Security Analysis-1


SKU: AMSEQ-241 Category:

Assignment A


Q.1 What is investment? Compare it with speculation & Gambling.


Q.2 Define risk & distinguish between Systematic & Unsystematic risk


Q.3 What is meant by Fundamental Analysis? Explain.


Q.4 What is Duration? Explain its importance in valuation of bonds.


Q.5 Explain Efficient market Hypothesis?


Assignment B

Q.1 Enumerate the importance of technical analysis in investment analysis.


Q.2 What is YTM? Explain.


Q.3 Explain any Equity Valuation model with an illustration.




Case study:


Read the caselet carefully and answer the questions:



A mutual fund (MF) is a trust that pools money from a cross-section of investors by issuing units, constructs a diversified portfolio of stocks, bonds and other investment instruments, and invests the same in the capital and other markets.


The Indian MF industry has grown in terms of Assets Under Management (AUM), number of Asset Management Companies (AMCs), types of investors, number and variety of schemes and the number of distributors participating in the industry. As on February 2008, the industry comprised 32 AMCs, 1644 schemes and crossed 36 million folios. The MF industry is growing at an average rate of 16-17% because of the entry of commercial banks and the private players coupled with the rapid growth of the Indian capital market. Even then India ranks 25 in the AUM of the global MF industry.


The MF industry in India is rapidly growing in tune with the growth of the Indian economy, although it faces a lot of challenges such as lack of awareness towards the industry, risk return trade-off etc. The more significant reason for this stupendous growth has been the regulatory changes introduced by the SEBI, in the past two years. In January 2008, the SEBI asked MF companies not to charge any load from small investors who approached them directly for buying units, instead of going through brokers. This move has helped cut costs for investors and made fund operations more transparent.


The Indian MF industry is mostly concentrated among High Net Worth Individuals (HNWIs). Irrespective of the many players, the MFs today didn’t gather a large investor base. The urban investors are playing a major role in the industry, but should be diversified into rural and suburban areas, where there is a vast potential market. High costs, low awareness and low penetration remain the biggest bugbears in the MF industry. The industry is also competing with insurance companies that have launched a range of products with a similar structure, for the same set of investors.


The MFs are now conducting investor awareness programs at various centres across the country. Investors’ relations centres are spread over the country to redress the investors’ grievances.


Despite all the facts investors make common mistakes while investing because they react based on intuition and hunches etc. Being conscious of what happened to a fund’s returns in the past, investors should be very careful in predicting the likely range of the fund’s returns in the future. The greater is the range, the more risky are the fund’s prospects. It is difficult to predict the behavior of investors as they belong to different cultures, lifestyles, educational levels, social status, income groups and religions.

Besides all the consistency, the performance of MFs has been a major factor that has attracted many investors. The Indian MF industry has been reformed by making its operations much more transparent than ever before. In a nutshell, it can be said that the future performance of the MFs will be better than in the past.



Q1 Though MF industry in India is rapidly growing in tune with the growth of the Indian economy, it comes across various challenges. Discuss the various challenges faced by the MF industry.


Q2 ‘Despite all the facts investors make common mistakes while investing because they react based on intuition and hunches etc.’ According to the caselet discuss, what are the common mistakes investors make while investing in mutual funds.



Assignment C


Q.1 Duration is the measure of

(a) Time structure of the bond

(b) Interest rate risk

(c) Time structure & market risk

(d) Time structure & the interest rate risk


Q.2 The statistical tool used to measure a company’s risk is

(a) Mean

(b) Mode

(c) Variance

(d) Co-variance


Q.3 Interest rate risk occurs when

(a) The market price of bond moves inversely to the prevailing market interest rate

(b) The variability in yield is due to the market interest rate fluctuations

(c) There is variability in the coupon interest rates

(d) All


Q.4 Uncontrollable risk of a company is

(a) Labour problem

(b) Increase in loan service charge

(c) Cut in subsidy

(d) Technological obsolescence


Q.5 Conceptual framework of valuation through P/E ratio arises from

(a) Multiple year holding model

(b) Constant growth model

(c) Two stage growth model

(d) Three stage growth model


Q.6 An investor purchases a stock in the stock market. His holding period return depends on the

(a) Purchase price of the stock

(b) Selling price of the stock

(c) Dividend paid to the stock

(d) All the above


Q.7 Inter Connected Stock exchange is to interlink

(a) The BSE, NSE & OTCEI

(b) All the stock exchanges

(c) Fifteen regional stock exchanges

(d) Fourteen regional stock exchanges


Q.8 Over the Counter Exchange of India was started after the role model of




(d) NSE


Q.9 Customer’s protection fund is set up

(a) To protect the investors against price fluctuations

(b) To protect the broker in case of non payment of money by investors

(c) To provide insurance to investors in case of default by the members

(d) To protect the member & the investor


Q.10 The oldest stock exchange in India is

(a) BSE

(b) NSE

(c) Nifty

(b) ISE


Q.11 The accounting period cycle of NSE is

(a) Wednesday to next Tuesday

(b) Tuesday to next Wednesday

(c) Monday to next Friday

(d) Wednesday to next Wednesday


Q.12 Marketability risk of bond is

(a) The market risk which affects all the bonds

(b) Variation in return caused by difficulty in selling bonds

(c) The failure to pay the agreed value of the bond by the issuer

(d) Both a & b


Q.13 Default risk is lower in

(a) Treasury bills

(b) Government bonds

(c) ICICI Bonds

(d) IDBI bonds


Q.14 The value of bond depends on

(a) The coupon rate

(b) Years to maturity

(c) Expected yield to maturity

(d) All the above


Q.15 The bond yield remains constant over its life and the discount or premium amount will decrease

