Equity Research and Portfolio
Assignments - A
1. Stocks L and M have yielded the following returns for the past two years.
Years Return %
L M
1995 12 14
1996 18 12
(i) What is the expected return on portfolio made up of 60 percent of L and 40 percent of M? Find out the standard deviation of each stock.
(ii) What is the covariance and co-efficient of correlation between stock L and M?
(iii) What is the portfolio risk of a portfolio made up of 60 percent of land 40 percent
2: Sundaram finance Ltd. has an investment opportunity available which will involve a capital outlay in each of the next 2 years and which will produce benefits during the following 3 years. A summary of the financial implications of this investment is given below.
Year Cash Flow (Rs.’000)
1 (2,000)
2 (2,000)
3 200
4 2,300
5 4,100
Sundaram Ltd., currently has 1, 00, 000 shares in issue. The dividend just paid was Rs.25 per share. In the absence of the above investment, dividends are expected at this level for the next 3 years, but will then demonstrate perpetual growth of 15 percent p.a. Sundaram finance Ltd. is currently all equity financed and the required rate of return of the equity investor is estimated to be 18 percent. The only possible way of financing the investment is, therefore, to reduce the dividend payments made in the next 2 years. Cash received from the new investment is therefore; to reduce the dividend payments made in the 10% will also be maintained because of other operations.
What will be the present market price? What will be the market price after the acceptance of the investment (assuming the market knows the dividend changes that will result from the investment using a dividend valuation model?)
Question 3 (i): Discuss the dematerialisation and rematerialisation processes in NSDL?
Question (ii): ‘Stock market indices are the barometers of the stock market’ – Discuss?
Question (iii): How can increasing short interest give a bullish interpretation. Why?
Question 4(i): Explain the utility of the economic analysis and state the economic factors considered for this analysis.
Question (ii): What is meant by fundamental analysis? How does fundamental analysis differ from technical analysis?
Question (iii): What “industry life cycle exhibits the status of the industry and gives the clue to entry and exit for investors” Elucidate.
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University: AMITY Year: 2015