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ASSIGNMENT
Course Code : MS - 44
Course Title
: Security Analysis and Portfolio
Management
Assignment
Code : MS-44/TMA/SEM - II /2015
Coverage : All Blocks
Note: Attempt all the questions and submit
this assignment on or before 31st October, 2015 to the coordinator of your
study centre.
Q. 1. What do you understand by investment
risk? Classify the traditional sources of investment risk and mention whether
they are general sources of risk or specific sources of risk. How is interest
rate risk related to inflation risk?
Answer:Investment risk is defined as
the probability or likelihood of occurrence of losses relative to the expected
return on any particular investment. Investment risk can be defined as the
probability or likelihood of occurrence of losses relative to the expected
return on any particular investment. Stating simply, it is a measure of the
level of uncertainty of achieving the returns as per the expectations of the
investor. It is the extent of unexpected results to be realized. Risk is an
important component in assessment of the prospects of an investment. Most
investors while making an investment consider less risk as favorable. The
lesser the investment risk, more lucrative is the investment. However, the
thumb rule is the higher the risk, the better the return.
Q. 2. Define the various forms of the market
efficiency. State the anomalies in the Efficient Market Hypothesis.
Answer:The Three Basic Forms of the EMH: The efficient market hypothesis
assumes that markets are efficient. However, the efficient market hypothesis
(EMH) can be categorized into three basic levels:
1. Weak-Form EMH: The weak-form EMH
implies that the market is efficient, reflecting all market information. This
hypothesis assumes that the rates of return on the market should be
independent; past rates of return have no effect on future rates. Given this
assumption, rules such as the ones traders use to buy or sell a stock, are
invalid.
2. Semi-Strong EMH: The semi-strong
form EMH
Q. 3. Discuss the CAPM and its application
in portfolio selection. Explain the relationship between SML, CML and
Characteristic Line.
Answer:The Capital Allocation Line
(CAL), Capital Market Line (CML), and Security Market Line (SML) can be
confused easily, and for good reason: the graphs look virtually identical, the
assumptions under which they are constructed are essentially the same, and
their implications are similar. We’ll
characterize each one and try to eliminate the confusion.
The assumptions common to these three lines
are that:
Q. 4. What are the basic assumptions of
Arbitrage Pricing Theory (APT)? Discuss the problems associated with the
empirical testing of APT.
Answer: In finance, arbitrage pricing
theory (APT) is a general theory of asset pricing that holds that the expected
return of a financial asset can be modeled as a linear function of various
macro-economic factors or theoretical market indices, where sensitivity to
changes in each factor is represented by a factor-specific beta coefficient.
The model-derived rate of return will then be used to price the asset correctly
- the asset price should equal the expected end of period price discounted at
the rate implied by the model. If the price diverges, arbitrage should bring it
back into line. The theory was proposed
by the economist Stephen Ross in 1976. An asset pricing model based on the idea
that an asset's returns can be predicted using the
Q. 5. Distinguish between performance
measurement and performance evaluation of an investment portfolio. Describe the
Sharpe, Treynor and Jensen measures of portfolio returns.
Answer:
Performance is measured For the full activities of the company`s from
financial ratios, but there are also non-financial measures that are
particularly depend to managers who now speak in concrete terms representatives
of features attractive to. While performance evaluation is an effective and
regular process helping the development of employees. It is an engagement
process to attempt objective aware of the year.
At the end of the exercise, a meeting allows you to point through the
objectives on the performance of the employee.
Dear
students get fully solved assignments
Send
your semester & Specialization name to our mail id :
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