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USN
Third
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.J
2016
Time: 3 hrs.
Max. Marks:100
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Note: l. Attswer ony TIIREE qaestionsfrom Q.hlo. 2. Question lYo.7 and I are conxpulsory.
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3. Use of present value tuble is permitted.
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(03 Marks) What are the irnportant attributes of'lnvestment? (07 Marks) Differentiate between share warrants and share certit-rcate. c. What are the various fbnns of Investment alternatives? Give adetailed account of any five.
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I to Q.No. 6.
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(03 Nlarks) What is a Green shoe option? (07 Marks) Who are the parties involved in the new issue market? Mohan is considering the purchase of''a bond currently selling at t 878.50. l'he bond has four years to maturity, face value of t 1000 and 8% coupon rate. The next annual interest payment is due after one year from today. The required rate of return is 10%. i) Calculate the intrinsic value of the bond. Should he buy the bond? ii) Calculate the yield to rnaturity of the bond. (10 Marks)
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How does systematic risk affect the individual stock return? The returns or1 securities A and B are given below :
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a. What is RSI? b. Write the salient features of Elliot wave theory. products I(t( ln c. Following are data for Anand ano Dr()(lu0LS in laKns lakhs)
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0.t 0 3 (07 Marks) Choose your securify based on risk and return. c. Follorving data give the market returns and the Sun Company Scrip's retunt for a particular period. lndex return 0.50 0.50 0.50 0.60 0.80 0.50 0.80 0.40 0.70 Scrirl retunr 0.30 0.60 0.40 0.50 i 0.60 0.30 0.70 0.50 0.60 i) What is the beta value of Sun Cornpany Scrip? (XCI Marks) ii) If the market retum is 2, what would be the scrip return?
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Probabilitv
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(03 Manks)
Particulars Assets
Short term liabilities 8% debentures l0% bontis
Common stock
(t l0 par)
Surplus Revenue
Operating expenses
EBIT
(03 lllarks) (07 Ntarks)
Amount 6000 450 I 250 500
3500 300 6600 5950 650
Interest
150
EBT
500 200
Taxes
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Dividend
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I 2 MBABI332
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2MBARNI322
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Find out the following ratios : Asset turnover, Effective interest rate , Effective tax rate, Debt / equity'ratio and Dividend payout ratio. (10 Marks) ii) What growth rate of EBIT can be expected?
(03 Marks) a. What do you mean by market efficiency? (07 Marks) b. Write a brief note on various fbrms of the market efficiency. c. Define Markowitz diversification. Explain the statistical method used by l\{arkowitz to
obtain the risk reducing benefit.
(10 Marks)
a. Define Efficient Frontier. b. Two assets A and B. have the following risk
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(03 Marks)
and return characteristics
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(07 Marks) Tab: -1' Determine the mlnimum risk portfblio for A and B. portlolros pro arnculars owrng three tnree oortfolios rla glven bel c. The followinE Detow : orovide the parti Portfolio Average annual return Standard deviatron Corre lati on co-effi cient
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Itl t5 8 12 Market l3 Risk free rate ol'interest is 9%. i) Rank these por'tfcrlios using Sharpe's and Treynor's method. ii) Compare both the indices" B
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(10 Marks)
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a. The equity stock o1- ABC Limited is currently selling for t 30 per share. The diviCend expected next yeff is t 2.00. the investor's required rate of return on this stock is l5Yo.Ifthe constant growth rnoclei applies to the company, what is the expected growth rate?
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(05 Marks)
of CAPM model? (05 Marks) C. Mr. Vijay is cclnsiCering an investment in the stock of XYZ corporation. ile expects to eam a return of I7o/o in the next yeat. XYZ's beta is 1.3. Risk free rate of interest is 7oh and Market return is 157,r. Should Mr. Vijay invest rnXYZ Corporation? (05 Marks) d. Using the above ciata in Q7(c), what should VUay do if beta is 1.1? Assume other values have not changed. (05 Marks)
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b. What are the basic assumptions
The refurns of tw U ASSgTS UII er rour r)ossrDre ible slares stat ol Italure tu are glven bei Detow : State of nature Probabilit"v Return on Asset Return on Asset 2 I 0.10 s% a% 2 0.30 1A% 8% 1 0.50 t5% t8% 4 0.10 20% 26% a. What is the standard deviation of the return on asset I and asset 2? b. What is the co-variance between the retums on assets I and2'? c. What is the co-efficient of correlation between the retums on assets 1 and2? d. Explain the nature of a side - return indifference curve. 1
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