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Investment Analysis Management
Downloaded Data of Bank of Baroda and HDFC Bank from www.nseindia.com of last 11 years has been summarized as follows. You are required to analyze the data using appropriate statistical tools, interpret the results and provide necessary advice to the investors as research analyst.
CASE STUDY 2 (20 Marks)
Given below are the returns on the three stocks Supertex, Colourtex and Wivetex for a four year period. Compute the average returns, variance and standard deviation if a portfolio is constructed such that the stock has lowest standard deviation accounts for 50% of the funds, a stock having the next lowest standard deviation accounting for 30% and the third stock accounting for 20% of the funds.
In September 2006, Mafatlal Ltd. Paid 10% dividend and in October, 2006 Nataraj Ltd. Paid 30% dividend. On 31-3-2007, market price of shares of Mafatlal Ltd. And Nataraj Ltd. Were Rs.220 and Rs.290 respectively.
Pruthvi Hardware ltd. have been informed by their investment advisor that :-
1) Dividend s from Mafatlal L Ltd. And Nataraj Ltd. For the year ending 31-03-2008 are likely to be 20% and 35% respectively.
You are required to
1) Calculate the average return from the portfolio for the year ended 31-03-2007.
2) Advice P Ltd. Of the comparative risk of two investments by calculating the standard deviation in each case.
CASE STUDY 4 (20 Marks)
A) The following table provides details about three mutual fund portfolios. Find out the Sharpe, Treynor and Jensen Index and rank them. What are your suggestions to the investors?
- The beta of Equity fund is higher than the Beta of Mid Cap fund but the returns are higher in Mid Cap Fund than Equity Fund. Do you agree with this statement? If yes, explain with reasonable examples.
- The beta of Infra – Fund is the highest among all three fund but the returns is the lowest among all three fund. Explain with reasonable examples.
B) Share of HDFC and BANK of Baroda display the following returns over the past two years:-
1) What is the expected return on a portfolio made up of 40% of Pepsi and 60% of Coca-Cola?
2) What is the standard deviation of each share?
3) What is the covariance of Share of Pepsi and Coca-Cola?
4) What is the correlation coefficient?
5) Interpret the results in each case and advice the investors for investment decision?
Investment Analysis Mgmt
1. What is the relationship between securitization and the role of financial intermediaries in the economy? What happens to financial intermediaries as securitization progresses?
2. What are some advantages and disadvantages of top down various bottom up investing styles ?
3. Give the examples of three financial intermediaries and explain how they act as bridge between small investors and large capital market of corporations?
4. Why money market securities are sometimes referred to as Cash equivalents ?
5. If the offering price of an open end fund is Rs. 12.30 per share and the fund is sold with front end load of 5 % what its net asset value
6. The new fund had average daily assets of Rs. 2.2 billion last year. The fund sold Rs. 400 million worth of stock and purchased Rs. 500 million during the year. What was its turn over ration ?
7. Suppose that borrowing is restricted so that the zero beta version of the CAPM holds. The expected return on the market portfolio is 17 % and on the zero beta portfolio it is 8 % what is the expected return on a portfolio with beta of 0.6 %.
8. Outline how you would incorporate the following in to the CCAPM
a. Liquidity b. Nominated assets ( Do you have to worry about labor income )
INVESTMENTS MANAGEMENT
Q1) Suppose that there are two closed-end mutual funds, A and B. Both trade at $8, where the net asset value per share is $10. Fund A is a terminated fund. (A terminated fund is a fund with a termination date, the date at which the assets are liquidated and distributed to the shareholders. Its termination date is in 1 year from now. Fund B is not a terminated fund.
a. Calculate the premium or discount corresponding to these two funds.
b. Suppose that the net asset value of both funds will increase to $12 one year from now.
Calculate the rate of return to the investor in Fund A for this year. Can you calculate the rate
of return corresponding to Fund B under these circumstances?
Q2) An ADR of Honda Motor is traded on the NYSE for $22. The exchange rate is 100 yen per
dollar. Suppose that Honda Motor is trading in Japan for 2,500 yen. How can you use this
information to make a profit? Explain.
Q3) Suppose a bond is sold for $1,000 and pays an annual interest rate of 10% on the par value,
which is also $1,000. The bond was issued 20 years ago and will mature in one week. You own
some of these bonds. The yield on these bonds suddenly goes way up, to 15%. Calculate your
loss. Explain your results?
Q4) Suppose a bond has a par value of $1,000 and a market value of $1,100. It is convertible into 40
shares of stock, and the current stock price is $26.
a. What is the conversion ratio?
b. What is the conversion price?
c. What is the conversion value?
Q5) Suppose you buy a stock for $100. You receive $4 as a cash dividend at the end of the year. The stock price at the end of the year is $95.
a. What is the rate of return on your investment?
b. What is the dividend yield as measured at the beginning of the year? At the end of the year?
