UNIT 2

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Rajesh, a Fund Manager produced the following returns for the last five years. Rate of return on Sensex are also given for comparison:

2003 – 04 2004 – 05 2005 – 06 2006 – 07 2007 – 08
Mr. Rajesh 6% 48% -15% 7% 11%
Sensex 12% 40% -6% 20% 3%

Calculate the average return and standard deviation of Mr. Rajesh’s Mutual Fund. Did he do better or worse than sensex by these measures?

  1. Rahul recently forecasted three economic conditions which he believes are likely to occur with the given probabilities. Based on these conditions, an analyst made the following forecast of returns on stock P, Q, R.
Economic Conditions Probability Conditional Returns (%)
P Q R
Boom 0.30 10 12 14
Normal 0.50 20 16 18
Recession 0.20 22 14 14

Calculate the average return and standard deviation of stocks P, Q and R and advise which stock is preferable for investment.

  1. Following is information about shares of ABC Ltd. and XYZ Ltd., under different economic conditions. At present both shares are traded at Rs. 100.
Economic Condition Probability Expected price of share ABC Ltd. Expected price of share XYZ Ltd.
High Growth

Low Growth

Stagnation

Recession

0.3

0.4

0.2

0.1

140/-

110/-

120/-

100/-

150/-

100/-

120/-

80/-

(i)    Which company has more risk to invest?

(ii)   Mr. Ram wants to invest ` 10,000

(1)   Only in ABC Ltd.         (2)           Only in XYZ Ltd.

Which is better option? Justify.

(iii)Will your decision change if probabilities are 0.4, 0.4, 0.1, 0.1 respectively?

 

UNIT 3

  1. Triveni Industries Ltd. gives you the following information for the year ended 31st March 2016:

Profit before interest and taxes                                 ` 16,50,000

Tax Rate                                                                              30%

Proposed Equity Dividend                                                  25%

Capital Employed

10% Preference Share Capital                                  ` 15,00,000

80,000 Equity Shares of Rs. 10 each                        `. 8,00,000

15% Debentures of Rs. 100 each                               ` 7,00,000

Reserve and Surplus                                                 ` 12,00,000

Current Market Price per Equity Share                                 ` 50

You are required to calculate:

(i)    Earning Per Share.                                (ii)     Price Earning Ratio.

(iii)  Dividend Payout Ratio.                         (iv)    Dividend Yield.

(v)   Book Value per Share and state whether it is worth investing in the Equity Shares of the Company.

 

  1. Following is the balance sheet of Nirmal Textiles Ltd. as on 31st December, 2016:
Liabilities ` Assets `
Equity Share Capital

Reserves & Surplus

8% Debentures

Creditors

Proposed Dividend

6,00,000

4,00,000

5,00,000

2,00,000

60,000

Land & Building

Plant & Machinery

Stock

Debtors

Cash & Bank Balance

6,00,000

5,00,000

2,60,000

3,00,000

1,00,000

17,60,000 17,60,000

Additional Information:

(i)    Cost of Goods sold ` 9,00,000

(ii)   Administrative and other expenses ` 1,00,000

(iii)  Sales ` 15,00,000

(iv)  Net Profit After Tax ` 3,60,000

(v)   Market price of the company’s shares ` 600.

Calculate the following and state whether you would invest in the shares of the company: (1) Return on Equity (2) Dividend Yield (3) Payout Ratio (4) Net Profit Margin (5) Long Term Debt to Equity (6) EPS (7) P/E Ratio.

UNIT 4

Following are the details of three portfolios:

Portfolio Average Returns Std. Deviation Beta
1

2

3

Market Index

13%

12%

11%

11%

0.25

0.25

0.20

0.25

1.25

0.75

1.00

1.10

The risk free rate is 8%. You are required to compare these portfolios on performance using the Sharpe’s, Treynor’s and Jenesen’s measure and comment.

 

Year Mutual Fund Return (%) Mutual Fund Beta Return on market index Return on Govt. Securities Std. Deviation δ
1

2

3

4

5

6.85

1.20

21.00

10.18

17.65

1.32

1.27

1.25

1.10

0.95

14.31

18.95

14.50

9.25

20.00

4.35

3.85

6.15

7.50

6.00

0.8

0.9

1.2

1.4

1.5

Calculate the following risk adjusted return measures for the mutual fund:

(a)        Sharpe ratio.   (b)         Treynor’s ratio.

 

Returns on Ram Ltd. were 11 %, 13 %, 12 % and 10 % in the past four years. Returns on Shyam Ltd. were 12 %, 14 %, 9 % and 10 % in the last four years. While average market returns were 12 %, 14 %, 14 % and 13 % in the last four years. Return on Government securities is 8 %.

You are required to compute beta factors and expected returns of Ram Ltd. and Shyam Ltd. using CAPM and offer comments.

 

You are required to calculate beta factors and expected returns for Rohit & Mohit (using CAPM) and offer your comments. Risk free rate of return in 8 %

Year Rohit (%) Mohit (%) Market (%)
1 15 16 14
2 12 14 13
3 13 13 12
4 12 11 12

 

Reference Book- Investment Analysis & Portfolio Management ( Rishabh Publication )

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Prof. Savita Bodke

Educational Qualification - MMS ( Finance ) , M.Com ( Accountancy ) , DFM, DBM, DTM, DBF, G.D.C & A, CPCM , NCFM, NISM. Currently working as Assistant Professor Finance with Management Institute & working as Visiting Faculty for BMS Finance in Sydenham College, Lala Lajpat Rai College, Chetna College, SIES College, Siddharth College, Guru Nanak College, Bunts College. Having enriched Corporate Experience related to Capital Market. I am co-author for the Books - Investment Analysis & Portfolio Management, Advanced Costing & Auditing, International Business, Equity & Debt Market. Contact No -9833081207
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