dividend per
share is expected to be Rs. 3.50. The dividend
in subsequent years is expected to grow at a
rate of 10% per year. If the required rate of
return is 15% per year, what should be its
price? The prevailing market price is Rs.75.
• Answer:- Rs.70
By: Prof. B. Ramesh
Problem (Constant Growth Model)
• Sunil estimates that from investment on stock
A he would get 15% dividend in the coming
year. It would continue to grow by 10% for the
rest of the years. The selling price is Rs. 40. he
needs a return of 20% per year for his son’s
educational expenses. Can he invest on stock A?
• Answer:- 10.37%
By: Prof. B. Ramesh
Problem (Two Stage Growth Model)
• According to a research report in august
2012, the rate of return of Prosperity
Fertilizer stock for the past five years is
18.58%. This is assumed to continue for the
next five years and after that, the rate of
return is assumed to have a growth rate of
10% indefinitely. The dividend paid for the
year 2011-12 is 18%. The require rate of
return is 20%. The price is Rs.14 on
4.08.2012. Estimate the stock price
according to the two stage model.
• Answer:- Rs. 27.34
By: Prof. B. Ramesh
Problem (Two Stage Growth Model)
• The return of XYZ Company at present
is 21%. This is assumed to continue for
the next five years and after that it is
assumed to have a growth rate of 10%
indefinitely. The dividend paid for the
year 2011-12 is 32%. The required rate
of return is 20% and the present price
is Rs. 57.
• What is the estimated price according
to the two stage model?
• Answer:- Rs. 53.09
By: Prof. B. Ramesh
Problem (Three Phase Model)
• For the first four years, XYZ firm is
assumed to grow at a rate of 10%. After 4
years, the growth rate of dividend is
assumed to decline linearly to 6%. After 7
years, the firm is assumed to grow at a
rate of 6% infinitely. The next year
dividend is Rs. 2 and the required rate of
return is 14%.Department of Commerce, Goa University
By: Prof. B. Ramesh
BOND HOLDING PERIOD RETURN
•

By: Prof. B. Ramesh
Problem
• A bond is currently worth Rs. 600. if
you purchased the bond exactly one
year ago for Rs. 500 and received Rs.
200 interest over the course of the year,
what is your holding period return.

By: Prof. B. Ramesh
Problem
a) An investor A purchased a bond at a price
of Rs. 900 with Rs. 100 as coupon payment
and sold it at Rs.1000. what is the holding
period return?
b) If the bond is sold for Rs. 750 after

receiving Rs. 100 as coupon payment, then
what is the holding period return?

By: Prof. B. Ramesh
Current yield
•

By: Prof. B. Ramesh
Example
• When the coupon payment is 8% for
Rs. 100 bond with the same market
price, the current yield is 8%. If the
current market price is Rs.80 then the
current yield would be 10%.

By: Prof. B. Ramesh
Problem
• Calculate the Current Yield of a bond
with a face value of Rs. 1000 and a
coupon rate of 5% i.e. selling @ 950.

