RS en Me el ok a ie ane nee Q.2. Calculated the expected return of a portfolio “A” with the follow a) Risk free rate of return 8% ng data b) Expected return on market portfolio 12% i cca ) Market sensitivity index0.75 Gabitid saline a A> Opt RyCB) 7A Ce Be) B v roftred. t apt Yelum on hort = aa ala -8 60:95) eB. + 47.(0-45) is ps8}. biated 10 pil = 9 P HH land Trou L3ipadi ag’ af - 4Se eee Q.2. The following information is given: ———S a) Risk free rate of return 8% _ b) Expected rate of return on Dae portfolio 16% ¢) Beta o security 0.7 a the ojpected rok, OH Ei 01 tru se ~ ee Let Hen. Expected return on povifolie = Rp 4 CMa -Re)cB) g es bettie (93) ole -8 Hoa) Spigimse i Cod = 8h t+ 56% are. Aww + Sxbechidl shor ow fs -13.6'/, 6 aye tet \p evvick ds \3. From the following information, calculate the expected rate of return of a por 4d) Co-relation co-efficient of portfolio with the market 0.8% eee ¢) Market standard deviation 2.3% aR EERREREE RRR - 4a) Risk free rate of return 12% b) Expected return on market portfolio 18% Standard deviation of an asset 2.8% - -— ae ees Resale = Re + CMe- RD! » % me = ee = phe Ce) -B7) Pe SP pier ey 6.47) ND Bet ORS D ee al Fels, + i i q - ik ete ju Be 29 508 p siandsd dusahon of shok Saas Saadeh chisiobiensy bt: Basse. Vas _oxhectid ohn on eyes is \a-82/.__| a4. calculate the market. a) standard deviation ofthe asset 2.5% tb) Market standard deviation 2.0% Risk free rate of return 139% ‘Above, what will 10%. and the expected return on portfolio from the following data: Gh expected return on market portfolio 25% 8 Correlation coeficient of portfolio with market 08% be the expected return on portfolio if the portfolio beta is 0.5 and the risk free return is Soutien [ sxpecteck Return Qorifolie = = REY Cp - Re) GB) = \3ht CS. B/G) Sea u 2 ayes [Be Set stole -x¢ cowrelation Qrehosen axel 2 mkt ae ome b Bat Sua toe = a Q_sbally GD kxfected cretion porttblie: > Re Cma- RE) Cp]. = leh + Cig) -14) 8 ¥f TE aes = leh eas i, 2 lnS/, rt ¢ 5 sand dupors | nbec om ie a | ahiQ.5. From the following information, calculate the exp a) Risk free rate of return 8% 'b) Expected return on market portfolio 18% ¢) Standard deviation of an asset 2.8% d) Market standard deviation 2.3 % e) Co-relation co-efficient of portfolio with narket 0.8 rected rate of return of a portfolio: a » gh © Cie) Bel) 1) “ed = Bh retole CoP Shr BEL = Thay. = SBP oY asceh., Corclansn” Seth ela Bo} worked) 2 > é 5.5 ae : (a : an) 4-9! Qe8 ee eg ; ;: a ee Q.6. An investor is seeking tne price to pay for a security whose standard deviation is 3%. ‘The sj correlation coefficient for the security with the market is 0.8 and the market standard deviation is sre urn from government securities Is 5.2% and from the market portfolio is 9.8%. What isthe required rate of return? 2.2%. Setahion Enherted Coetern aa Ge iclio ~ RCM -De) cg) fl = Sr (AS -SPDAE = So) +@. crn i = SDE 2S P\ E = 2\o+2V/)x 18 ea ‘were correctly priced? “A The following information i avallable in respect of security x and Y- . security Beta expected return on security 22.00% 7 16 20.40% aa FraRe uk trad cot aT vhs these sovuttes correctly iced, what oud De te Cae ee cecniialag Ps mie. Shee Rew) a, as ent a ; gai). 2 Sve Reeve > peo = FE PpErO T : \obp = 1S 204d > WR e's 1s Res Sto] ANS a Te peste wi. Bp + B34] Peiemnatie 4 fo 1 Nite coats: 22 Fs pair rake 2.0 x 22 = Ro 418 agetob F £6 RP Se \|-60| = O.2Rp 60 2 0 2Reb es Re eh Siig if ciency) NGG 1 nite ‘ wep 4 ius Pepi Ofte Ris Fla Hla seni one in Gr Ro jy 2’).