III SEMESTER/II YEAR BA5012-SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

ST.JOSEPH COLLEGE OF ENGINEERING

DEPARTMENT OF MANAGEMENT STUDIES

BA5012- SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

UNIT WISE TWO MARKS WITH ANSWERS-III SEMESTER

Mrs.Nithya.N/AP/Department of management studies

PART – A
UNIT – I
1. New Issue Market (Primary Market)
Issuer may be a new company or an existing company.
In the new issue market the issuer can be considered as a manufacturer. The issuing houses,
investment bankers and brokers act as the channel of distribution for the new issues. They take the
responsibility of selling the stocks to the public.
2. Relationship between the primary and secondary market:
The new issue market cannot function without the secondary market. The secondary market
or the stock market provides liquidity for the issued securities. The issued securities are traded in the
secondary market offering liquidity to the stock at a fair price.
ü The primary market provides a direct link between the prospective investors and the company. By
providing liquidity and safety, the stock market encourage the public to subscribe to the new issues.
3. Who are the parties involved in primary market
In the and sixties and seventies, public issue was managed by the company and its
personnel. But ,at present public issue involves a number of agencies. The rules and regulation, the
changing scenario of the capital market necessitated the company to seek for the support of many
agencies to make the public issue a success.
4. Book building
Book building is a mechanism through which the intial public offerings(IPOs) take place in the
U.S.Similar mechanisms are used in the primary market offerings of GDRs also. In this process the
price determination is based on orders placed and investors have an opportunity to place orders at
different prices as practiced in international offerings.
ü Book – building involves firm allotment of the instrument to a syndicate created by the lead
managers who sell the issue at an acceptable price to the public.
5. .Issue At premium
a) First issue of new companies set up by existing companies with the case of the following
b) First issue of existing private/closely held or other existing unilisted companies with three – year
track record of consistent profitability.
c) Public issue by existing listed companies with the last three years of dividend paying track record.
6. Issue At par value
a) First public issue by existing private, closely held or other existing unlisted companies without three
–
year track record of consistent profitability and

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b) Existing private/closely held and other unlisted companies without three- year track record of
consistent profitability seeking disinvestment offer to public without issuing fresh capital
(disinvestment).
7. Allotment Of Shares
The applications will be categorised according to the number of shares applied for. Then
allocation is done by proportionate basis.
· Factors to be considered by the investors
In this context, the investor has to be alert and careful in his investment. He has to analyse several
factors.
8. .Investors protection in the primary market
SEBI Guidelines to the investor protection
1) Project appraisal
2) Underwriting
3) Disclosuers in the prospectus
4) Clearance by the stock exchange
5) Singing by the board of directors
6) SEBI‟s role
7) Redressal of investors grievances
9. .Recent trends in the primary market
The liberalisation policy adopted by the government in the early nineties resulted in boom in the
secondary market. The boom was not restricted to the secondary market alone, the primary market till
then was workink under the controller of capital issue act.with the dawn of an era of free pricing more
and more companies accessed the primary market.
1) Aggressive pricing
2) Poor liquidity
3) Low returns
Non implementation of projects, delays changes in the scope and scale of project to justify the cost and
non attainment of projected earnings have resulted in the fall in listing price.
4) Low volume
5) Economic slow down
10. . Short notes on Stock Exchanges In India
The origin of the stock exchange in india can be traced back to the later half of 19 th century.
After the american civil war (1860-61)due to the share mania of the public, the no of brokers delaing
in shares increased. The brokers organised an informal association in mumbai named “The native
stock and share brokers association” in 1875.
11. .List the few Functions Of Stock Exchanges
Ø Maintains active trading
Ø Fixation of prices
Ø Ensures safe and fair dealing
Ø Aids in financing the industry
Ø Dissemination of information
Ø Performance inducer
Ø Self – regulating organisation
12. .Brokers

