UNIT 2
Rajesh, a Fund Manager produced the following returns for the last five years. Rate of return on Sensex are also given for comparison:
| 2003 – 04 | 2004 – 05 | 2005 – 06 | 2006 – 07 | 2007 – 08 | |
| Mr. Rajesh | 6% | 48% | -15% | 7% | 11% |
| Sensex | 12% | 40% | -6% | 20% | 3% |
Calculate the average return and standard deviation of Mr. Rajesh’s Mutual Fund. Did he do better or worse than sensex by these measures?
- Rahul recently forecasted three economic conditions which he believes are likely to occur with the given probabilities. Based on these conditions, an analyst made the following forecast of returns on stock P, Q, R.
| Economic Conditions | Probability | Conditional Returns (%) | ||
| P | Q | R | ||
| Boom | 0.30 | 10 | 12 | 14 |
| Normal | 0.50 | 20 | 16 | 18 |
| Recession | 0.20 | 22 | 14 | 14 |
Calculate the average return and standard deviation of stocks P, Q and R and advise which stock is preferable for investment.
- Following is information about shares of ABC Ltd. and XYZ Ltd., under different economic conditions. At present both shares are traded at Rs. 100.
| Economic Condition | Probability | Expected price of share ABC Ltd. | Expected price of share XYZ Ltd. |
| High Growth
Low Growth Stagnation Recession |
0.3
0.4 0.2 0.1 |
140/-
110/- 120/- 100/- |
150/-
100/- 120/- 80/- |
(i) Which company has more risk to invest?
(ii) Mr. Ram wants to invest ` 10,000
(1) Only in ABC Ltd. (2) Only in XYZ Ltd.
Which is better option? Justify.
(iii)Will your decision change if probabilities are 0.4, 0.4, 0.1, 0.1 respectively?
UNIT 3
- Triveni Industries Ltd. gives you the following information for the year ended 31st March 2016:
Profit before interest and taxes ` 16,50,000
Tax Rate 30%
Proposed Equity Dividend 25%
Capital Employed
10% Preference Share Capital ` 15,00,000
80,000 Equity Shares of Rs. 10 each `. 8,00,000
15% Debentures of Rs. 100 each ` 7,00,000
Reserve and Surplus ` 12,00,000
Current Market Price per Equity Share ` 50
You are required to calculate:
(i) Earning Per Share. (ii) Price Earning Ratio.
(iii) Dividend Payout Ratio. (iv) Dividend Yield.
(v) Book Value per Share and state whether it is worth investing in the Equity Shares of the Company.
- Following is the balance sheet of Nirmal Textiles Ltd. as on 31st December, 2016:
| Liabilities | ` | Assets | ` |
| Equity Share Capital
Reserves & Surplus 8% Debentures Creditors Proposed Dividend |
6,00,000
4,00,000 5,00,000 2,00,000 60,000 |
Land & Building
Plant & Machinery Stock Debtors Cash & Bank Balance |
6,00,000
5,00,000 2,60,000 3,00,000 1,00,000 |
| 17,60,000 | 17,60,000 |
Additional Information:
(i) Cost of Goods sold ` 9,00,000
(ii) Administrative and other expenses ` 1,00,000
(iii) Sales ` 15,00,000
(iv) Net Profit After Tax ` 3,60,000
(v) Market price of the company’s shares ` 600.
Calculate the following and state whether you would invest in the shares of the company: (1) Return on Equity (2) Dividend Yield (3) Payout Ratio (4) Net Profit Margin (5) Long Term Debt to Equity (6) EPS (7) P/E Ratio.
UNIT 4
Following are the details of three portfolios:
| Portfolio | Average Returns | Std. Deviation | Beta |
| 1
2 3 Market Index |
13%
12% 11% 11% |
0.25
0.25 0.20 0.25 |
1.25
0.75 1.00 1.10 |
The risk free rate is 8%. You are required to compare these portfolios on performance using the Sharpe’s, Treynor’s and Jenesen’s measure and comment.
| Year | Mutual Fund Return (%) | Mutual Fund Beta | Return on market index | Return on Govt. Securities | Std. Deviation δ |
| 1
2 3 4 5 |
6.85
1.20 21.00 10.18 17.65 |
1.32
1.27 1.25 1.10 0.95 |
14.31
18.95 14.50 9.25 20.00 |
4.35
3.85 6.15 7.50 6.00 |
0.8
0.9 1.2 1.4 1.5 |
Calculate the following risk adjusted return measures for the mutual fund:
(a) Sharpe ratio. (b) Treynor’s ratio.
Returns on Ram Ltd. were 11 %, 13 %, 12 % and 10 % in the past four years. Returns on Shyam Ltd. were 12 %, 14 %, 9 % and 10 % in the last four years. While average market returns were 12 %, 14 %, 14 % and 13 % in the last four years. Return on Government securities is 8 %.
You are required to compute beta factors and expected returns of Ram Ltd. and Shyam Ltd. using CAPM and offer comments.
You are required to calculate beta factors and expected returns for Rohit & Mohit (using CAPM) and offer your comments. Risk free rate of return in 8 %
| Year | Rohit (%) | Mohit (%) | Market (%) |
| 1 | 15 | 16 | 14 |
| 2 | 12 | 14 | 13 |
| 3 | 13 | 13 | 12 |
| 4 | 12 | 11 | 12 |
Reference Book- Investment Analysis & Portfolio Management ( Rishabh Publication )
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