(AS. Asan investment manager, You ae given the following information: a Tavesrent Tn eauly sores Trial pee) oWidends Om | Marketpricew [Beta] Gnas [rey theend ofthe | factor ‘A. Cement Led. PG i veal Rs.) steed. = : a 3s Tiguor Ld a 2 os t 3 Government of nda bonds [3000 15 1008 a Risk free rate of return may be taken at 14% Required:- {@) Expected rate of returns of portfolio for each individual investments us (b) Average return cn the portfolio. 's using the CAPM. En =| Bas BCR) Eas Ming ABC he) deo’ C1233) = Meiplo HCD 23) ta 23.864 Y. = 92.63). iquer_ Ard. or En of BCRP) q Wp po-S C12. 33) Gp toa C 18RD. = 20.165 9A Si e+ 9% Der Q]|Morket Return = Pivik CO 160. Tavestment i ep WG +145 5100-31 4405" = 26. 3B oI | na QO. t\ 44 Veg ® non forbblie + 23566 +:22634 2016t26.2¢ fverege. Retur on BN Z-:9. Your client is holding the following securities Particulars of Cost (in Rs) Dividend/interest_] Market Price Beta A Investment Equity shares of _ | 10,000 1725 3,800 06 _ Gold Ltd, : Equity sharesof | 15,000 7,000 16200 08 - Silver Ltd, a Equity shares of | 14,000 700 20,000 06 = Bronze td. : S ‘GO! Bonds. 36,000 3,600 35,500 2.0 Cond Average return on this portfolio is 15.7%, calculate: - 4) Expected rate of return in éach using CAPM. ~ ts bb). Risk free rate of return. _ Boution. Investment Bividend) Zadeut Capita! om { Sapity Showy ef Gold Ho . 1925 : (200) , | Spatly shouraportvasid. 000 1200 | Beily shows of Pronzcttd- Joo gooo | | Gor: Moin 600 C1500) Tefal. 7025 & S500 2 Witleadk + Capital Garas = To25+ 5500 =16:4D Tapes Investment S000 te Rp > -Cut- Rp) (0-75) IGF = Rpt Cb# - Re)loF7S) | [5:7 = Rb _12:525 =| OF SRP « 15:9 = RE 0-26.ppr, Ree JB * Re + RoC B? O| Ee- 2 pth th(o6) JOS SEIDEL aged. H veut ; Aa 215.4 i ihe: Pea Eade as Naa = Ug. ash yh ‘ sca agtt Oo @ pF. = 6.47=) ep fio. she beta coefficient of Target Ltd. 1.4. The company ha been maintalning 8% rate of growth 9 dividends and ‘earnings. The last dividend paid was Rs. 4/- per share. Return on Government securities is ao : Giidends orion market portfolio Is 15%. The current market price of one share of Target Lid is s.36/- 1 hat will be the equilibrium price per share of Target Limited? Would you advice purchasing the share? a equilibrium price is a smaximum price echicth th — imuedor is ends to pay SQ Tem Solution Expected) Resurra of Tareget Abd é toil Bi Gnd), Toh BV NE H/, = Y Fils ket i Puieg. Po i 1 Soa 4.93 oF = 2/108) -oiog Vo * Po Ne Ol? 0.03 = $32 Semmes Kons fo 4 jel 19% srohern pantie. tay ay PAs, 2é'-9 Prswel Since the 2g willbeivina pri te ke 48/2 py $d spies asta“ pyter ts Pa Bel _4p er er Slaw, as ik R anhubrtod 1 nee ;a 6) 7 FF. 62. The risk free rate of returns 9%. The expected rate of return onthe market portfolio fs 13%. The ‘expected rate of growth for the dividend of firm A is 73, The last dividend paid on the equity stock of Firm Aas Rs. 2.00/-. The beta of firm A’s equity stock is 12. (a) Whatis the equilibrium price of the equity stock of firm A? (b) How would the equilibrium price change when: () the inflation prentium increases by 2%; (ii) the expected growth rate increases by 3%; (il) he bets of exuity ries to13 = ee — Po RRs 95) Given | Lei. feel es [rngee 22. C09) Se £h (Given). 5 : | IT i 2__ Given) ECE 4 Ret (Rn Pe) Bi) Wee- 22 +4. i 29% CIspeGh) Kal i = 9+ 4/Q.2) / Bd = 13:87. =i ee <8 84) i a 2 ; HL) Eps Re +BCQq i [ Shige es O-15E™) al ONBBES WCHOD) 4 00+ OFF someon sb gh =\sRe iy . As eye = 2b fe. os yo ‘foe SlAt ; =r Dos [I%fr a 1h 42% 2 1% - eg» Nhe tees anesee ‘wants to invest an amount of Rs.520 lakhs and had approached his portfolio manager. “ine portfolio manager has advised Mr. Fedup to invest inthe following manner: = Moderate | Better Go aS | Moderate] 0d a “Amount (Rs. in lakhs) 60) 80 100) ee [Beta 0.50 1.00 0.80 1.20 1.50 You are required to advise Mr.Fedup in regard tothe following using CAPM. {i) Expected return on the portfolio, ifthe Government securities are at 89 and the NIFTY yielding 10%. (i. Advisabllity of replacing security ‘Better’ with NIFTY, pias a Solutio oiva Med 60 . 