Subject Code: IMT-09

Subject Name : SECURITY ANALYSIS & PORTFOLIO MANAGEMENT

Notes:
a. Write answers in your own words as far as possible and refrain from copying from the text books/handouts.
b. Answers of Ist Set (Part-A), IInd Set (Part-B), IIIrd Set (Part – C) and Set-IV (Case Study) must be sent
together.
c. Mail the answer sheets alongwith the copy of assignments for evaluation & return.
d. Only hand written assignments shall be accepted.
A. First Set of Assignments: 5 Questions, each question carries 1 marks.
B. Second Set of Assignments: 5 Questions, each question carries 1 marks.
C. Third Set of Assignments: 5 Questions, each question carries 1 marks. Confine your answers to 150
to 200 Words.
D. Forth Set of Assignments: Two Case Studies : 5 Marks. Each case study carries 2.5 marks.

Objective:
To develop understanding of secondary market operations, selection of financial instruments, portfolio
formulation, monitoring and performance evaluation techniques.

Contents
INDIAN STOCK MARKET
Investment; Speculation; Gambling and Investment;, Investment Objectives; The Investment
Process;, Investment Policy; Security Analysis;, Valuation; Construction of Portfolio; Evaluation;,
Securities; Equity Shares; Sweat Equity; Non-voting Shares; Right Shares;, Bonus Shares;
Preference Stock; Debenture; Bond; Warrants; Investment Information;
INVESTMENT ALTERNATIVES
Negotiable Securities; Non-Negotiable Securities, Schemes of LIC; Mutual Funds;, Other
Classification; Basis for Selection;, Real Assets; Real Estate; Art;, Antiques;
NEW ISSUE MARKET
New Issue Market (Primary Market);, Parties Involved in the New Issue;, Government and Statutory
Agencies; , Collection Centres; Placement of the Issue;, Pricing of New Issues; Allotment of
Shares;, Investor Protection in the Primary Market;,
THE SECONDARY MARKET
History of Stock Exchanges in India;, Functions of Stock Exchange;, Regulatory Framework; The
Stock Exchanges;, Types of Orders; Share Groups;, Settlement Cycle; Price Filters;, Margins;
Recent Trends in the Margin;, JSVarma Committee Report;,
LISTING OF SECURITIES
Merits of Listing; Demerits;, Qualification for Listing; Listing of Right Shares; , High Powered
Committee, Recommendation;, Chandratre Committee Report ();, Recent Developments;
BSE, NSE, ISE, OTCEI AND NSDL
Bombay Stock Exchange; The Trading System;, Securities Traded; Surveillance System;, Check
on BOLT Terminals; Protection Against Default;, National Stock Exchange; Membership;, Capital
Market Segment; Types of Orders;, Volume Conditions; Advantages of NSE;, Interconnected Stock
Exchange; Over the Counter Exchange of India;, Market Making Concept; The Present Situation;,
National Securities Depository Limited; Functioning of NSOL;, Transactions of the NSDL;
STOCK MARKET INDICES
Usefulness of Indices; Computation of Stock Index;, Differences between Indices; The BSE

