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MF0010—Security Analysis and Portfolio Management


Master of Business Administration- MBA Semester 4

MF0010—Security Analysis and Portfolio Management-4 Credits

(Book ID: 1759)

Assignment (60 Marks)

Note: Answer all questions (with 300 to 400 words each) must be written within 6-8 pages. Each Question carries 10 marks 6 X 10=60

Q1. Explain the characteristics of investment. Differentiate between investment and speculation.

Answer. Characteristics:-

1) High Dividends (or high rental for properties) – must be at least 10% yield per year

2) Good long-term growth prospects (good fundamentals) – must at least beat the country’s inflation

3) On technical analysis point of view, it would be best if that particular investment is near its bottom (near support line)

4) Flexible exit point if things didn’t go your way (i always put a stop-loss on most of my investments) – properties would be hard to satisfy this requirement since the process of selling a property may takes ages!


Q2.What do you understand by risk and measurement of risk? Explain the factors that affect risk.

Answer. Risk is the potential of loss (an undesirable outcome, however not necessarily so) resulting from a given action, activity and/or inaction. The notion implies that a choice having an influence on the outcome sometimes exists (or existed). Potential losses themselves may also be called “risks”. Any human endeavor carries some risk, but some are much riskier than others.


Q3.Compare and contrast the fundamental and technical analysis.

Answer. Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock. Fundamental analysts study everything from the overall economy and industry conditions to the financial condition and management of companies.

Technical analysis is the evaluation of securities by means of studying statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value but instead use stock charts to identify patterns and trends that may suggest what a stock will do in the future.


Q4. Write the assumptions of CAPM. Explain the limitations of CAPM.(Assumptions of CAPM 5 marks; Limitations of CAPM 5 marks)10 marks

Answer. Assumptions:-

1. All investors focus on a single holding period, and they seek to maximize the expected utility of their terminal wealth by choosing among alternative portfolios on the basis of each portfolio’s expected return and standard deviation.

2. All investors can borrow or lend an unlimited amount at a given risk-free rate of interest and there are no restrictions on short sales of any assets.

3. All investors have identical estimated of the expected returns, variances, and covariance’s among all assets (that is, investors have homogeneous expectations).


Q5. Write about emerging markets. Explain the risks involved in international investing.

Answer. Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. The economies of China and India are considered to be the largest. According to the Economist many people find the term outdated, but no new term has yet to gain much traction.

The defining features of emerging markets include at least the following factors. The markets are actively growing under governmental policies that favor a capitalist-style economy. Governments are predictably stable but not necessarily democratic. Substantial future growth is guaranteed because their internal resources and infrastructure still remain unexploited and


Q6.What is economy analysis? Explain the factors to be considered in economy analysis.

Answer. A systematic approach to determining the optimum use of scarce resources, involving comparison of two or more alternatives in achieving a specific objective under the given assumptions and constraints.

Economic analysis takes into account the opportunity costs of resources employed and attempts to measure in monetary terms the private and social costs and benefits of a project to the community or economy.

You may recognize some of these economic reports, such as the unemployment numbers, which are well publicized. Others, like housing starts, receive little coverage. However, each


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