0:50 | 0-0 Better] | g | O15 | boo | o150 | Geod. | fotos! [fe aya 2. pase | U., Neko aha | Owe dgem en ae Eobamces Sorat i ae <4 Exped Redarn on Poriblio=s Re + BCRm Re). Seias| = Sht W25SCl0 48) eeeRoOUSl/. hisiindilferent to snake an vestmnesih wither In Eps RPy BOR Bie bat = a yes ees = 10+ gos: )\ zbeettol-t Byte wpe 2 p= ee 7 ee ae ee lou ae pee.Stocks A & B have the following historical returns TE, 3 am Stock A’s return (in 96) jock B's return (in %) es ae 2010 55 aa 3 ie , [ou 5.82 ae a wee 28.30. 71.16 = | —4 ooo pid pas cei eae ig hapa 208 teh Bere a oe ciedabd rate of edn HeREN your om Sooo sears oe ee eae ne sveraceretum onthe porta rng he peat <= Bolt po Bi glo! | ck A BF inne Se — eat sath) | Prebam tn Sx ead baw oo& C12-24 ose | DAD fowl Looq 23.65) | 2 oo 4235. 7 Qo\0 25.45 | 6.26 | $94 oem aeea| oe ae 2%) Do | } 2-20) eS TTéfat.o1 >} ea : a) . {Ze Reture is 2008 CE 00) 6.29 Loo. ! oq fl edt9. 55.) atria hema 1 Zaidrily ovisndde 09) Loutr O20 8.808 201) |. 20 O28 nooe : 24 Qe le oo 2 — Rou (OSs wee el 17 = se ts [6-202'7. F e bs l Ade. Cen 4. #45 qa B. Cees 3} Xtock Ae ae. fia. (e-o ia a0 E19. 94)x (0-5) + 0.5)0-5) | a, Cat 2D — 93.64%0:5] +1955 KoG |. 21622 010 | [85 a5 x05 [+ [4401 x05 a oad 0.51 ¢| [-20x0-6\ - 3-5) 065] t Letibxe SI. 24-43 S)0What isthe expected return (percentage) on it’s portfolio? ‘What would be its expected return if she quadrupled her investment in Grizzle rest: _zverything else the same? aurants while leaving a and Group invest the following sums of money in common stocks having expected returns D [Seeuney Amount Invested = xe Morck Drug $6,000 Expected Return Kota chemicals $11,000, ish ——— Fazio Electronics $9,000 is Z Northern california utility 7 | $7,000, ee j Grizzle Restaurants $5,000 oe __.[ Pharlap Oit $13,000 ae [Excell Corporation 9,000, aa aoe Rrcborton | S*becbed Return | nite 008 GELeL F148 AS 09 (|S eaten* Of Box limited performs relatively well to other stocks during recessionary periods. The Limited, en the other hand, does well during growth periods. Both the stocks are currently Rs.100/- per share. The assessment of the rupee return (dividend plus price) of these stocks year are as follows: rs Economiccondition High growth Low growth | __ Stagnation Recession 03 O.8 02 O41 ‘on Box 100, 110 120 140, ‘on Cox, 150 130 90. 60. the expected return and standard deviation of investing: (2) Rs.1,000 in the equity stock of Box Limited Rs.1,000 in the equity stock of CoxLimited Rs.500 each in the equity stock of box Limited and Cox Limited Lm S: Jjooo} <0.3 | 300 9) | '1500 Woon}. 4%0 > || 1300 _ 2000} 10.2 2400 | Joo" po SO.) | FOO 600 ey 4420» i fr o0 his 0 F Rhy BRP) = lor1.2CS Rabies a0 27 x res Cc SSS) aVane D0or FO =1G0) On Cereoustn F750 +650=1200 O'4 Stagnation 600+450=1050 0-2 Receasion . TOOt 200: Jooo O:! Standard Gemindene Bore Sa. JSeoa¢- SD =Jo 245 > ooo NEES 480 a5 ‘ no A900 210 CNS) \adas 2645 lOO C165) 27225 oa: ie gos6, An aggressive mutual fund promises an expected return of 16% with # possible volatility (standard Geviation) of 20%. On the other hand, a conservative mutual fund promises an expected return of 13% and volatility of 15%. = Required: ta) Which fund would you like to invest in? {b) Would you like to