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Assignment 1 PGDM

This document contains instructions for an assignment for a course on security analysis and portfolio management. It includes 3 parts - problems, a mini case study, and an activity. For the problems section, students are asked to calculate returns, means, standard deviations, betas, and intrinsic values for various stocks. The mini case provides historical stock prices and dividends for two companies and an index to calculate returns, standard deviations, coefficients of variation, betas, and portfolio requirements. For the activity, students select a public company to analyze its returns, risk, beta, and required return and calculate a portfolio's return and risk using data from peer companies.

Uploaded by

Mahesh Satapathy
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© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PDF, TXT or read online on Scribd
479 views

Assignment 1 PGDM

This document contains instructions for an assignment for a course on security analysis and portfolio management. It includes 3 parts - problems, a mini case study, and an activity. For the problems section, students are asked to calculate returns, means, standard deviations, betas, and intrinsic values for various stocks. The mini case provides historical stock prices and dividends for two companies and an index to calculate returns, standard deviations, coefficients of variation, betas, and portfolio requirements. For the activity, students select a public company to analyze its returns, risk, beta, and required return and calculate a portfolio's return and risk using data from peer companies.

Uploaded by

Mahesh Satapathy
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PDF, TXT or read online on Scribd
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Course Title: Security Analysis and Portfolio Management

Term: IV PGDM Prepared By : Dr Surya Dev

Assignment 1
Instructions The assignment has been divided into three parts. Part 1 is problem, part 2 is a mini case and part 3 is an activity. Solve the problems as instructed.

Submission Deadline The assignment has to be submitted in the mentioned deadlines. Submission Format The assignment can be submitted in a hard and as well as a soft copy Credit points
The credit points of this assignment would be declared later.

Prepared by Dr Surya Dev for the course Security Analysis and Portfolio Management for the PGDM Term IV

Part 1: Problems
1. Following are the price and other details of three stocks for the year 2001. Calculate the total return as well as the return relative for the three stocks. Which is the best performing stock.

Stock A B C

Beginning price 30 72 140

Dividend 3.4 4.7 4.8

Ending price 34 69 146

2. A stock earns the following returns over a five year period: R1 = 0.20, R2 = -0.10, R3 = 0.18, R4 = 0.12, R5 = 0.16. Calculate the arithmetic mean geometric mean and standard deviation

3. The probability distribution of the rate of return on alpha stock is given below:

State of the economy Boom Normal Recession

Probabilty of occurence 0.40 0.30 0.30

Rate of return 25% 12% -6%

What is the standard deviation of return?

4. XYZ share is quoted at Rs 60. Avisekh expects the company to pay dividend of Rs 3 per share, one year from now. The expected price one-year from now is Rs 78.50. (a) What is the expected dividend yield, capital gains yield and holding period yield. (b) If the beta of the share is 1.5, the risk free rate is 6 percent and the market risk premium is 10 percent, what is the required rate of return? (c) What is the intrinsic value of the share and how does it compare with the current market price?
Prepared by Dr Surya Dev for the course Security Analysis and Portfolio Management for the PGDM Term IV

5. Mr Agarwal recently attended an investors meet in Mumbai wherein he came across some brokers who advised him to measure systematic risk of shares using beta before finally investing money in the same. Mr Agarwal picked the old financial newspapers and prepared the following table containing the data of the equity share prices of Infotech limited, Cantaxy limited and S&P CNX Nifty, collected on the last trading day of the month for the last 13 months. Share price of Share price of S&P CNX Nifty Infotech Limited Cantaxy limited Feb 28 115 28 976 Mar 29 125 26 985 Apr 30 140 21 991 May 31 167 20 1035 June 28 189 20 1049 July 31 177 15 989 Aug 30 142 19 977 Sept 30 121 21 965 October 31 102 32 956 Nov 29 94 29 951 Dec 31 102 31 957 Jan 31 126 28 962 Feb 28 149 39 975 Calculate the beta for Infotech Lmited and Cantaxy limited. Use and S&P CNX Nifty data as a proxy for the market portfolio and comment. Date

