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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
->
help.mbaassignments@gmail.com
or
call us at -> 08263069601
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