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A member/broker registered with the recognised stock exchange has to apply to the sebi for
registration. Likewise a sub-broker even though he is registered with the stock exchange should apply
to SEBI for registration .
13. .Online trading:
The net is used as a medium of trading in internet trading. Orders are communicated to the stock
exchange through website. Internet trading started in India on 1st April 2000 with 79 members seeking
permission for online
trading. The SEBI committees on internet based securities trading services has allowed the net to be
used as an
Order Routin System (ORS) through registered stock brokers on behalf of their clients for execution of
transaction.
- The client has to enter stock code and other parameters such as quantity and price of the scrip on the
place order window.
- The client can review the order placed by clicking the review option. He can also reset to clear the
values
- Satisfactory orders are sent by clicking the send option
- The client receives an order confirmation message with order number and value of the order
14. .Bombay Stock Exchange:
The origin of the Bombay (Mumbai) Stock Exchange dates back to 1875. It was organized
under the name of “the Native Stock and Share Brokers Association” as a voluntary and non-profit
making association. It was recognized on a permanent basis in 1957. This premier stock exchange is
the oldest stock exchange in Asia.
The objectives of the stock exchange are:
- To safeguard the interest of investing public having dealings on the exchange
- To establish and promote honourable and just practices in securities transactions
- To promote, develop and maintain well-regulated market for dealing in securities
- To promote industrial development in the country through efficient resource mobilization by the way
of investment in corporate securities
15. .Trading System:
In March 1995, the Bombay (Mumbai) Stock Exchange has introduced screen based trading
called BOLT (BSE on-line Trading). The BOLT is designed to get best bids and offers from jobbers‟
book as well as the best buy and sell orders from the order book. Slowly the network is being extended
to other cities too.
Price Surveillance:
1. Circuit filters and
2. Margins
16. .National Stock Exchange:
The National Stock Exchange (NSE) of India became operational in the capital market segment
on 3rd, November 1994 in Mumbai. The genesis of the NSE lies in the recommendations of the
Pherwani Committee (1991). Apart from NSE, it had recommended for the establishment of National
Stock Market System also. Committee pointed out five major defects in the Indian Stock Market.
17. .Promoters of NSE IDBI, ICICI, IFCI, LIC, GIC, SBI, Bank of Baroda, Canara Bank,
Corporation Bank, Indian Bank, Oriental Bank of Commerce, Union Bank of India, Punjab
National Bank, Infrastructure Leasing and Financial Services, Stock Holding Corporation of
India and SBI Capital Market are the promoters of NSE.
18. . List the advantages of NSE

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- wider accessibility
- Screen based trading
- Non- disclosure of the trading members identity
- Transparent transaction
- Matching of orders
19 .Over The Counter Exchange Of India(OTCEI)
The OTCEI was started with the objective of providing a market for the smaller companies that
could not afford the listing fees of the large exchanges and did not fulfill the minimum capital
requirement for listing.
20. promoters of OTCEI is incorporated as a company under sec.25 of the Indian
Companies Act 1956. As per the registration norms, OTCEI will be obliged to plough back
all its profits and will not be allowed to declared dividends on its share capital. The
promoters are as follows.

UNIT - II
21.National Securities Depository Limited(NSDL)

NSDL performs the following functions through its various participants

- Enables surrender and withdrawal of securities to and form the depository

- Maintains investors holdings in the electronic form

- Effects settlement of securities traded on exchanges

- Carries out settlement of trader that have not been done on the stock exchanges

NSDL (DP) depository participant can be a public financial institution, bank, custodian, registered
stock broker or a

NBFC subject to approval from the depository company and the SEBI.

22. Securities and exchange board of india(SEBI)

SEBI‟s regulatory reach has been extended to more areas and there is a considerable change in the
capital market. SEBI‟s annual report for 1997-98 has stated that throughout its six year existence as a
statutory body, it has sought to balance the twin objectives of investor protection and market
development.

23. Objectives of SEBI:

The promulgation of the SEBI ordinance in the parliament gave statutory status to SEBI in 1992.
According to the preamble of the SEBI, the three main objectives are

- To protect the interests of the investors in securities

- To promote the development of securities market

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- To regulate the securities market

24. SEBI’s Role in the Primary Market:

§ Entry norms

§ Promoters‟ contribution

§ Disclosure

§ Book building

§ Allocation of shares

§ Market intermediaries

25. SEBI and FIIs:

The union Government allowed Foreign Institutional Investors (FIIs) to enter both the primary and
secondary markets in India under liberalized policy regime. The large inflow and out flow of capital
by FIIs affect the Sensex movements.

