Course: Capital Market and Portfolio Management

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NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Capital Market and Portfolio Management

Internal Assignment Applicable for December 2016 Examination

Assignment Marks: 30

Instructions:

·       All Questions carry equal marks.

·       All Questions are compulsory

·       All answers to be explained in not more than 1000 words for question 1 and 2 and for question 3 in not more than 500 words for each subsection. Use relevant examples, illustrations as far as possible.

·       All answers to be written individually. Discussion and group work is not advisable.

·       Students are free to refer to any books/reference material/website/internet for attempting their assignments, but are not allowed to copy the matter as it is from the source of reference.

·       Students should write the assignment in their own words. Copying of assignments from other students is not allowed.

Question. 1. Assume that you are an administrator of a large pension fund and you are deciding whether to renew your contracts with your three money managers. Calculate the performance of each manager. Assume you have the following results for each individual’s performance:

Investment Manager	Average Annual Rate of Return	Beta
A	0.14	0.85
B	0.17	1.10
C	0.20	1.2

Market return= 15%, Risk-free rate= 8% and Beta of market=1

(10 marks)

Answer: Market return= 15%, Risk-free rate= 8% and Beta of market=1

Equity Market Premium (%):7.00%

Expected Return on Capital Asset (%): 15.00%

Question. 2. Mr. Mehta invested in equity shares of Edelweiss financial services Ltd., its anticipated returns and associated probabilities are given below:

Return %	5	10	15	20	25
Probability	0.10	0.15	0.20	0.25	0.30

Calculate the expected rate of return and risk in terms of standard deviation. (10 marks)

Answer:

Return %	5	10	15	20	25
Probability	0.10	0.15	0.20	0.25	0.30

             

Question. 3. a) The following information is given for a corporate bond. Price of the bond at the beginning of the year: Rs. 95, Price of the bond at the end of the year: Rs.99, Interest received for the year: Rs. 11. Compute the rate of return. (5 marks)

Answer: Beginning of the year: Rs. 95

b) Suppose there are two profitable stocks in the market P and Q. Amit wants to make investment in one of the stock. Suggest suitable stock based on return.

Probability	Return on stock P	Return on stock Q
10%	7%	5%
15%	10%	8%
20%	12%	10%
25%	15%	12%
30%	18%	14%

Answer:

Expected Return:

Stock P: 13.75 %

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