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ASSIGNMENT
|
DRIVE |
SPRING 2019 |
|
PROGRAM |
MASTER OF BUSINESS ADMINISTRATION- MBA |
|
SEMESTER |
SEMESTER III |
|
SUBJECT CODE & NAME |
MF0010 SECURITY ANALYSIS & PORTFOLIO
MANAGEMENT |
|
BK ID |
B1754 |
|
CREDITS |
4 |
|
MARKS |
30 |
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.
Question.1.
Explain the concept of Random Walk in the context of Efficient Market
Hypothesis.
Answer:The notion that the price of stocks reflect all the publicly available
information is referred to as the Efficient Market Hypothesis (“EMH”) or the
Random Walk Theory. This notion was first developed by Eugene Fama in 1960.
According to the theory, it is believed that the security markets are extremely
efficient in reflecting all the available information about the individual
stocks and about the stock market as a whole. Thus, as
Question.2.
Elucidate the concept of Efficient Frontier.
Answer:The efficient frontier is the set of optimal portfolios that offers the
highest expected return for a defined level of risk or the lowest risk for a
given level of expected return. Portfolios that lie below the efficient
frontier are sub-optimal because they do not provide enough return for the
level of risk. Portfolios that cluster to the right of the efficient frontier
are also sub-optimal because they have a higher level of risk for the defined
rate of return.
Question.3.
Discuss on the issues in Beta Estimation.
Answer: The concept of beta to measure systematic risk is a key aspect of Modern Portfolio Theory. Beta is used in the capital asset pricing model to determine the hurdle rate for securities. A high beta is often used as shorthand for a risky or growth stock, while a low beta is traditionally associated with "safer" stocks, such as utilities. Gold is typically not correlated to the market as a whole and hence has a beta around 0. Betas can range from across the spectrum; however, it is rare to see one below -1 or above 4. The market, as measured by the S&P 500, has a beta of 1 by definition.
Question.4.Discuss on International Diversification
Answer:In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. A common path towards diversification is to reduce risk or volatility by investing in a variety of assets. If asset prices do not change in perfect synchrony, a diversified portfolio will have less variance than the weighted average variance of its constituent assets, and often less volatility than the least volatile of its constituents.
Diversification is one of two general techniques for reducing investment risk. The other is hedging.
Most investors are aware of the benefits of international diversification, but it can be difficult to put into practice. After all, there are hundreds of different countries that may be very unfamiliar to those living in the United States. Exchange-traded funds (“
Question.5.
a. Distinguish between Business risk and Financial Risk
Answer:Financial risk refers to a company's ability to manage its debt and
financial leverage, while business risk refers to the company's ability to
generate sufficient revenue to cover its operational expenses. An alternate way
of viewing the difference is to see financial risk as the risk that a company
may default on its debt payments, and business risk as the risk that the
company will be unable to function as a profitable enterprise.
Financial Risk
A company's financial risk is related to the
company's use of financial leverage and debt financing, rather than the
operational risk of making the
b.
Explain the stages in the Industry Life Cycle
Answer:Industry analysis is a tool that facilitates a company's understanding of
its position relative to other companies that produce similar products or
services. Understanding the forces at work in the overall industry is an
important component of effective strategic planning. Industry analysis enables
small business owners to identify the threats and opportunities facing their
businesses, and to focus their resources on developing unique capabilities that
could lead to a competitive advantage.
6.
a) State the assumptions of Technical Analysis and elucidate any two of it.
Answer:Technical analysis is a method of evaluating securities that involves a
statistical analysis of market activity, such as price and volume. Technical
analysts do not attempt to measure a security’s intrinsic value, but rather,
use charts and other tools to identify patterns that can be used as a basis for
investment decisions.
There are many different forms of technical
analysis:
b)
Elucidate the tools used in Technical analysis
Answer:There are so many technical analysis tools out there and it is very easy
to get overwhelmed. At least some of the tools are complex in their underlying
math, but easy to use. When using technical analysis to control buying and
selling bereft from fundamental analysis try to keep the time scale smaller.
Holding on too long can open you up to something unexpected.
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