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Summer 2013
Master of Business Administration- MBA Semester 3
MF0010 – Security Analysis and Portfolio Management – 4 Credits
(Book ID: B1754)
Assignment-60 Marks
Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.
Q1.Explain the characteristics of investment. Differentiate between investment and speculation.
(Characteristics of Investment 5 marks ; Difference between investment and speculation 5 marks)10 marks
Answer : Characteristics of investment :
1.Return:
All investments are characterized by the expectation of a return. In fact, investments are made with the primary objective of deriving a return. The return may be received in the form of yield plus capital appreciation. The difference between the sale price & the purchase price is capital appreciation. The dividend or interest received from the investment is the yield. Different types of investments promise different rates of return.
2.Risk:
Risk is inherent in any investment. The risk may relate to loss of capital, delay in repayment of capital, nonpayment of interest, or variability of returns. While some investments like government securities & bank deposits are almost risk less, others are more risky. The risk of an investment depends on the following factors.
Q2.What do you understand by risk and measurement of risk? Explain the factors that affect risk.
(Explanation to risk 2 marks; measurement to risk 2 marks ; factors that affect risk 6 marks)10 marks
Answer : Risk :
The uncertainty associated with any investment. That is, risk is the possibility that the actual return on an investment will be different from its expected return. A vitally important concept in finance is the idea that an investment that carries a higher risk has the potential of a higher return. For example, a zero-risk investment, such as a U.S. Treasury security, has a low rate of return, while a stock in a start-up has the potential to make an investor very wealthy, but also the potential to lose one’s entire investment. Certain types of risk are easier to quantify than others.
Measurement of risk :
1. Interest Rate Risk:
One way to measure interest rate risk is to measure the volatility of interest rates.
Q3.Compare and contrast the fundamental and technical analysis
(Differences between fundamental and technical analysis 4 differences each carries 2 marks – 8 marks; Conclusion 2 marks)10 marks
Answer : Difference between fundamental and technical analysis :
1. Charts vs. Financial Statements :
At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements. In financial terms, an analyst attempts to measure a company’s intrinsic value. In this approach, investment decisions are fairly easy to make – if the price of a stock trades below its intrinsic value, it’s a good investment. Technical traders, on the other hand, believe there is no reason to analyze a company’s fundamentals because these are all accounted for in the stock’s price. Technicians believe that all the information they need about a stock can be found in its charts.
Q4.Write the assumptions of CAPM. Explain the limitations of CAPM.
(Assumptions of CAPM 5 marks; Limitations of CAPM 5 marks)10 marks
Answer : Assumptions of CAPM :
Based on the Markowitz’s mean-variance model, the CAPM inherits all the shortcomings of the latter in addition to its own assumptions such as:
1. Investors are rational and risk averse. They pursue the only interest of maximizing the expected utility of their end of period wealth. Implication: The model includes the single time horizon for all investors.
2. The markets are perfect, thus taxes, inflation, transaction costs, and short selling restrictions are not taken into account.
Q5.Write about emerging markets. Explain the risks involved in international investing.
(Introduction of emerging markets 2 marks; Features of emerging markets 2 marks; Risks involved in international investing 6 marks) 10 marks
Answer : Emerging markets :
Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. The economies of China and India are considered to be the largest. According to The Economist many people find the term outdated, but no new term has yet to gain much traction. Emerging market hedge fund capital reached a record new level in the first quarter of 2011 of $121 billion. The seven largest emerging and developing economies by either nominal or inflation-adjusted GDP are the BRIC countries (Brazil, Russia, India and China), as well as MIKT (Mexico, Indonesia, South-Korea and Turkey).
Features of emerging markets :
1. Markets and Culture Are Demanding :
Q6.What is economy analysis? Explain the factors to be considered in economy analysis.
(Introduction of economy analysis 2 marks ; factors in economy analysis 8 marks)10 Marks
Answer : Economic analysis :
A systematic approach to determining the optimum use of scarce resources, involving comparison of two or more alternatives in achieving a specific objective under the given assumptions and constraints.
Economic analysis takes into account the opportunity costs of resources employed and attempts to measure in monetary terms the private and social costs and benefits of a project to the community or economy. Economic analysis is done for two reasons: first, a company’s growth prospects are, ultimately, dependent on the economy in which it operates; second, share price performance is generally tied to economic fundamentals.
Factors to be considered in economy analysis :
The economic variables that are considered in economic analysis are gross domestic product (GDP) growth rate, exchange rates, the balance of payments (BOP), the current account deficit, government policy (fiscal and monetary policy),
Dear students get fully solved assignments
Send your semester & Specialization name to our mail id
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