M.Com. DEGREE EXAMINATION, APRIL 2016
Fourth Semester
PORTFOLIO MANAGEMENT
(CBCS 2012 onwards)
Time 3 Hours Maximum 75 Marks
Part A 3 15)
Answer all questions.
1. State the basic investment objectives.
2. Differentiate between return and risk.
3. What is valuation of equity shares?
4. Detail the procedure to calculate expected rate of return
of a portfolio.
5. The portfolio of Mr. Vel had a beginning value of
Rs. 100 lakh and after a year an ending value of
Rs. 135 lakh. If Mr. Vel receives Rs. 12.5 lakh at the end
of 6 months as dividends then calculate Money Weighted
Rate of Return [MWROR] of Mr. Vel portfolio.
Part B 10 50)
Answer all questions choosing either or
6. Discuss in detail the various reasons for the
emerging popularity of investment in India.
Or
Discuss briefly the steps involved in the portfolio
management process. Following are the price and
other details of 3 stocks.
Sub. Code
611403
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Stock
Beginning
Price Dividend
Paid
Ending
Price
X 30 3.40 34
Y 72 4.70 69
Z 140 4.80 146
Construct a portfolio with these securities having
the proportion as 0.3, 0.5 and 0.2 assume the
standard deviation (in terms of percentage) to be
9 and 10 for stock B and C respectively. What
is the portfolio return?
7. "No investment is risk free" Discuss.
Or
The following 3 portfolios provide the particulars
given below.
Portfolio Average annual
Returns
Standard
Deviation
Correlation
Co-efficient
A 18 27 0.8
B 14 18 0.6
C 15 8 0.9
Market 13 12
Risk free rate of interest is 9%.
Rank these portfolios using Sharpe's and
Treynor method.
Compare both the indices.
8. Discuss the relationship between fundamental
analysis and efficient market hypothesis.
Or
Detail the Dow Theory and how is it used to
determine the direction of stock market.
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9. Discuss the concept and process of portfolio
construction.
Or
What is mutual fund? Brief the types of mutual
funds in capital market.
10. Explain the types of risks in derivatives.
Or
A bond has a remaining maturity of 3 yrs. It pays a
coupon of annually and is currently traded at
par value of Rs. 100.
Calculate the duration of the bond.
Explain how equity portfolios are managed.
Explain how Portfolios are managed using
Future and options.
Part C 10 10)
Compulsory.
11. You are young derivates trader. This is your first month
on a corporate desk. A long time client with substantial
exports to Australia calls up. The client is expecting an
inflow of AUD 200 million in six months time. During the
discussion, it transpires that there are no direct options
contracts for the dates the client is looking for. The client
has burnt his fingers in earlier options contracts, when
the market moved against and an American Put go
exercised. 287 You suggest that the client can hedge this
by a forward sale, purchase of a put option or by a
strategy known as covered call writing. After the days
trading is over you meet the chief trader and discuss this
deal. The chief trader is not amused. Why? Compare the
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possibilities and explain using options algebra. You
succeed in convincing our client to take a suitable option
on AUD 100 million and a 6-month forward on remaining
AUD 100 million though USD. You are able to make a
neat sum through this deal for your company. Once again
your chief trader is not happy with you. He is asking
what if the portfolio of the client sees large movements.
You say you have tested if for delta neutrality. Convince
the chief trader. It seems that the chief trader is out to
test your knowledge. Now, you are asked to report the
impact of cross currency movement on all the Greeks of
this client's portfolio.
Questions
What information do you need? What analysis will
you carry out?
How will you communicate with client and chief
trader?