BBA/B.Com Investment Analysis and Portfolio Management June 2024

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Investment Analysis and Portfolio Management

June 2024 Examination

 

 

1. When it comes to investment, mutual fund plays a very important role. The money collected in mutual fund scheme is invested by professional fund managers in stocks and bonds etc. It is an indirect investment in stock market. MF have different players who play a different role explain it in your own words. (10 Marks)

Ans 1.

Introduction:

Mutual funds stand as a cornerstone in the realm of investments, providing individuals with a vehicle to indirectly participate in diverse financial markets such as stocks and bonds. Managed by professional fund managers, these pooled investments offer investors opportunities for diversification and access to expertly managed portfolios. Within the mutual fund landscape, various stakeholders fulfill crucial roles, each contributing to the overall efficiency and integrity of the industry. Understanding the functions and interactions of these players is paramount for investors seeking to navigate the complexities of mutual fund investments and construct

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2. Arbitrage is a process in which investors simultaneously buy & sell of an asset. While getting into an arbitrage trade, the quantity of the underlying asset bought and sold should be the same. He makes profit without any risk. Explain how Arbitrage Pricing Theory works. (10 Marks)

Ans 2.

Introduction:

Arbitrage Pricing Theory (APT) is a significant financial model used to estimate the expected return of an asset. It operates on the premise that in an efficient market, any deviations from the expected return should be quickly eliminated by investors seeking arbitrage opportunities. Unlike the Capital Asset Pricing Model (CAPM), which relies solely on the relationship between an asset’s return and the market return, APT considers multiple factors that influence asset prices.

 

3a. Suppose there is an investment in two securities stocks & bonds. Expected return from bond is 8% & from stocks is 10%. Investment is divided in the proportion of 70% in stock & 30% in bond. Calculate total expected return or portfolio return.    (5 Marks)

Ans 3a.

Introduction:

Portfolio management involves the allocation of investments across different assets to optimize returns while managing risk. In this scenario, we have an investment portfolio consisting of two securities: stocks and bonds. Understanding how to calculate the total expected return of

 

3b. Risk premium is a kind of compensation for investors who bears the extra risk compared to that of risk free asset in a given investment. If expected return on a security is 20% risk free rate of return is 8% calculate risk premium.    (5 Marks)

Ans 3b.

Introduction:

Understanding the concept of risk premium is crucial in finance as it helps investors evaluate the additional return they expect to receive for taking on additional risk compared to a risk-free investment. In this scenario, we have a security with an expected return of 20% and a risk-free rate of return of 8%. Calculating the risk premium provides insight into the compensation investors require for bearing the extra risk associated with the security.

Concept and