Portfolio Management 3rd Latest Assignment Solution

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1 Sundaram finance Ltd. has an investment opportunity available which will involve a capital outlay in each of the next 2 years and which will produce benefits during the following 3 years. A summary of the financial implications of this investment is given below.
Year Cash Flow (Rs.’000)
1 (2,000)
2 (2,000)
3 200
4 2,300
5 4,100
Sundaram Ltd., currently has 1,00,000 shares in issue. The dividend just paid was Rs.25 per share. In the absence of the above investment, dividends are expected at this level for the next 3 years, but will then demonstrate perpetual growth of 15 percent p.a. Sundaram finance Ltd. is currently all equity financed and the required rate of return of the equity investor is estimated to be 18 percent. The only possible way of financing the investment is, therefore, to reduce the dividend payments made in the next 2 years. Cash received from the new investment is therefore, to reduce the dividend payments made in the 10% will also be maintained because of other operations. What will be the present market price? What will be the market price after the acceptance of the investment (assuming the market knows the dividend changes that will result from the investment using a dividend valuation model?)

2 (i) Sweat equity is the best form of reward for those who contribute to the growth of a company. Discuss.
(ii) Why do investor add real estate in their portfolio?
(iii) What are the steps taken by SEBI in the primary market to protect investors?

3 (i) Discuss the dematerialisation and rematerialisation processes in NSDL?
(ii) ‘Stock market indices are the barometers of the stock market’ – Discuss?
(iii) How can increasing short interest give a bullish interpretation Why?

Case Study

Mr. Prashant Gupta is interested in investing in equity shares of Infosys and Hamdard. Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people with US$ 250. Today, it is a global leader in the “next generation” of IT and consulting with revenues of over US$ 4 billion. It offers span business and technology consulting, application services, systems integration, product engineering, custom software development, maintenance, re-engineering, independent testing and validation services, IT infrastructure services and business process outsourcing. Hamdard (Wakf) Laboratories, India is a famous pharmaceutical company in India known for its Unani and Ayurvedic products. It is the world’s largest manufacturer of Unani medicinesSome of its more famous products include Safi, Sharbat Rooh Afza, Cinkara, Roghan Badam Shirin and Pachnol. It is associated with Hamdard Foundation, India. Being conservative in nature, he wants to determine the risk associated with investments. In specific terms, he wants to seek data related to both levered and unlevered beta of these companies. He approaches Nitin Shah, a financial consultant to do the needful. Nitin has collected the relevant information detailed below:

Number(MONTHS)	INFOSYS*	HAMDARD*	S&P CNX NIFTY**
1	0.1455	0.0432	0.0654
2	0.1291	0.307	0.1536
3	-0.1036	-0.0498	-0.0749
4	-0.0643	-0.0369	0.0473
5	-0.0673	-0.0272	-0.0178
6	0.1361	0.0286	-0.0291
7	-0.0111	-0.1088	-0.1465
8	0.0452	-0.1338	0.0194
9	0.0277	0.0913	0.0663
10	0.0581	0.011	-0.0022
11	0.0313	0.0581	0.0854
12	0.1021	0.1043	0.0127
13	0.1652	0.0876	0.0914
14	-0.0237	0.0617	0.0604
15	-0.0581	0.0877	-0.0099
16	-0.0077	0.14	0.0119
17	-0.0401	–0.0369	-0.008
18	-0.0589	0.0473	-0.0605
19	0.1335	0.1054	0.0746
20	0.0693	0.0249	0.0596
21	-0.0391	0.1082	0.048
22	-0.0086	0.048	0.0378
23	0.0196	0.068	0.0813

(i) Monthly returns on equity shares of Infosys and Hamdard for a period of 2 years (w.e.f. October 2006 to September 2008) along with portfolio of S&P CNX NIFTY.
(ii) Return on 364-days treasury bills issued by Government of India for the period 2007-08 is 5.15 per cent per annum and 0.419 per month. This rate is to be used as a proxy for risk-free rate of return.
(iii) Debt-equity ratio (based on the average of 2004 to 2008) is 1.6 per cent for Wipro and 31.4 per cent for Dabur.
(iv) Corporate tax is 35 per cent.

Question:
Compute the beta and interpret it for Prashant. Examine different circumstances with analysis of data.

Section C

Q1. Actual trades are based on an auction market model where a potential buyer bids a specific price for a ………and a potential seller asks a specific price for the stock.
(A): game
(B): stock
(C): color
(D): system

Q2. When a company is delisted, it is a serious sign of financial or managerial trouble and generally causes the stock price to ……………
(A): increase
(B): stay stable
(C): fall
(D): none of the above

Q3. The ……… monitors the transactions to avoid illegal activity and / or stock price manipulation.
(A): NASD
(B): RBI
(C): SEBI
(D): GOI

Q4. The NASDAQ is a …… listed exchange, where all of the trading is done over a computer network
(A): Real
(B): contemporary
(C): only
(D): virtual

Q5. The ……….. that an exchange provides affords investors the ability to quickly and easily sell securities.
(A): clarity
(B): solvency
(C): liquidity
(D): profitability