By: Prof. B. Ramesh
Types of Bonds
• Fixed rate bonds have a coupon that remains
constant throughout the life of the bond. A
variation are stepped-coupon bonds, whose coupon
increases during the life of the bond.
• Floating rate notes (FRNs, floaters) have a variable
coupon that is linked to a reference rate of interest,
such as Libor or Euribor. For example, the coupon
may be defined as three-month USD LIBOR + 0.20%.
The coupon rate is recalculated periodically,
By: Prof. B. Ramesh
• Zero-coupon bonds (zeros) pay no regular interest.
They are issued at a substantial discount to par
value, so that the interest is effectively rolled up to
maturity (and usually taxed as such). The
bondholder receives the full principal amount on
the redemption date. An example of zero coupon
bonds is Series E savings bonds issued by the U.S.
government. Zero-coupon bonds may be created
from fixed rate bonds by a financial institution
separating ("stripping off") the coupons from the
principal. In other words, the separated coupons
and the final principal payment of the bond may be
By: Prof. B. Ramesh
• High-yield bonds (junk bonds) are bonds that are
rated below investment grade by the credit rating
agencies. As these bonds are riskier than
investment grade bonds, investors expect to earn a
higher yield.
• Convertible bonds let a bondholder exchange a
bond to a number of shares of the issuer's common
stock. These are known as hybrid securities,
because they combine equity and debt features.
• Bearer bond is an official certificate issued without
a named holder. In other words, the person who
has the paper certificate can claim the value of the
bond. Often they are registered by a number to
prevent counterfeiting, but Goa
Department of Commerce, may
Universitybe traded like cash.
By: Prof. B. Ramesh
• Subordinated bonds are those that have a
lower priority than other bonds of the issuer in
case of liquidation. In case of bankruptcy, there
is a hierarchy of creditors. First the liquidator
is paid, then government taxes, etc. The first
bond holders in line to be paid are those
holding what is called senior bonds. After they
have been paid, the subordinated bond holders
are paid. As a result, the risk is higher.
• government bond, also called Treasury bond, is
issued by a national government and is not
exposed to default risk. It is characterized as
the safest bond, with the lowest interest rate. A
treasury bond is backed by the “full faith and
credit” of the relevant government. For that
reason, for the Department
major By: Prof. OECD countries this type
of Commerce, Goa University
B. Ramesh
Yield to Maturity
• YTM is one of the widely used tools in bond
investment management.
• Arithmetically, YTM is the single discount
factor that makes present value of future
cash flows from a bond equal to the current
price of the bond.
• It is the rate of return, which an investor
can expect to earn if the bond is held till
By: Prof. B. Ramesh
• Coupon tells us the rate of returns(%) for the bonds
when it was first issued based on issue price
• Yield tells us the rate of returns(%) for the bond
based on current price
• Coupon rate vs. YTM and parity
• If a bond's coupon rate is less than its YTM , then
the bond is selling at a discount.
• If a bond's coupon rate is more than its YTM , then
the bond is selling at a premium.
• If a bond's coupon rate is equal to its YTM, then the
bond is selling at par.
By: Prof. B. Ramesh
Assumptions
1. There should not be any default. Coupon
and principal amount should be paid as
per schedule.
2. The investor has to hold the bond till
maturity
3. All the coupon payments should be
reinvested immediately
at the same
By: Prof. B. Ramesh
Problem
•

By: Prof. B. Ramesh
DURATION
• Duration measures the time structure of the
bond and the bond interest rate risk.
• Asset time maturity
• Macaulay’s duration
• Duration is defined as the weighted average of
time periods to maturity, weights being present
values of the cash flow in each time period.

By: Prof. B. Ramesh
Problem
• Calculate the duration for bond A and
Bond B with 7% and 8% coupons
having maturity period of 4 years. The
face value Rs.1000. both the bonds are
currently yielding 6%.

By: Prof. B. Ramesh
CONVEXITY
• A bond’s price and yield are inversely

related.
• The rise in bond prices would cause a
fall in yield and vice-versa.
• It is not linear in nature.
• This relationship is often referred to as
convexity. Department of Commerce, Goa University
By: Prof. B. Ramesh
Bond Convexity
Pric
e
Yield to Maturity
By: Prof. B. Ramesh
The Term Structure of Interest Rates
(Yield Curve)
• The relationship between the yield and
time or years to maturity is called the term
structure.
• The term structure is also know as yield
curve.
• The effect of maturity on yield and all other
influences are held constant.
• The general perception is that the curve
By: Prof. B. Ramesh
Yield Curve
Yiel
d
0
Years to
Maturity
By: Prof. B. Ramesh
Immunisation
• Immunisation is a technique that makes the bond
portfolio holder to be relatively certain about the
promised stream of cash flows.
• The bond interest rate risk arises from the changes
in the market interest rate.
• The market rate affects the coupon rate and the
price of the bond.
• In immunisation process the coupon rate risk and
the price risk can be made to offset each other.
By: Prof. B. Ramesh
Immunisation
• The bond portfolio duration is the weighted
average of the durations of the individual
bonds in the portfolio.
• E.g. :- If an investor has invested equal amount

of money in three bonds namely A, B and C
with a duration of 2, 3 and 4 years respectively,
then the bond portfolio duration is:
D = 1/3*2 + 1/3*3 + 1/3*4