6. GTE Limited is a renowned company in telecom industry. The company has a consistent profitability record for the last five years. Mr Satnam wishes to invest in this company, however he wants to know how this company is expected to fare vis--vis the overall market. He has been advised by a financial expert to use beta for understanding the movement of any share vis--vis the market. The following data are available with Mr Satnam for analysis. GTE limited = 25 percent Nifty = 15 percent Correlation coefficient between returns GTE Ltd. And Nifty Index is 0.92 As an advisor to Mr Satnam, calculate the beta and interpret the results.
Prepared by Dr Surya Dev for the course Security Analysis and Portfolio Management for the PGDM Term IV

7. Given the following ex-post data for stocks X,Y and Z. Calculate all the unique covariance and correlation coefficient. Year Annual return (%) X Y Z 1990 6.2 -9.5 26.5 1991 3.6 -11.7 -12.3 1992 4.0 13.8 2.6 1993 2.4 -5.3 10.5 1994 0.2 9.5 9.2 8. Calculate Beta of the Scrip X from the information provided below. Period Return on Scrip Return on market index 1 10% 8% 2 8% 10% 3 12% 11% 4 16% 13% 5 13% 15% 6 11% 12% 7 14% 16% 8 16% 17% 9 18% 19%

Prepared by Dr Surya Dev for the course Security Analysis and Portfolio Management for the PGDM Term IV

Part 2: Mini case


Bartman Industries and Reynolds Incorporations stock prices and dividends, along with the Wilshire 5000 Index, are shown below for the period 1996-2001. The Wilshire 5000 data are adjusted to include dividends. Bartman Industries Reynolds Incorporated Wilshire 5000 Stock Price Dividend Stock Price Dividend Includes Divs. $17.250 $1.150 $48.750 $3.000 11,663.98 14.750 1.060 52.300 2.900 8,785.70 16.500 1.000 48.750 2.750 8,679.98 10.750 0.950 57.250 2.500 6,434.03 11.375 0.900 60.000 2.250 5,602.28 7.625 0.850 55.750 2.000 4,705.97 Use the data given to calculate annual returns for Bartman, Reynolds, and the Wilshire 5000 Index, and then calculate average returns over the five-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 1996 because you do not have 1995 data.)

Year 2001 2000 1999 1998 1997 1996 1.

2. Calculate the standard deviation of the returns for Bartman, Reynolds, and the Wilshire 5000. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.) 3. Now calculate the coefficients of variation Bartman, Reynolds, and the Wilshire 5000. 4. Construct a scatter diagram graph that shows Bartmans and Reynolds returns on the vertical axis and the market indexs returns on the horizontal axis. 5. Estimate Bartmans and Reynolds betas by running regressions of their returns against the Wilshire 5000s returns. Are these betas consistent with your graph? 6. The risk-free rate on long-term Treasury bonds is 6.04%. Assume that the market risk premium is 5%. What is the expected return on the market? 7. If you formed a portfolio that consisted of 50% Bartman and 50% Reynolds, what would be its beta and its required return? 8. Suppose an investor wants to include Bartman Industries stock in his or her portfolio. Stocks A, B, and C are currently in the portfolio, and their betas are 0.769, 0.985, and 1.423, respectively. Calculate the new portfolios required return if it consists of 25 percent of Bartman, 15 percent of Stock A, 40 percent of Stock B, and 20 percent of Stock C.
Prepared by Dr Surya Dev for the course Security Analysis and Portfolio Management for the PGDM Term IV

Part 3: Activity
Choose any company that has been listed in either Bombay Stock Exchange or National Stock Exchange (Prior Approval of the instructor is required so that the same company is not repeated by all students). The company should have been listed for atleast a period of five years. Download the stock prices for a minimum five years from the website of Bombay Stock Exchange (www.bseindia.com) or National Stock Exchange

(www.nseindia.com). Download the values of the market index either BSE SENSEX or CNX NIFTY for the same period. Then carry out the following instructions. a) Calculate the Arithmetic Rate of Return and Geometric Rate of Return. b) Calculate the risk of the scrip. c) Calculate the beta of the scrip. d) Calculate the required rate of return. e) Calculate Portfolio return and risk of three scrips. (Instruction: You have to collect the figures of individual scrip risk and return from your friends in your study group and of the company they have chosen. Then assume uniform weights for all the scrips and calculate the portfolio return and risk).

(All the best)

Prepared by Dr Surya Dev for the course Security Analysis and Portfolio Management for the PGDM Term IV

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