invest in both if you have money (6) Assuming you can borraw money from your provident fund at an opportunity cost ‘of 10%, a which fund would you invest your money in? the _visk e7 nvertor, However Piauclon ce, Suggest that an vest ent IS acl J an laggrenive 3 a, Pd Feffead 1 Invest jin an aggresives: crmtual fant Or Is paefiond ge e jw both Tha fusacls 04 | gga 2) phersiiahon. preligoat es am fhe Bick. 2 ee “3 sn aN: sia a = se Te Loom pfudda orscurities D, E and F have the following characteristics with respect to expected return, standard (© B) op) (ae) 2 Vie ElwOcm Dll) YGr: +(e DY COSP YE EWE Cad) (vay.Gtor . See SS E 2256 + 0.04 /410* a\ 42 +O 4h eh, sha Taste |: @ Return _on P is & P Limited has an expected return of 22% and a standard deviation of 40%. Q Limited has an ee >xpected return of 24% and a standard deviation of 38%. P Limited has a beta of 0.86 and Q Limited has & beta of 1.24. The correlation between the returns ofP & Cis 0.72. The standard deviation of the | market is 20%. Re a (2) Is investing in Q better than investing in P? = (b) Ifyou invest 30% in C and 70%in P, what is the expected rate of return and the portfolio standard deviation? {c) Whats the market portfolios expected return and how much isthe risk free rate? a (d) Whatis the beta ofthe portfolio ifs weight is 70 percent and a's weight is 2037 (e) Whats the correlation between P & the market and Q& the market? sae 4% e: on. Gis 24lo. cotthn. Standard des iatio a 407. 2-38! Tied ee p Trvesbective. of the viedure_ a Investors & colll be preferred) ever Pas tt hos meg n Rox “isk ~~ Gompaud Ho stock P.. Jet Hed Retusn on Tortfolia . 10:22) (CoFe)¥ Co 2n)(6- 36). Bi nOn226 Wo 22-6) ( OPEC) WORE EP) CoP)Grg oo) = Go)? .¢0:4¥ + G8)* (o- 2 FRAIL IC + 459 CAR POSE CIS73. 602 . Oost ies aus ao it ts Go 8e > Take = REPRE Clit) SS seh as Dh + Rp B-38) RRs eae 3) Ret 5-26 Lo-86) Ide8t 1255 22 - G52 8.0 0k pitas wb! i2iplag + Mes 22 eedis a consumer goods company, which earns expected return of 12% on its existing ons subject to standard deviation of 20%. The company is owned by a family and the family has er Investment, New projects under consideration and the new uprojetis expected togve fect kel to aceount for 25% of 12's operations. XYZ has ented a tity function to The function is as under: - ‘only if total utility goes up. Evaluate the prc D perections- ew ear aes Vubtlity = 1OoR€ yoo x12 7 . Operaren . Bonet pie 4 a, -EFE1S% . Sree A) ate aterSee oe techn eneh - aati a mena ——— * #, “a, Corveloiten , Cr oC)Zand on the market po \ Probability = Return on C Ltd. Return in the market occurrence ae (°6) a is 0 Condition of economy (ee 15 10 a. 14 6 ae ia i 26 7 s — | () “Le | 92. You are presented with the following information concerning the returns on the shares of C Ltd 7 rtfolio according to the various condition of the economy re ; pS The current risk free interest rate is 9%. . ~ Calculate: , a ta} Fhe efficients between the security and the market. — (b) The correlation co (c) The beta of the security. (8) casual Ws muperbed Relurn 2 Btewdond dovrinlor 4 cud § mauet = —- | a) Gmeadabane CRORES gupacted Rekuun of Ud, under CHEM Model Y be > 4! — Soe eG) CP) = Cove iC ; __[EeSisionlerobabitity[Retuyn [FE ZRima Deviation | (WD) | a fs B56 On Bea en ; _ ———_—}_Q.23. The following are the returns of share S and market M for the last six years:- oe ty, © a Year 3 _.