Page 91 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

Notes 3. Mr. Marin provides the following informations, from the same compute his expected
return and standard deviation and variance.

Events 1 2 3 4
Probability .20 .40 .30 .10
Return (%) –10 25 20 10

4. The possible returns and associated probabilities of Securities X and Y are given below:
Security X Security Y
Probability Return (%) Probability Return (%)
0.05 6 0.10 5
0.15 10 0.20 8
0.40 15 0.30 12
0.25 18 0.25 15
0.10 20 0.10 18
0.05 24 0.05 20

Calculate the expected return and standard deviation of securities X and Y.

5. Annual Maturity
Type of Security ( ) Nos. Yield %
Coupon (%) Years
Bond A (1000) 10 9 3 12
Bond B (1000) 10 10 5 12
Preference shares C (100) 100 11 * 13*
Preference shares D (100) 100 12 * 13*

Dr. TKV inherited the following securities upon his uncle's death:
Likelihood of being called at a premium over par. Compute the current value of his
uncle's portfolio.

6. Following is the data regarding six securities:
A B C D E F

Return (%) 8 8 121 4 9 8
Risk (%) (standard deviation) 4 5 12 4 5 6
(a) Which of the securities will be selected?

(b) Assuming perfect correlation, analyse whether it is preferable to invest 75% in
Security A and 25% in Security C.
7. Given below is the information of market rates of returns and data from two companies A
and B (%).

Year 2005 Year 2006 Year 2007
Market 12.0 11.0 9.0
Company A 13.0 11.5 9.8
Company B 11.0 10.5 9.5

Determine the beta coefficients of the shares of Company A and Company B.

86 LOVELY PROFESSIONAL UNIVERSITY