Birla Institute of Technology and Science, Pilani – Hyderabad Campus
Second Semester: 2017-18
Security Analysis &Portfolio Management (SAPM)
Comprehensive Examination
C. No: ECON F412/FIN F313 Part-B(Closed Book) Date: 03/05/18 AN
Duration: 105 Mins Max. Marks:
25(Wt:25%)
Answer all the questions.
1. At the beginning of last year, you invested Rs 4,000 in shares of Sigma Corporation.
During the year, Sigma paid dividends of Rs 5 per share. At the end of year, you sold the
80 shares for Rs 59 a share. Compute your total HPY on these shares and indicate how
much was due to the price change and how much was due to the dividend income. The
rates of returns are nominal, assume that rate of inflation during the year was 4 percent
compute the real rate of return on this investment. Compute the real rate of return if the
rate of inflation was 8 percent. What is your conclusion on real returns when inflation
changes? 3M
2. During the past five years, you have owned two stocks that had the following annual rates
of return:
Year Stock A Stock B
1 0.19 0.08
2 0.08 0.03
3 -0.12 -0.09
4 -0.03 0.02
5 0.15 0.04
Compute the coefficient of variation for each stock. By this relative measure of risk, which is
the preferred stock? 3M
(P.T.O)
3. Two years ago, you bought 300 shares of Tirumala Milk company for $30 a share with a
margin of 60%. Currently, Tirumala Milk is selling for $45 a share. Assuming no
dividends and ignoring commissions. Compute
a. the annualized rate of return on this investment if you paid cash, and
b. your rate of return with margin purchase.
3M
4. Calculate the Macaulay duration of an 8% coupon, $1000 par bond that matures in three
years if the bond’s YTM is 10% and coupon amount paid semiannually. Calculate this
bond’s modified duration. Assume the bond’s YTM goes from 10 percent to 9.5 per cent,
calculate an estimate of the price change. 4M
5. Arvind Limited’s earnings and dividends have been growing at a rate of 16 percent per
annum. this growth rate is expected to continue for 3 years. After that the will fall to 12%
for next 4 years. Thereafter, the growth rate is expected to be 8% forever. If the last
dividend per share was Rs 3.00 and the investors’ required rate of return on Arvind’s
equity is 16 %, what is the intrinsic value of the share?
4M
6. Consider a three month futures contract on the S& P 500. Suppose that the stocks
underlying the index provide a dividend yield of 1% per annum, that the current value of
the index is 1,300, and that the continuously compounded risk free interest rate is 5% per
annum. Calculate index futures price.
Consider a one year futures contracts on Gold, we assume no income and that its $2 per
ounce per year to store Gold, with the payment being made at the end of the year. The
price is $600 and the risk free rate is 5% per annum. Find out Gold futures price. 4M
7. A stock price is currently at $100. Over each of the next two six-month periods it is
expected to go up by 10% or down by 10%. The risk free interest rate is 8% per annum
with continues compounding. What is the value of a one-year European call option with a
strike price of $100? What is the value of a one year European put option with a strike
price of $100?
4M
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