__ReturnonSasa% Return on Masa % \ re | 18 : 15 | lel Ze 9 | 7 ae aaa ie : |. ae : weeOl2 : is Hf ee ) : pee 12 7 | es er. (a) Calculate the covariance and correlation coefficient of the returns. (b} Betermihe the beta coefficient ofS. Cc) Car te Ynpeted RUA under Cory model Yo Me Rp > H'/, RAF ON Sosa >. ahh Sa op anenaner pape Probability | Sb: j2i-c0 | 20% : Zxpecded Return > DS4/6 = 94-00 IP. Doce ee he) Oe. UE => Ss D eS a: ALA /A Qu \ Deviadior’ (Deviolken)) SD | 9.00 Sl .00 | 13.5 10.00. 100-00, ‘16. 6F £94 020) 4. 361-00| 6 GF C9) .0).. 4.00 0.64 a | Ort ty Galeof market i is 40% and the expec ed market eturn is Wy he 1 risk fr ree e co-va ance of retugns ice the market and otha shares of ABC Ltd. over the same e. expected return undér CAPM model. eni ; i € & : 4tO " = ee 4. You are able ‘to both borrow and lend at the | ; expected return of 15% and a Standard deviation of 21%. De rmine the expected return and (es 1 deviations of the following portfolios: (aaa. | isk-free rate of 9%. The market portfolio of SECUTities cy os is invested in the risk free asset. ae urd is invested in the risk free asset and two thirds in the. a wealth is invested in the market portfolio, Furthermore, you V eal ‘h to invest inthe market portfolio. aed tg i We CRiskfree ) tn ' eT The osoute) beneeded to meet tax and dividend payments and to finance further capital expenditure in several months time, they have been invested in a small portfolio of short term equity investments. Details of the EE Sart folin which consists of ee in four listed UK companies are as follows: - | Last dividend | Expected returnin = pany Number of Betaequity | Market price shares held es share PiLuwyield % market perception ee ~ 60,000 Be aes 19.50 Divina! aaa 80,000 ae Rs.2.92 — Fe TOO cee |. Rs.2.17 17:50 Cr = 1,25,000 Rs.3.14 3. ae 23.00 © o<3 Q.25. Better Luck Limited has been enjoying a substantial net cash inflow, and until the surplus funds are — agen Ry er market return is about 19% and the risk free rate is 11% p.a. (a) } ‘on the basis of the data) calculate the risk of Better Luck limited’s short term investment vartfolio relative to that of the market (portfolio beta). wy) Recommend, with reasons, wheter Better Luck limited should change the composition of its +e | portfolio. | a ig Tic meee hi le Ha A ale armenia” 3 F , ene oS — Npeeeg Niece he une Marner mera aegis ee a Company No, ot Shaves M.P C= ») a Q ae Prob. . (Zeta ony ree | Os 60,000 A 24 9 6 Reptioia:.0 0-22 |.\6 G2 — Oso 2.28 OAS ——a 000 0.20.” 0,40 3 POO COO! 3s. 2 ato 21 > .5A- 8 - ==. 2. ae 3,42; 900 B.3b Ls | pos 1, ee \.00 herr ts Freed GAMMA ES | Babeted = Moret Percebtion edision Wy) fo Cie) = 20:28 ai Ute mereeCa 26 = 2424 —— : 2 og WW): a (0:40) =(8.20 00 Het rite pee ec oe” 22-00 ‘ | E | | ix _ © a Q.28. Six portfolios experienced the following results during a7 year period: - . . ~ Standard deviation Correlation with market os . 27.0 0.81 = 0.65 0.98 =a 0.75 - Rank these portfolios using | (a) Sharpe’s method —reward to variability; and : — (b)treynor’s method-reward to-volatility.and.explain differences. : 5 Geolitie) gpa. calc) Twrow's Measure ef fibha ee grgreiror eee ne Veuy ors Medes, 5-240] © | 6.2810 5-42.49) | }2-92 9.38|@ | |).60o1@ O.\5 as —|20-0d X 19.40 0) 14-33| @ |13.o} OMe Mrarpee Tndec js to be usecl or Treynors= imolex is te ke used aebonds on whether the shitas at narchous | er in the Seéa.jie. Stock 's Net listeak tr the Market —" 4 == 4 Ss : j eee 6 itted in the maorkelOs < i : : 2 | If the stock ''s iste in achive. market, Tremors _ Imor liskd In an achive Trakel, Sherpel_felex a eae ee cereeraser 4 srtfolios experienced the following result¢ during a 7- year period: Correlation with the market returns (r) Average Annual return Standard Deviation > 75 0.840 | a | eos ae aime 20 3 0.750 0.600