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 Sensitive Index;, NSE - Index (Nifty); Selection Criteria;, CNX Nifty Junior; S & P CNX ;,
RISK
Systematic Risk; Unsystematic Risk;, Minimising Risk Exposure; Risk Measurement;,
BOND RETURN AND VALUATION
Bond Basics; Bond Risk;, The Time Value Concept; The Present Value;, Bond Return; Yield to
maturity;, Bond Value Theorems; Convexity;, The Term Structure of Interest Rate (Yield Curve);,
Riding the Yield Curve; Duration;, Immunisation
STOCK RETURN AND VALUATION
Return; The Anticipated Return;, Present Value of the Return; Multiple Year Holding Period;,
Constant Growth Model; Two-Stage Growth Model;, Three-Phase Model; Valuation through P/E
Ratio;, Whitbeck Kisor Model; Preferred Stock Valuation;,
FUNDAMENTAL ANALYSIS
Economic Analysis; Industry Analysis;, Company Analysis; Earnings of the Company;, Financial
Analysis; Growth in Earnings;,
TECHNICAL ANALYSIS
Technical Analysis; Assumptions;, History of Technical Analysis; Technical Tools;, Dow Theory;
Primary Trend; Secondary Trend;, Minor Trends; Support and Resistance Level;, Indicators; Odd
Lot Trading;, Moving Average; Rate of Change;, Charts; Technical Analysis and Fundamental
Analysis;,
EFFICIENT MARKET THEORY
Basic Concepts; The Random-Walk Theory;, Weak Form of EMH; A Study: Predictability of Stock
Returns;, Semi-strong Form; Strong Form;, The Essence of the Theory; Market Inefficiencies;,
OPTIONS AND FUTURES
Meaning; Factors Affecting the Value of Call Option;, The Black-Scholes Option Pricing Model;,
Futures; Forward and Futures;, Selection of Index for Futures;
PORTFOLIO CONSTRUCTION
Approaches in Portfolio Construction;, Determination of Objectives; Selection of Portfolio
PORTFOLIO: MARKOWITZ MODEL
Simple diversification; The Markowitz Model;, Risk and Return with Different correlation;, Markowitz
Efficient Frontier;
THE SHARPE INDEX MODEL
Single index model; Corner Portfolio;, Sharpe’s Optimal Portfolio;, Construction of the Optimal
Portfolio;, Optimum Portfolio with Short Sales;,
CAPITAL ASSET PRICING THEORY AND ARBITRAGE -PRICING THEORY
The CAPM Theory; Assumptions;, Arbitrage Pricing Theory;
PORTFOLIO EVALUATION
Mutual Fund; Sharpe’s Performance Index;, Treynor’s Performance Index; Jensen’s Performance
Index;,

ASSIGNMENTS
FIRST SET OF ASSIGNMENTS Assignment-I = 5
Marks
PART– A

1. 'The growth of the national economy and political events within the nation influence investment
decisions.' Comment.
2. A finance company advertises that it would pay a lump sum of Rs 44,650, at the end of the fifth year, to
investors who annually deposit Rs 6000 for five years. What is the implied rate of interest in this offer?
3. Why is it important to understand the competitive position of a product of a company before purchasing
the shares of the company? How is the competitive position of a company determined within an
industry?
4. What is a market index? Outline its utility for security analysis. Give two different methods used to weigh
indexes.
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 5. Discuss the return generating process and risk-return relationship according to the Arbitrage Pricing
Theory.

SECOND SET OF ASSIGNMENTS Assignment-II = 5 Marks

PART– B

1. What is the significance of the surveillance system in a stock exchange? Discuss in detail.
2. Write a detailed note on how indices are built.
3. The stock market is prone to different types of risks. Explain.
4. At an annual rate of compounding at 11 per cent, how long would it take for a given sum to become
double its original value?
5. If an investor wants to hold a stock for multiple years, the present price could be estimated with d/e, P/E
and EPS. What formula is applied to find out the present value of the shares?

THIRD SET OF ASSIGNMENTS Assignment-III = 5 Marks

PART– C

1. How are industries analyzed? Classify them into growth, cyclical, defensive and cyclical growth
industries.
2. Why are charts used as chief analytical tools in technical analysis?
3. A company's bonds have a par value of Rs 100. They mature in seven years and carry a coupon rate of
12 per cent payable half yearly. If the appropriate discount rate is 16 per cent, what price should the
bond command in the marketplace?
4. Define the Efficient Market Hypothesis in each of its three forms.
5. Portfolios that frequently buy new securities and sell old holdings will outperform portfolios that are
managed more passively. Do you agree with this statement? Explain.

FOURTH SET OF ASSIGNMENTS Assignment-IV = 2.5 Each Case Study

CASE STUDY - I

ABC Ltd has total assets of Rs 40 lakh, financed by equity and debt in the ratio of 60 per cent and 40 per cent
respectively. The beta of equity shares is 1.3. The risk-free rate is 7 per cent and the return on market portfolio
is 17 per cent.

Find out the following:

1. The required return on equity shares

2. The beta of the total assets of the company
3. The required rate of return on assets of the company

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 CASE STUDY-II
Ram Enterprise has a beta of 1.5 and risk free return is 7 per cent and the expected return on the market
portfolio is 14 per cent. The company presently pays a dividend of Rs 2.50 per share and investors expect a
growth in dividend of 12 per cent per annum for many years to come.

Answer the following:

1. What is the required rate of return on the equity according to CAPM?

2. What is the present market price of the equity share, assuming the computed return as required
return?

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