Section-A

problem1) describe Fundamental analysis in detail. List out the factors which you will consider for fundamental analysis of stock of Dabur India for investment.

problem2) Describe Efficient Market Hypothesis (EMH). What are the forms of EMH and implications of each form?  Which form of market does the Indian stock market exhibit, why?

problem3) How does the risk of portfolio of assets differ from risk of single asset? A portfolio consists of 3 securities: 1, 2 and 3. The proportions / weights (w) of these securities are: w1=0.3, w2=0.5 and w3=0.2.  The standard deviations (SD) of returns on these securities (in percentage  terms) are: SD1 = 6 SD2 = 9 and  SD3=10. The correlation coefficients (r) among security returns are: r12=0.4, r13=0.6 and r23=0.7. What is the standard deviation of portfolio return?

problem4)a) Describe capital asset pricing model (CAPM). What are its assumptions?

b) Describe the dividend discount model of valuing equity shares? What are the merits and demerits of this model?

Section – B

Case Study

You are considering bonds of two companies: A & B. Company A’s bond pays interest at 12% and Company B’s at 6% per year.  Both have face value of Rs. 1000 and maturity of three years.

Case problems:

a) What would be the values of bonds if the market interest rate is 9%?

b) What would be the values of the bonds if the market interest rate rises to 12 %?

c) Which bond declines more in value when the interest rate rises? What is the reason?

d) If interest rate falls to 6%, what are the values of the bonds?    

e) Maturity of two bonds is 8 years (rather than 3 years), what would be the values of two bonds if market interest rate is 9%?