= 0.66 + 1 + 1.33
=Department
2.99By:ofProf.
or 3 years.
B. Ramesh
Calculate Current Yield
• 10 year bond, 12% coupon bond with a par
value of Rs. 1000 and selling for is Rs. 950.

By: Prof. B. Ramesh
Calculate Yield to Maturity
• A Rs. 1000 par value bond carrying a
coupon rate of 9% and maturity of 8
years. The bond is currently is selling
for Rs. 800.

By: Prof. B. Ramesh
Net Present Value of Bond
1. A Rs. 100 par value bond bearing a coupon
rate of 12% will mature after five years.
What is the value of the bond, if the
discount rate is 15%.
• Answer :-
2. A Rs.100 par value bond bearing a coupon

rate of 11% matures after five years. The
expected yield to maturity is 15%. The
present market price is Rs. 82. Can the
investor buy it?
• Answer :-
By: Prof. B. Ramesh
❑ The following data give the market return
and the Moon company scrip’s return for a
particular period.
0.50 0.30
0.60 0.60
0.50 0.40
0.60 0.50
0.80 0.60
0.50 0.30
0.80 0.70
0.40 0.50
0.70 0.60
a) What is the beta value of the Sun Company scrip?

b) If the market return is 2, what would be the scrip
return? Department of Commerce, Goa University
By: Prof. B. Ramesh
Holding Period Return
❑ The following are some examples of calculating
holding period return:
1. What is the HPR for an investor, who bought a
stock a year ago at $50 and received $5 in dividends
over the year, if the stock is now trading at $60?
❑ HPR = [5 + (60 – 50)] / 50 = 30%
2. Which investment performed better? Mutual Fund

X that was held for three years, during which it
appreciated from $100 to $150 and provided $5 in
distributions, or Mutual Fund B that went from $200
to $320 and generated $10 in distributions over four
years?
❑ HPR for Fund X = [5 + (150 – 100)] / 100 = 55%
❑ HPR for Fund B = [10 + (320 – 200)] / 200 = 65%
By: Prof. B. Ramesh
❖ Note that Fund B had the higher HPR, but it
was held for four years, as opposed to the three
years for which Fund X was held. Since the
time periods are different, this requires
annualized HPR to be calculated, as shown
below.
3. Calculation of annualized HPR:

❖ Annualized HPR for Fund X = (0.55 + 1)1/3 – 1 =
15.73%
❖ Annualized HPR for Fund B = (0.65 + 1)1/4 – 1 =
13.34%
❖ Thus, despite having the lower HPR, Fund X
was the superior investment.
By: Prof. B. Ramesh
Arithmetic and Geometric Averages
• Lets say we have 6 year sequence of
investment returns as follows: +30%, -20%,
+30%, -20%, +30%, and -20%.
• An arithmetic average is simply the sum
of all the terms (numbers) divided by the
count of that sequence.
• Example: (0.30 + (-.20) + 0.30 + (-.20) + 0.30 +
(-.20) / 6 = .05 or 5.00%

By: Prof. B. Ramesh
• The geometric average of the same numbers is
quite different. This is how to figure geometric
average with a finance calculator:
1. First add 1 to each number in the sequence. This is
to avoid problems with negative numbers.
2. Multiple each number in the sequence.
3. Raise the answer to the power of one divided by
the count of the numbers in the sequence.
4. Subtract one from the result.
• Example: [ (1.3 x .80 x 1.3 x .80 x 1.3 x .80 ) ^(1/6) ] -1

