@ Consists entirely of interest income.

Calculate the following ratios for the year 20X2 III SEMESTER ENDTERM EXAMINATION NOVEMBER 2016
Current ratio, acid-test ratio, cash ratio, debt-equity ratio, interest coverage ratio, fixed charges coverage PGDM-AICTE BATCH 2015-17
ratio ( assume a tax rate of 31 percent), inventory turnover ratio (assume the cost of goods sold to be Security Analysis & Portfolio Management
Rs.450 million), debtor turnover ratio, average collection period, total assets turnover, gross profit Time: 3 Hours Max. Marks 100
margin, net profit margin, return on assets, earning power, return on equity Section A: Answer all questions. Question 12 compulsory carries 3 marks. (11 X 2=22)
1. What is the economic process that produces a random walk.
Section E: (10 Marks) 2. Why does money have time value.
20. You are considering investing in one of the following bonds: 3. What are the differences between technical analysis and fundamental analysis.
4. Explain briefly the various investment avenues available to an investor?
Coupon rate Maturity Price/Rs.100 par value 5. Explain yield to maturity.
Bond A 11% 8 yrs Rs.80 6. State the general formula for calculating the present value of a single amount.
Bond B 9% 9 yrs Rs.70 7. What are the key differences between an investor and a speculator?
8. What is an efficient market?
Your income tax rate is 34 percent and your capital gains tax is effectively 10 percent. Capital gains taxes 9. Explain the Dow Theory?
are paid at the time of maturity on the difference between the purchase price and par value. What is 10.Briefly discuss the three basic policies with respect o portfolio rebalancing.
your post-tax yield to maturity from these bonds? 11.What is cash flow from operations?
12.Mention the assumptions underlying the standard capital asset pricing model. (3 Marks)
Section B: Answer all questions. Each question carries 5 marks. (5X5=25)
13.(a) Suppose you deposit Rs.200,000 with an investment company which pays 12 percent interest
with compounding done once in every two months, how much will this deposit grow to in 10 years?
OR
(b) A bank pays interest at 5 percent on US dollar deposits, compounded once in every six months.
What will be the maturity value of a deposit of US dollars 15,000 for three years?
14.(a) The equity stock of Amulya Corporation is currently selling for Rs.1200 per share. The dividend
expected next is Rs.25.00. The investors' required rate of return on this stock is 12 percent. Assume
that the constant growth model applies to Amulya Corporation. What is the expected growth rate of
Amulya Corporation
OR
(b) Sloppy Limited is facing gloomy prospects. The earnings and dividends are expected to decline at
the rate of 5 percent. The previous dividend was Rs.2.00. If the current market price is Rs.10.00,
what rate of return do investors expect from the stock of Sloppy Limited?
15.(a) Who wins and who loses in the trading game which is essentially a zero sum game?
OR
(b) What guidelines must be borne in mind while executing transactions?
16.(a) The risk-free return is 9 percent and the expected return on a market portfolio is 12 percent. If
the required return on a stock is 14 percent, what is its beta?
OR
(b) The risk-free return is 5 percent. The required return on a stock whose beta is 1.1 is 18 percent.
What is the expected return on the market portfolio?
17.(a) The price of a Rs.1,000 par bond carrying a coupon rate of 8 percent and maturing after 5 years is
Rs.1020.
(i) What is the approximate YTM?
(ii) What will be the realised YTM if the reinvestment rate is 7 percent?
OR
(b) A Rs.1000 par value bond, bearing a coupon rate of 12 percent will mature after 6 years. What is
the value of the bond, if the discount rate is 16 percent?
Section C: Case Study (20 Marks)
18.As an investment advisor you have been approached by a client called Ravi who wants some help in
investment related matters.
 Ravi is currently 35 years old and has Rs 2,00,000 in the bank. He plans to work for 25 years more (B) Compute the financial ratios for Acme Ltd.
and retire at the age of 60. His present salary is Rs 500,000 per year. He expects his salary to
increase at the rate of 12 percent per year until his retirement. Balance Sheet of Acme Ltd. as at March 31, 20X2
Ravi has decided to invest his bank balance and future savings in a balanced mutual fund scheme Rs. in million
that he believes will provide a return of 9 percent per year. You concur with his assessment.   20X2 20X1
Ravi seeks your help in answering several questions given below. In answering these questions, EQUITY AND LIABILITIES    
ignore the tax factor. Shareholders' Funds 440 400
(i) Once he retires at the age of 60, he would like to withdraw Rs. 900,000 per year for his Share capital * 100 100
consumption needs for the following 20 years (His life expectancy is 80years).Each annual Reserves and surplus 340 300
withdrawal will be made at the beginning of the year. How much should be the value of his Non-current Liabilities 180 140
investments when he turns 60, to meet his retirement need? Long-term borrowings** 130 100
(ii) How much should Ravi save each year for the next 25 years to be able to withdraw Rs.900, 000 Deferred tax liabilities(net) 25 20
per year from the beginning of the 26th year for a period of 20 years? Long-term provisions 25 20
Assume that the savings will occur at the end of each year. Remember that he already has some Current Liabilities 286 208
bank balance. Short-term borrowings 100 80
(iii) Suppose Ravi wants to donate Rs.600, 000 per year in the last 4 years of his life to a charitable
Trade payables 152 100
cause. Each donation would be made at the beginning of the year. Further he wants to bequeath
Other current liabilities 24 20
Rs. 2,000,000 to his daughter at the end of his life. How much should he have in his investment
Short-term provisions 10 8
account when he reaches the age of 60 to meet this need for donation and bequeathing?
Total 906 748
(iv) Ravi wants to find out the present value of his lifetime salary income. For the sake of simplicity,
assume that his current salary of Rs 500,000 will be paid exactly one year from now, and his ASSETS    
salary is paid annually. What is the present value of his lifetime salary income, if the discount rate Non-current Assets 430 410
applicable to the same is 8 percent? Remember that Ravi expects his salary to increase at the rate Fixed assets 355 300
of 12 percent per year until retirement. Non-current investments 50 80
Long-term loans and advances 25 30
Section D: Application Oriented Exercise (20 Marks) Current Assets 476 338
19.(A) Complete the balance sheet and sales data (fill in the blanks) using the following financial data: Current investments 8 10
Debt/equity ratio = 0.40 Inventories 267 166
Acid-test ratio = 0.9
Trade receivables 190 150
Total assets turnover ratio = 2.5
Cash and cash equivalents 6 5
Days' sales outstanding in
Short-term loans and advances 5 7
Accounts receivable = 25 days
Total 906 748
Cost of goods sold as a
percentage of total revenues = 75 percent * Par value of share Rs. 10
Inventory turnover ratio = 8 ** Out of which Rs. 30 million is payable within 1 year
Statement of Profit and Loss for Acme Ltd. for the year ended March 31, 20X2
Balance sheet Rs. in million
Equity capital 160,000 Revenue from operations 800
Retained earnings 30,000 Other income@ 10
Debt -------- Total revenues 810
Expenses
-------- Material expenses 350
Employee benefits expenses 180
Plant and equipment -------- Finance costs 60
Inventories -------- Depreciation and amortization expenses 50
Accounts receivable -------- Other expenses 12
Cash -------- Total expenses 652
Profit before exceptional and extraordinary items and tax 158
-------- Exceptional items ------
Profit before extraordinary items and tax 158
Revenues from operations ---------
Extraordinary items ------
Other income Nil
Profit before tax 158
OR
Tax expenses 48
Profit( loss for the period) 110
Dividends 70