Q6) The net asset value of a mutual fund is $12. The share price is $13.
a. Is it an open-end fund or a closed-end fund?
Calculate the premium or discount.
Q7) Bill buys a $1000 par value 10-year bond for $850. It pays $75 a year in interest. Calculate Bill’s yield to maturity on the bond using a financial calculator or software.
Q8) Alex holds a convertible bond with a market value of $1700. If the conversion ratio is 50 and the stock’s price is $39 per share, should he convert the bond or sell the bond?
Q9) Classify each of the following types of assets as either money market securities or capital market securities.
U.S. Treasury
notes __________ Commercial paper __________
Municipal bonds __________ Mortgages __________
Federal funds __________ Treasury bills __________
Eurodollars __________ Corporate bonds __________
Common stocks __________ Negotiable CDs __________
Q10) Arrange the following from earliest to latest:
Ex-dividend date
Declaration date
Payment date
Date of record
Q11) Bravo Company stock currently sells for $100 per share. Bravo’s board of directors’ has
declared a $1 per share dividend, and the ex-dividend date is tomorrow. Ignoring the effect of
any other new information, what would you expect to happen to the price of Bravo stock
tomorrow?
Q12) Jeff owns 300 shares of Cappa Company stock. Each share is worth $30. If the stock splits 3- for-1, how many shares will Jeff own? What will each share be worth? Reconsider the
preceding problem. How many shares will Jeff own, and what will each share be worth, if the
stock splits 5-for-2?
Q13) Forest Company has convertible bonds outstanding with a $1,000 par value and a 6% coupon. Forest’s common stock currently sells for $80 per share. The bonds’ conversion ratio is 20. Calculate the bonds’ conversion price and conversion value. Do you think the bonds’ conversion premium is large or small?
Q14) What is the difference between buying a call option and buying a futures contract? Distinguish among interest rate risk, price risk, and reinvestment rate risk for bondholders?
Q16) What are the advantages and disadvantages of investing in bonds?
Q17) A junk bond is trading for $800 and matures exactly 1 year from now at $1,000. There is no interest paid between now and maturity.
a. Calculate the yield to maturity on the bond.
How do you explain your results, knowing that the interest rate on government bonds is only
5% a year?
Q18) What is the P/E ratio, and how is it calculated?
Q19) Give an example of how futures are used to hedge financial price risk and to speculate on the direction of future prices.
Q20) The prices of the stock of Alamo Rent-A-Car and the S&P 500 index are as follows:
Year 1 2 3 4
Alamo $100 $114 $110 $112
S&P $300 $280 $240 $260
Is Alamo's stock a defensive stock? Why?
Q21) Divide the following assets into marketable and non-marketable assets: common stock, stamps, art, bonds, real estate, super computers, and mutual funds
Q22) You are considering opening up a department store or purchasing shares of stock in a national chain of department stores such as Dayton Hudson traded on the NYSE. Which of the two investments have a more flexible investment holding period? Which is more liquid?
Q23) Joe-Bob from L.A. decided to invest $950 (price) in a 12% semiannual, 3-year bond. What is the yield to maturity (internal rate of return, or IRR) if the par value is $1,000?
Q24) A bond is sold for $700 and matures in 5 years. It pays $20 at the end of each year. The par value is $1,000. Calculate the yield to maturity (IRR) on the bond using a calculator or
software.
INVESTMENTS ANALYSIS MANAGEMENT
Q1) Why would you expect securitization to take place only in highly developed Capital Market?
Q2) In what ways is preferred stock like long term debt? In what ways is it like equity?
Q3) What purpose does the NEAT system serve on the National Stock Exchange?
Q4) Would you expect a typical open-end fixed-income mutual fund to have higher or lower operating expenses than a fixed income unit investment trust? Why?
Q5) What are the advantages of the index model compared to the Markowitz procedure for obtaining an efficiently diversified portfolio? What are its disadvantage?
Q6) A successful firm like Infosys has consistently generated large profits for years? Is this a violation of the EMH?
Q7) Why do bond prices go down when interest rates go up?
Q8) What monetary and fiscal policies might be prescribed for an economy in deep recession?
Q9) In what circumstances would you choose to use a dividend discount model rather than a free cash flow model to value a firm?
Q10) Is a put option on a high-beta stock worth more than one on a low beta stock?
INVESTMENTS MANAGEMENT
1) How securities are being traded in share market?
2) What is the difference between mutual fund and other investment companies
3) What is adjustable and non-adjustable capital?
4) How finance statement analysis is being done from investor’s point of view?
What is the importance of security analysis?
5 ) What are call options? Give in brief information about put option
6) What is the theory of active portfolio management ? How it is monitored?
7 ) What are the different types of risks with regard to debt securities?
WE PROVIDE CASE STUDY ANSWERS, ASSIGNMENT SOLUTIONS, PROJECT REPORTS AND THESIS
ARAVIND - 09901366442 – 09902787224
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