Scribd
Upload
14 views

Compre B

Uploaded by

scholarvini
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
14 views

Compre B

Uploaded by

scholarvini
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

Birla Institute of Technology and Science, Pilani – Hyderabad Campus

First Semester: 2018-19


Security Analysis &Portfolio Management (SAPM)
Comprehensive Examination
C. No: ECON F412/FIN F313 Part-B(Closed Book) Date: 13/12/18 FN
Duration: 1hr 45Mins Max. Marks: 50(Wt:25%)

Instruction: Answer all the questions. Sub parts of EACH question should be answered at one
place consecutively.

1. You are evaluating the performance of two portfolio managers, and you have gathered
annual return data for the past decade. 10M

Year Manager X returns(%) Manager Y returns(%)


1 -1.5 -6.5
2 -1.5 -3.5
3 -1.5 -1.5
4 -1 3.5
5 0 4.5
6 4.5 6.5
7 6.5 7.5
8 8.5 8.5
9 13.5 12.5
10 17.5 13.5

a. For each manager, calculate the average annual return and the standard deviation of
returns
b. Assuming that the average annual risk free rate during the 10-year sample period was
1.5 per cent, calculate the Sharpe ratio for each portfolio. Based on these computations,
which manager appear to have performed the best?

2. Your rate of return expectations for the common stock Gray Cloud Company during the
next year are: 10M

Possible Rate of Return Probability


-0.1 0.25
0 0.15
0.1 0.35
0.25 0.25
a. Compute the expected return and its standard deviation on this investment.
P.T.O)
b. Under what conditions can the standard deviation be used to measure the relative risk
of two investments?
c. Under what conditions must the coefficient of variation be used to measure the relative
risk of two investments?

3. The spot price of shares of X company is Rs 25 with an exercise price of Rs 40 and time
to expiration 6 months, risk free rate is 9% p.a with continuous compounding, standard
deviation of the return of the share is 25%.
a. Calculate the price of the call option.
b. Calculate Put option price when Spot price of the stock is Rs 40. 10M

4. The market price of a Rs1,000 par value bond carrying a coupon rate 14 percent (paid
annually) and maturing after five years is Rs 1050. 10M
a. What is the yield to maturity on this bond? (Trial and error approach)
b. What is the approximate YTM? (formula – Journal of Finance)
c. What will be the realized yield to maturity if the reinvestment rate is 12 percent?

5. Suppose that three stocks (A, B, and C) and two common risk factors (1 and 2) have the
following relationships: 10M
E(RA) = 1.1 λ1 + 0.8 λ2
E(RB) = 0.7 λ1 + 0.6 λ2
E(RC) = 0.3 λ1 + 0.4 λ2

a. If λ1= 4% and λ2 = 2% , what are the prices expected next year for each of the stocks?
Assume that all three stocks currently sell for $30 and will not pay dividend in the next
year.
b. Suppose that you know that next year the prices for stocks A, B and C will actually be
$31.50, $35.00 and $30.50. Create and demonstrate a riskless, arbitrage investment to
take advantage of these mispriced securities. What is profit from your investment? You
may assume that you can use the proceeds from any necessary short sale.

***********************************

You might also like