- Custodians

- Preferential allotment

- Recent development

26. Risk

The dictionary meaning of risk is the possibility of loss. In risk, the probable outcomes of all the
possible events are listed.

27. Systematic risk

The systematic risk affect the entire market. Often we read in the newspaper thah the stock market is
in the bear hug or in the bull grip this indicates that the entire market is moving in a particular either
downward or upward.

28. Market risk

Jack clarkfrancis has defined market risk as that portionof total variability of return casued by the
alternating forces of bull and bear markets. When the security index moves upward haltingly for a
siginificants period of time,it is known as bull market.

29. Interest rate risk

Interest rate risk is the variation in the single period rates of return caused by the fluctuations i n the
market interest rate. Most commonly interest rate risk affect the price of bonds, debentures and stocks.

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The fluctuations in the interest rates are caused by the changes in the government monetary police and
the change that occur in the interest rate of treasury bills and the government bonds.

30.purchasing power risk

variations in the returns are casued also by the loss of purchasing power of currency. Influation, is the
reason behind the loss of purchasing power. The level of inflation proceeds faster than the increase in
capital value. Purcahsing power risk is the probable in loss in the purchasing power of the returns to
the received.

31.Business risk

Business risk is that portion of the unsystematic risk caused by the operating environment of t he
business. Business risk arises from the inability of a firm to maintain its compentitive edge and the
growth or stability of the earnings.

32.Internal business risk

Internal business risk is associated with the operational efficiency of the firm. The operational
efficiency differs from company to company. The efficiency of operation is reflected on the
company‟s achievement of its pre - set goals and the fulfillment of the promises to its investors.

1) Fluctuations in the sales

2) Research and development(R & D)

3) Personnel management

4) Fixed cost

5) Single product

33. External risk

External risk is the results of operating conditions imposed on the firm by the circumstances beyond
its control. The external environments in which its operates exert some pressure on the firm.

1) Social and regulatory factors

2) Political risk

34. Financial risk

Its refers to variability of the income to the equity capital due to the dept capital. Financial risk in a
company is associated with the capital structure of the company. Capital structure of the company
consists of equity funds and borrowed funds.

35. Bond return and valuation

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Debt instruments are the cherished for investor‟s money. An assured return and high interest rate or

responsible for the preference of bonds over equities.

36. Bond basics

A bond is a contract that requries the borrower to pay the interest income to the lender. It resembles
the promissory note and issued by the government and corporate. The par value of the bond indicates
the face value of the bond i.e.the value stated on the bond paper.

1) Interest rate risk

2) Default risk

3) Marketability risk

4) Callability risk

37. Return

The return form the stock includes both current income and capital gain caused by the price. The
income and the capital gain are expressed as a persentage of money invested in the beginning.

38. Fundamental analysis

The fundamental school of thought apprasied the intrinsic value of shares through

- Economic analysis

- Industry analysis

- Company analysis

39. Economic analysis

The level of economic activity has an impact on investment in many ways. If the economy grows
radily,the industry can also be expected to show rapid growth and wise versa. When the level of
economic activity is low, stock prices are low, and when the level of economic activity is high, stock
prices are high reflecting the properous outlook for sales and profit of the firms.

1) Gross domestic product(GDP)

2) Savings and investment

3) Inflation

4) Interest rate

5) Budget

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40. Industry analysis

An industry is a group of firms that have similar technological structure of production and produce
similar products. For the convenience of the investors, the broad classification of the industry is given
in financial dailies and magazines.

1) Growth industry

2) Cyclical industry

3) Defensive industry

4) Cyclical growth industry

5) Industry life cycle

UNIT – III
41. What are the Company analysis.
In the company analysis the investor assimilates the several bites of information related to the
company and evaluates the presents and furture values of the stocks. The risks and return associated
with the purchase of the stock is analysed to take better investment decisions.