(a) At a decreasing rate as its life gets shorter

(b) At a decreasing rate as its life gets longer

(c) At an increasing rate as its life gets shorter

(d) At an increasing rate as its life gets longer


Q.16 Investment is the

(a) Net additions made to the national capital stocks

(b) Person’s commitment to buy a flat or a house

(c) Employment of funds on assets to earn returns

(d) Employment of funds on goods and services that are used in production process


Q.17 Speculator is a person

(a) Who evaluates the performance of the company

(b) Who uses his own funds only

(c) Who is willing to take high risk for high return

(d) Who considers heresays & market behaviours


Q.18 To frame the investment policy the investor should have

(a) Knowledge about the company and the brokers

(b) Investible funds

(c) Knowledge about investment alternatives

(d) Knowledge about the market with funds


Q.19 The main objective of a rational investor is

(a) Maximising returns & minimizing risk

(b) Minimising return & maximizing risk

(c) short term gains

(d) safety of the principal


Q.20 Clearing & settlement operations of the NSE is carried out by

(a) National Security Depository Ltd

(b) National Security Clearing Co-operation

(c) State Bank of India

(d) By the exchange itself


Q.21 In the stock market psychology

(a) Investors forget the past

(b) History repeats itself

(c) More faith in future prediction

(d) Both a &b


Q.22 Gross domestic product is a logical factor to analyse the economy in picking up a stock because it indicates

(a) Inflation or deflation

(b) The market value of assets

(c) The status of the economy

(d) The condition of the stock market


Q.23 One of the following factors leads the activity of the stock market

(a) Money supply

(b) Per capita income

(c) Unemployment rate

(d) Manufacturing & trade


Q.24 The fall in interest rate is conducive to the stock market because

(a) Money may flow from the bond market to stock market

(b) Corporate can borrow at easy terms

(c) Brokers can do business at borrowed funds

(d) Both b & c


Q.25 The growth in book value per share shows the

(a) Rise in the share price

(b) Increase in the physical assets of the form

(c) Increase in the net worth

(d) Growth in reserves


Q.26 The price earnings ratio of a stock reflects

(a) The growth of the company

(b) The market mood for the company’s stock

(c) The earnings retained and invested in the company

(d) The dividend paid out for the company’s stock

Q.27 NBFC’s offers higher interest rate because of

(a) the best management funds

(b) the competition amongst NBFCs

(c) the risk involved

(d) the credit rating


Q.28 Open ended schemes are

(a) open for a particular period

(b) have fixed period of maturity

(c) listed in the stock exchanges

(d) open on a continuous basis


Q.29 Interval fund is

(a) Index fund

(b) open fund

(c) a closed end fund

(d) a combination of close & open end fund


Q.30 Index schemes

(a) Returns equal to index returns

(b) reflect the market

(c) are income schemes

(d) are tax saving schemes


Q.31 Stock exchange

(a) helps in the fixation of stock prices

(b) ensure safe & fair dealing

(c) induces good performance by the company

(d) All the above


Q.32 __________ was the grandfather of technical analysis.

A) Harry Markowitz

B) William Sharpe

C) Charles Dow

D) Benjamin Graham

E) none of the above


Q.33 The goal of the Dow theory is to

A) identify head and shoulder patterns.

B) identify breakaway points.

C) identify resistance levels.

D) identify support levels.

E) identify long-term trends.


Q.34 Technical indicators help

(a)To find out the present state of the stock market

(b)To estimate the growth of stock market

(c)To indicate the economic activity

(d)To show the direction of the overall market


Q.35 The market value of the scrip is determined by

(a) The dividend declared by the company

(b) The present status of the stock market

(c) The number of floating shares

(d) The interaction of demand & supply


Q.36 The negotiable financial investment is different from the non-negotiable financial investment in terms of

(a) Maturity period

(b) Interest rate

(c) Transferability

(d) Face value


Q.37 Investment made on a house property is a

(a) Financial investment

(b) Economic investment

(c) Non-negotiable financial investment

(d) Non-financial investment


Q.38 Which one of the following is not a money market security?

(a) Treasury bills

(b) National savings certificate

(c) Certificate of deposit

(d) Commercial paper


Q.39Commercial papers are

(a) Unsecured promissory notes

(b) secured promissory notes

(c) Sold at a premium

(d) issued for a period of 1-2 years


Q.40 This particular scheme helps in deferring the tax payment

(a) Public provident fund

(b) National savings scheme

(c) National savings certificate

(d) Life insurance scheme