= .019803903 or 1.98%
• An investment manager or mutual fund will
probably quote the 5.0% return. But is this your
real return? NO. The correct calculation, or your
actual return, would be 1.98%.
By: Prof. B. Ramesh
S&P 500 Returns
• S&P 500 actual returns (including dividends):
• Arithmetic Average S&P 500 Total Returns (2000 -
2015)
• ((-9.2) + (-11.9) + (-22.1) + 28.7 + 10.9 + 4.9 +15.8 + 5.5
+ (-37.0) + 26.5 + 15.1 + 2.1 + 15.8 +32.4 +13.7 +1.4) /
16 = 5.78%
• Geometric Average S&P 500 Total Returns (2000 -

2015)
• [ .908 x .881 x .779 x 1.287 x 1.109 x 1.049 x 1.158 x
1.055 x .63 x 1.265 x 1.151 x 1.021 x 1.158 x 1.324 x
1.137 x 1.014) ^(1/16)] – 1 = 4.05%
• The average investor is led to believe he has made

5.78% average onDepartment
his ofequity portfolio. In reality he
has only made 4.05%.

By: Prof. B. Ramesh
• The heights (at the shoulders) are: 600mm,
470mm, 170mm, 430mm and 300mm.

By: Prof. B. Ramesh
By: Prof. B. Ramesh
By: Prof. B. Ramesh
By: Prof. B. Ramesh
SBI

By: Prof. B. Ramesh

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COC 111

SECURITY ANALYSIS AND CAPITAL

Department of Commerce, Goa University

Department of Commerce, Goa University

Department of Commerce, Goa University

• Assumes moderate risk • Willing to undertake high

• Likes to have moderate rate risk.

of return associated with • Likes to have high rate of

• Considers fundamental risk.

factors and evaluates

Department of Commerce, Goa University

Department of Commerce, Goa University

Department of Commerce, Goa University

• 5-Year Post Office Recurring Deposit Account (RD) (7.3%)

• Post Office Time Deposit Account (TD) (7%)

• Post Office Monthly Income Scheme Account (MIS)(7.3%)

• Senior Citizen Savings Scheme (SCSS) (8.7%)

• 15 year Public Provident Fund Account (PPF) (8%)

• National Savings Certificates (NSC) (8%)

• Kisan Vikas Patra (KVP) (7.7%)

• Sukanya Samriddhi Accounts (SSA) (8.5%)

Department of Commerce, Goa University

Department of Commerce, Goa University

• Unsystematic risk is unique and peculiar to

❑ Financial Risk:- which refers to the

• Personnel Management • Political Factors

• Fixed Cost • Business Cycles

Department of Commerce, Goa University

Department of Commerce, Goa University

• Give the security of your preference. The

-30 20 -20 15 -20 20 -10 10

a) Are all these stocks attractive investments? Give

Normal 0.30 10% 8%

Growth 0.50 15% 18%

Peak 0.10 20% 26%

a) What is S.D. of return on asset A and B?

the asset A and asset B.

Probability of Rate of Return Rate of Return

B 0.40 25% 30%

C 0.30 20% 20%

D 0.10 10% 10%

• Find variance & standard deviation for security X &Y.

• Find the expected rates of return for A and B scripts

Department of Commerce, Goa University

Department of Commerce, Goa University

Department of Commerce, Goa University

• Under this model it is assume that

• S.D. of B Co.’s Security = 20%

Department of Commerce, Goa University

Year B ltd. return Market

Year B ltd. return (%) Market Return

Department of Commerce, Goa University

Security Weight Beta

Department of Commerce, Goa University

Department of Commerce, Goa University

Fundamental and Technical

Department of Commerce, Goa University

Department of Commerce, Goa University

Department of Commerce, Goa University

Department of Commerce, Goa University

Department of Commerce, Goa University

b) If the bond is sold for Rs. 750 after

Department of Commerce, Goa University

D = 1/32 + 1/33 + 1/3*4