FACTORS SHARE VALUE

Competitive edge

Earnings

Capital structure Management Operaing efficiency

Financial performance

Historic price of stock

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P/E ratio

Economic condition

Stock market condition

Future price Present price

42 .Ratio analysis
Ratio is a relationship between two figures expressed mathematically. Financial ratio provides
numerial relationship between two relevant financial data. Financial ratios are calculated from the
balance sheet and profit and loss account.
1. Liquidity ratios
2. Turnover ratios
3. Leverage ratios
4. Profit margin ratios
5. Return on investment ratios
6. Valuation ratios
43. Liquidity ratio:
Liquidity means the ability o the firm to meet its short term obligations. Current ratio and acid test
ratio are the most popular ratios used to analyse the liquidity.
Current ratio= Current assets
Current liabilities
44.Turnover ratio:
The turnover ratios show how well the assets are used and the extent of excess inventory, if any. These
ratios are also known as activity ratios or asset management ratios. Commonly calculated ratios are
sales to current assets, sales to fixed assets, sales to inventory, receivable to sales and total assets to
turnover. Each ratio has a specific application.
Inventory turnover ratio = Net sales/ Inventory Receivables turnover ratio = Net sales/ Receivables
Fixed asset turnover ratio = Net sales/ Fixed asset Total assets turnover ratio = Net sales/ Total assets
45. leverage ratios:
The investors are generally interested to find out the debt portion of the capital. The debt affects the
dividend payment because of the outflow of profit in the form of interest.
Debt to asset ratio= Total debt/ Total assets
46.Interest coverage ratio
This shows how many times the operating income covers the interest payment.

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Interest coverage ratio= EBIT/ Interest

47.Profitability ratio
Profitability ratios relate the firm‟s profit with factors that generate the profits. The investor is very
particular in knowing net profit to sales, net profit to total assets and net profit to equity.
48.Net profit margin ratio
This ratio indicates the net profit per rupee of sales revenue.
Net profit Margin = PAT/ Sales
49.Return on assets
The return on asset measures the overall efficiency of capital invested in business.
Return on assets = Net income/ Total assets
50.Return on equity
Here, the net profit I related to the firm‟s capital
Return on equity = Net Profit/ Net worth
51.Book value per share
This ratio indicates the share of equity shareholders after the company has paid all its liabilities,
creditors, debenture holders and preference shareholders. At the time of liquidation, the holder to find
out his real position in the company
Book value per share = Equity share capital + Reserve
Total number of equity shares outstanding
OR
= Net worth – Preference share capital
Total number of equity shares outstanding
52.Dividend to market price
Dividend is the regular income received by the shareholder. The shareholder would like to know the
relationship between the market price and the dividend.
Dividend yield = Dividend per share
Market price per share
53.Earnings per share
Earnings per share is the earnings after tax divided by the number of common shares outstanding
EPS = EAT
Number of shares outstanding Lerner and Carleton have given a model for the EPS. EPS = (1-T)
[R+(R-1) L/E] E
Number of common shares outstanding
EPS – Earnings per share
T – Effective tax rate (Tax exposure/EBT) R= Before tax return on assets (EBIT/A)
I – effective interest rate (Interest expense/ liabilities) L – Total liabilities
E – Equity
54.Price earnings ratio
One of the most common financial parameters used in the stock market is the price-earnings ratio
(P/E). it relates the share price with earnings per share. Most of the news papers along with the stock
price quotations give the P/E ratio too.
Price – Earnings Ratio = Market price per share
Earnings per share
55.Intrinsic value
The true economic worth of the share is its intrinsic value. The fundamental analysis find out the
intrinsic value of a share by using the following formula:

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E(P/E) = Cash dividend / E(EPS) D/E(EPS) Discount rate – growth rate K-g
56.Technical analysis:
It is a process of identifying trend reversals at an earlier stage to formulate the buying and selling
strategy. With the help of several indicators they analyse the relationship between price- volume and
supply-demand for the overall market and the individual stock.
57.Dow Theory:
Dow developed his theory to explain the movement of the indices of Dow Jones Averages. He
developed the theory, on the basis of certain hypotheses. The first hypothesis is that, no single
individual or buyer can influence the major trend of the market.
According to Dow theory the trend is dividend into primary, intermediate and short term trend. The
primary trend may be the broad upward or downward movement that may last for a year or two. The
intermediate trends are corrective movements, which may last for three weeks to three months.
58.Trend
Trend is the direction of movement. The share prices can either increase or fall or remain flat. The
three directions of the share price movements are called as rising, falling and flat trends. The point to
be remembered is that share prices do not rise or fall in straight line.
59.Trend reversal
The rise or fall in share price cannot go on forever. The share price movement may reverse its
direction. Before the change of direction, certain pattern in price movement emerges. The change in
the direction of the trend is shown by violation of the trend line. Violation of trend line and signals the
rise in price.
60.Primary trend:
The security price trend may be either increasing or decreasing. When the market exhibits the
increasing trend, it is called bull market. The bull market shows three clear-cut peaks. Each peak is
higher than the previous peak. The bottoms are also higher than the previous bottoms.
The reverse is true with the bear market. Here, the first phase of fall starts with the abandonment of
hopes. The chances of prices moving back to the previous high level seemed to be low. This would
result in the sale of shares. In the second phase, companies are reporting lower profits and dividends.

UNIT – IV

61. secondary trend:

The secondary trend or the intermediate trend moves against the main trend and leads to correction. In
the bull market the secondary trend would result in the fall of about 33- 66% of the earlier rise. In the
bear market, the secondary trend carries the price upward and corrects the main trend.
62.Minor Trends:
Minor trends or tertiary moves are called random wriggles. They are simply the daily price
fluctuations. Minor trend tries to correct the secondary trend movement. It is better for the investors to
concentrate on the primary or secondary trends than on the minor trends.
63.Support and Resistance Level:
Anybody interested in the technical analysis should know the support and resistance level. A suppoert
level exists at a price where considerable demand for that stock is expected to prevent further fall in
the price level. The fall in the price may be halted for the time being or it may result even in price
reversal. In the support level, demand for the particular scrip is expected.

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In the resistance level, the supply of scrip would be greater than the demand and further rise in price is
prevented. The selling pressure is greater and the increase in price is halted for the time being.
64.Indicators
Technical indicators are used to find out the direction of the overall market. The overall market
movements affect the individual share price. Aggregate forecasting is considered to be more reliable
than the individual forcasting.
65.breadth of the market
The breadth of market is the term often used to study the advances and declincs that have occurred in
the stock market. Advances mean the number of share whose price have increased from the previous
day,s trading.
66.Short sales
Short selling is a technical indicator known as short interest. Short sales refer to the selling of shares
that are not owned. The bears are the short sellers who sell now in the hope of purchasing at a lower
price in the future to make profits.
67.Oscillators
Oscillators indicate the market momentum or scrip momentum. Oscillator shows the share price
movement across a reference point from one extreme to another. The momentum indicates:
-Overbought and oversold conditions of the scrip or the market
-Signalling the possible trend reversal.
-Rise or decline in the momentum.
68.Relative strength index (RSI)
RSI was developed by wells wilder. It is an oscillator used to identify the inheret technical strength
and weakness of a particular scrip or market. RSI can be calculated for a scrip by adopting the
following formula.
RSI = 100 – (100/1+Rs)
Rs = Average Gain Per Day
Averag Loss Per Day
69.Rate of change
Rate of change indicator or the ROC measures the rate of change between the current price and the
price
„n‟ number of days in the past. ROC helps to find out the overbought and oversold positions in a scrip.
It is also
useful in identifying the trend reversal.
70.Top and bottoms
Top and bottom formation is interesting to watch but what is more important, is the middle portion of
it. The investor has to buy after up ternd has started and exit before the top is reached. Generally top
and bottom are formed at the beginning or end of the new trend.
71.Double top and bottom
This type of formation singnals the end of one trend and the beginning of another. If the double top is
formed when a stock price rises to a certain level, falls rapidly, again rises to the same height or more,
and turns down.
72.Invested head and shoulders
Here the reverse of the previous pattern holds true. The price of stock‟s falls and rises that makes a
inverted right
shoulder. As the process of fall and rise in price continues the head and left shoulders are created.
73.Triangles