Q6. the price of shares and other assets is an important part of the dynamics of …. activity
(A): social
(B): economic
(C): peresonal
(D): demographic

Q7. Stock exchange “specialists” play a ………. role in the process, helping to keep an orderly market by deftly matching buy and sell orders.
(A): crucial
(B): small
(C): negligible
(D): unclear

Q8. Exchanges also act as the………… for each transaction
(A): clearinghouse
(B): storehouse
(C): greenhouse
(D): none of the above

Q9.
stock exchanges are……… of a global market for securities.
(A): part
(B): complete
(C): not required
(D): necessary

Q10.
Stock valuation models are methods to value ……..
(A): state
(B): system
(C): slide
(D): stock

Q11.
……….is probably the most common model that you ever heard when it comes to stock valuation
(A): DCF
(B): NDCF
(C): PDF
(D): CDF

Q12. The discounted rate normally includes a risk …….. which is commonly based on the capital asset pricing model.
(A): discounting
(B): premium
(C): both of the above
(D): none of the above

Q13. Investors may use fundamental analysis within different …..management styles.
(A): portfolio
(B): stock
(C): shares
(D): debentures

Q14. Some feel that if the stock is listed in a well organized stock market, with a……….. volume of transactions, the listed price will be close to the estimated fair value
(A): large
(B): small
(C): negligible
(D): clear

Q15.
Fundamental analysis of a business involves analyzing its financial statements and health, its management and ….. advantages, and its competitors and markets.
(A): class
(B): system
(C): competitive
(D): industry

Q16.
Fundamental analysis is performed on historical and present data, but with the goal of making …..forecasts.
(A): social
(B): financial
(C): environment
(D): none of the above

Q17.
the discounted cash flow (DCF) method, involves …….. of the profits
(A): discounting
(B): compunding
(C): both of the above
(D): none of the above

Q18.
Technical analysis is a security analysis discipline for forecasting the……..direction of prices through the study of past market data, primarily price and volume.
(A): current
(B): past
(C): future
(D): all of the above

Q19.
Technical analysts may employ models and trading rules based on price and volume transformations, such as the relative strength index, ……. averages, regressions
(A): moving
(B): still
(C): no
(D): none of the above

Q20.
in addition to fundamental economic criteria, ………….. criteria also have to be taken into account market-based valuation.
(A): personal
(B): company
(C): industry
(D): market

Q21.
Technical analysis ….. that prices already reflect all such influences before investors are aware of them
(A): denies
(B): alleges
(C): holds
(D): none of the above

Q22.
The term business cycle (or economic cycle) refers to economy-wide fluctuations in production or ………….activity over several months or years.
(A): social
(B): economic
(C): peresonal
(D): demographic

Q23.
economic theory has moved towards the study of ………. fluctuation rather than a ‘business cycle
(A): social
(B): economic
(C): peresonal
(D): demographic

Q24. managing economic policy to smooth out the cycle is a ……….. task in a society with a complex economy.
(A): clerical
(B): easy
(C): simple
(D): difficult

Q25.
India’s largest stock exchange is
(A): NSE
(B): CSE
(C): TSE
(D): ASE

Q26.
Stock exchanges have roles in the economy
(A): single
(B): dual
(C): multiple
(D): triple

Q27. There is usually…….compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange.
(A): no
(B): always
(C): once
(D): none of the above

Q28.
Buyers and sellers come together to trade ………specific hours on business days.
(A): once
(B): never
(C): during
(D): after

Q29.
If a particular company is traded on an exchange, it is referred to as ……….
(A): listed
(B): non listed
(C): traded
(D): non traded

Q30. When people draw their savings and invest in shares, it leads to a more …………. allocation of resources
(A): Final
(B): rational
(C): equitable
(D): irrational

Q31. Exchanges ……… rules and regulations on the firms and brokers that are involved with them.
(A): DENY
(B): impose
(C): equate
(D): clear

Q32. Companies that are not listed on a stock exchange are sold ……..
(A): OTC
(B): PTC
(C): STC
(D): WTC

Q33. investing in shares is open to ……… the large and small stock investors
(A): neither
(B): either
(C): only
(D): both

Q34. An exchange is an institution, organization, or association which hosts a market where stocks, bonds, options and futures, and commodities are traded.
(A): TRUE
(B): FALSE
(C): cant say
(D): inadequate information

Q35. Listing requirements are the set of conditions imposed by a given ……… upon companies that want to be listed on that exchange
(A): stock exchange
(B): SEBI
(C): RBI
(D): GOI

Q36. Stock exchanges originated as ……. organizations, owned by its member stock brokers.
(A): single
(B): partnership
(C): mutual
(D): corporation

Q37. Some exchanges are physical locations where transactions are carried out on a ……….. floor, by a method known as open outcry
(A): trading
(B): marble
(C): cement
(D): mud

Q38. The stocks are listed and ,……….on stock exchanges
(A): traded
(B): not traded
(C): analysed
(D): studied

Q39. The exchanges provide real-time trading information on the listed securities, facilitating price discovery.
(A): cost
(B): price
(C): number
(D): quality

Q40. Companies that have shares traded OTC are usually …………… and riskier
(A): clear
(B): equal
(C): bigger
(D): smaller

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