M.Com. DEGREE EXAMINATION, APRIL 2017
Fourth Semester
PORTFOLIO MANAGEMENT
(CBCS 2013 onwards)
Time 3 Hours Maximum 75 Marks
Section A x 3 15)
Answer all questions.
All questions carry equal marks.
1. Distinguish between Investment and Speculation.
2. Suppose an investment provides the following periodic
return over last four years as below
Year 1 2 3 4
Return 10 12 6 12
What is the holding period return?
3. How does Technical Analysis differ from Fundamental
Analysis?
4. A portfolio consisting of two assets has a correlation
coefficient of 0.8. Another two-asset portfolio has a
correlation coefficient of -0.8. In the absence of any other
information, which portfolio should you invest in? Justify
your reasoning.
5. What are the basic features of Futures?
Sub. Code
611403
RW-014
2
wk12
Section B 10 50)
Answer all questions by choosing either or
6. Explain the meaning of Investment. What are the
qualities and constraint of successful investment?
Or
What are the different investment alternatives
provided by different Financial Markets?
7. Assume that the risk free rate of return is the
market portfolio has an expected return of 14% and
a standard deviation of return of 25%. Under the
equilibrium condition as described by the CAPM,
what would be the expected return of a portfolio
having no unsystematic risk and 20% standard
deviation of return?
Or
The weights, returns, standard deviation of returns
of three stocks Q and along with the
correlation matrix of returns of such stocks are as
below. Find the portfolio return and risk.
Stock Wi Standard Deviation
P 0.16 0.30 0.12
Q 0.20 0.40 0.14
R 0.24 0.30 0.16
8. 'Technical Analysis is useful for predicting
individual share price as well as the direction of the
market as a whole'. Elaborate and illustrate.
Or
Explain the tool of Technical Analysis. Also explain
how this is useful to the investors.
RW-014
3
wk12
9. Sangam Enterprises recently paid an annual
dividend of Rs. 3.50 per share. Earnings for the
same year were Rs. 7.00 per share. The required
return on equity with similar risk is 12%. Dividends
are expected to grow 10% per year indefinitely.
Calculate Sangam's 'normal' price-earnings ratio.
Or
Describe the types of tests that have been commonly
employed to verify the weak form of Efficient
Market Hypothesis.
10. Discuss the key factors that have a bearing on the
value of a Call Option.
Or
Given the following information, the 7¼ cash bond
is to be hedged the two futures instruments are
used as the hedging investment, find the twoinstruments
hedge ratio.
Instruments Yield Coupon Convexity
7 2
1 due in ten years 7.225 6.99 61.88
5-years T-note futures 6.86 4.22 19.99
T-bond futures 7.50 11.52 185.92
Section C x 10 10)
Compulsory Question.
11. As far as the Indian Capital Market is concerned, the
well informed investors periodically observe technical,
fundamental and overall market conditions including
rating instructions etc., before they invest. The
moderately informed investors never observe
fundamental and technical analysis as much as necessary
RW-014
4
wk12
and they simply observe the market trend alone. And
uninformed investors follow the investment instruction
given by the broking companies or their own investment
decision alone. In all these situations, well informed
investors are never successful in their investment
dealings and moderate and uninformed investors never
failed. From the markets observation point of view, how
do you view this and ratify your answer?
———————