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The triangle formation is easy to identify and popular in technical analysis. The triangles are of
symmetrical, ascending, descending and inverted.
74.Symmetrical Triangle
This pattern is made up of fluctuations, each fluctuation smaller than the previous one. Tops do not
attain the height of the previous tops. Likewise bottoms are higher than the previous bottom.
Connecting the lower tops that are slanting downward forms a symmetrical triangle.
75.Ascending triangle
Here, the upper trend line is almost a horizontal trend line connecting the tops and the lower trend line
is a rising trend line connecting the rising bottom.
76.Descending triangle
Here, connecting the lower tops forms the upper trend line. The upper trend line would be falling one.
The lower trend line would be almost horizontal connecting the bottoms. The lower line indicates the
support level.
77.Flags
Flags pattern is commonly seen on the price charts. These patterns emerge either before a fall or rise in
the value of the scrips. These patterns show the marked correction of the overbought or oversold
situations. The time taken to form these patterns is quick.
78.Pennant
Pennant looks like a symmetrical triangle. Here also there are bullish and bearish pennant. In the
bullish pennant, the lower tops form the upper trend line.
79.Options and futures
An option in the right, but not the obligation to buy or sell something on a specified date at a specified
price.In
the securities market, on option is contract between two parties to buy or sell specified no shares at a
later date for an agreed price.
1) The option seller or writer is a person who grants someone else the option to buy or sell. He
recieves a premium on its price.
2) The option buyer pays a price to the option writer to include him to right the option.
3) The securities broker acts as an agent to find the option buyer and the seller, and receives a
commision or fee for it.
80.Call option
The call option that gives the right to buy in its contract gives the particular of
· The name of the company whose shares are to be bought
· The number of shares to be purchased
· The purchase price or the exercies price of the shares to be bought
· The expiration date, the date on which the contract or the option expires

UNIT – V
81.Put option
Put option givies its owner the right to sell (or put) an asset or security to someone else, it is not an
obligation but an option.
Like the call option the contract contains.
· The name of the company shares to be sold
· The number of shares to be sold
· The selling price or the stricking price

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· The expiration date of the option

82.portfolio construction
Portfolio is a combination of securities such as stocks, bonds and money market instruments. The
process of blending together the broad asset classes so as to obtain optimum return with minimum risk
is called portfolio construction. Diversification of investments helps to sperad risk over amny assets. A
diversification of securities gives the assurance of obtaining the anticipated return on the portfolio.
83.What is an OTCEI.
The OTCEI is a recognized Stock Exchange incorporated in October 1990 under Section 4 of the
securities Contracts (Regulation Act 1956).Hence company listed on the OTC Exchange enjoy the
same status as company listed on any other stock exchanges in the country as regards to interest rate
on borrowing.
84.State Jensen measure.
Jensen Provides measures to construct a measure of absolute performance on a risk-adjusted basis –
i.e.,a definite standard against which performance ofvarious funds can be measured.
This standard is based on measuring the “portfolio managers” predictive ability-i.e.,his ability to earn
returns through successful prediction of security prices which are higher than those which we would
expect given the level of riskness of his portfolio.
85. What is investment?
Investment is defined as employment of funds with the aim of achieving future benefits or return.
86. What is economic investment?
Economic investment is the net addition to capital stock of society or employment of funds in foods
and services which are used in the production of some other goods andservices which are used in the
production of some other goods and services3. What is financial investment?
Commitment of funds to derive income in the form of interest, dividend,
premiums, pension dividend or appreciation in the value of capital by purchasing shares, debentures, p
ost office saving, insurance policy etc.
87. What are the features of investment?
Risk, Return, Safety & Liquidity.
88. Define Risk?
Risk is defined as variability of return i.e. it is the difference or deviation from expectedreturn.
89. What ate the factors influencing risk in investment?
Length of maturiry periodCreditworthiness of issue of security Nature of instrument or security.
90. State the type of risk?
Default risk Interest rate risk Market risk Political risk Management risk Purchasing power
risk Marketability risk Unsystematic risk
91. Define default risk?
The companies failure to each a desired rate of return to equity share holders.
92. Define Interest rate risk?
The prevailing rates in an economy have a direct bearing on value of securities. If thelevel of interest
rate goes up the asset value are likely to fall.
93.Is trading onmargin a good idea?

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Trading on margin is a good idea because margin trading increases the buying power of trader with
less money. There is more profit with less investment. A trader can burrow up to half of his purchasing
price as initial margin.
94.What is opportunity model building?
It is also called as Sectoral Analysis of the gross national product model building .This method uses
the national accounting data to be able to forecast for a future short term period. This method should
be added to gross domestic investment, government purchase of goods in services, consumption
expenses and net exports.
95.What are some possible disadvantage of limited orders?
The disadvantage of limit order is that filling the order will take some time,or the entire order may not
get filled at all because the underlying stock price has moved way beyond the desired price.
96.What do you mean by security market line?
Security market line is a line that graphs the systematic,ormarket,risk versus return of the whole
market at a certain time and shows all risky marketable securities.
97.What is Superfluous diversification?
Superfluous diversification refers to the addition of unnecessary components to an already well-
diversified portfolio and deals with the diminishing marginal benefits.
98.What is meant by underwriting?
Underwriting is an agreement whereby the underwriter promises to subscribe to a specified number of
shares or debentures or a specified amount of stock in the event of public not subscribing to the issue.
If the issue is fully subscribed then there is no liability for the underwriter. If a part of share issues
remain unsold, the underwriter will buy these shares.
99.How will you calculate intrinsic value of a share?
Intrinsic value is the value which is justified by assets, earnings, dividends , definite prospects and the
factor of management.
100.What is meant by leading indicator?
In an economy there are many factor that are interrelated and interdepended. The change in one
variable affect the other interdependent variables. Those variables that change ahead of their
dependent variable are known as leading indicators.

SEC-B&C

UNIT – I

1.Discuss in detail the role assigned to SEBI in the development and regulation of capital market in
India and the problems facing it.

2. How would you measure Market Risk, Business Risk, Interest Rate Risk and Inflation Risk?

N.NITHYA AP/MBA
 III SEMESTER/II YEAR BA5012-SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

3. Using CAPM, how do you go about calculating risk premium for a given equity share. Elucidate.

4. What are.the basic assumptions of Arbitrage Pricing Theory? State its merits and demerits.

5. "In an efficient capital market, individual security prices fully reflect all available information".
Discuss.

6. What do you mean by Company Analysis? What financial statements are helpful in understanding
the company's prospects?

7. Explain EMH in its various forms and state its assumptions and uses.

8. Explain 'Dow Theory'. How can it be used to determine the direction of the stock market?

9. Explain the Security Market Line with the help of a diagram. How does it differ from the Capital
Market Line?

10. What is Portfolio Theory? Explain the assumptions and principles underlying the portfolio theory.

UNIT – II

11. As an investment consultant, what features would you suggest to be included in the investment
bunch of a client? Explain these features briefly.

12. Why does diversification lead to a reduction in unique risk? Explain both intuitively and
mathematically.

13. What is an income fund? Explain its objective and investment priorities.

14. Portfolios that buy new securities and sell old holdings frequently will outperform portfolios that
are managed more passively. Do you agree with this statement?

15. What does the efficient market hypothesis imply with respect to technical market analysis,
fundamental analysis, and portfolio policy of investors?

16. Based on the current theoretical and empirical development of APT, do you think that this
approach offers a practical alternative to the CAPM for individual investors?

17.What factors should be considered while revising a portfolio?

18. Discuss in detail the role assigned to SEBI in the development and regulation of capital market in
India and the problems facing it.

N.NITHYA AP/MBA
 III SEMESTER/II YEAR BA5012-SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

19. How would you measure Market Risk, Business Risk, Interest Rate Risk and Inflation Risk?

20. Using CAPM, how do you go about calculating risk premium for a given equity share. Elucidate.
UNIT – III

21. What are.the basic assumptions of Arbitrage Pricing Theory? State its merits and demerits.

22. "In an efficient capital market, individual security prices fully reflect all available information".
Discuss.

23. What do you mean by Company Analysis? What financial statements are helpful in understanding
the company's prospects?

24. Explain EMH in its various forms and state its assumptions and uses.

25. Explain 'Dow Theory'. How can it be used to determine the direction of the stock market?

26. Explain the Security Market Line with the help of a diagram. How does it differ from the Capital
Market Line?

27. What is Portfolio Theory? Explain the assumptions and principles underlying the portfolio theory.

28. As an investment consultant, what features would you suggest to be included in the investment
bunch of a client? Explain these features briefly.

29. Why does diversification lead to a reduction in unique risk? Explain both intuitively and
mathematically.

30. What is an income fund? Explain its objective and investment priorities.

UNIT – IV

31. Portfolios that buy new securities and sell old holdings frequently will outperform portfolios that
are managed more passively. Do you agree with this statement?

32. What does the efficient market hypothesis imply with respect to technical market analysis,
fundamental analysis, and portfolio policy of investors?

33. Based on the current theoretical and empirical development of APT, do you think that this
approach offers a practical alternative to the CAPM for individual investors?

N.NITHYA AP/MBA
 III SEMESTER/II YEAR BA5012-SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

34.What factors should be considered while revising a portfolio?

35 Explain any four of the following:

(a). Discuss the essence of Technical Analysis.(b). Define the efficient market hypothesis.(c). What is
meant by portfolio risk?(d). Discuss any two weakness of MARKOWITZ approach.
36. Explain:
(a). What is the significance of Beta in portfolio selection?(b). Mention any two assumptions used in
capital Asset Pricing Model.(c). What do you meant by risk less arbitrage opportunity?(d). Mention
two advantages of managed portfolios.(e). How do volume and breadth of market indicate the trend of
the market?20. “Option and futures are zero-sum games”. What do you think is meant by this
statement?
37. What factors are important in determining the investment appeal of warrant?
22. Discuss the various types of charts used by chartist to predict the prices and volumes for their
analysis of individual stocks.
38. Does the Random Work Theory suggest that rice levels are random? Explain.
39. Define the Efficient Market Hypothesis in each of its three forms. What are its implications?
40. Explain how the efficient frontier is determined using Markowitz approach.

UNIT – V

.
41. Explain
a) Explain briefly capital Market line.
b) Explain the process of calculating the portfolio return.
c) What is meant by security market line?
d) Distinguish between put and call options.
e) What are the basic features of futures
42. Distinguish between Bond and Debenture.
43. What are the various types of risk in portfolio management ? Also discuss relationship between
them.
44. What is importance of diversification in portfolio management
45. Explain: (a) Dow theory(b) Odd lot trading(c) Point and Figure charts(d) Serial bond(e)
Superfluous Diversification(f) Market Risk65.(a) What are the two major types of information
necessary for security analysis(b) What are the features of preference shares.(c) . What do you mean
by underwriting.
46. Discuss why the concepts of covariance and diversification are closely related..
47. Give an example of an industry you feel has positive competitive conditions for your selection as
an industry to invest in. Why have you selected this industry?

N.NITHYA AP/MBA
 III SEMESTER/II YEAR BA5012-SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

48. Explain any FOUR of the following: (a) Zero Coupon Bonds.(b) Yield-to-maturity.(c)
Underwriters(d) Technical Analysis(e) Sweat Equity.(f) Return on equity
49. What is meant by fundamental analysis? How does fundamental analysis differ from technical
analysis
50. Define Risk. What are different types of risks ? Explain the methods of risks handling.
51. Explain briefly the functions of the Stock Market in India. Critically evaluate the role of SEBI as
stock market developer and regulator.
52. What is the risk of a Portfolio ? Under what conditions can the portfolio risk be minimized ?
53. What are benchmark portfolios ? How are they used to evaluate the performance of a portfolio
manager ? Discuss with suitable examples.

N.NITHYA AP/MBA