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INTERNAL ASSIGNMENT APPLICABLE FOR SEPTEMBER 2019
EXAMINATION
Capital Market and Portfolio Management
1. Consider two risky
assets that have return variances of 0.0625 and 0.0324, respectively. The
standard deviations of returns on these two assets are 25% and 18%,
respectively. Calculate the variances and standard deviations of portfolio
returns for an equal weighted portfolio of the two assets when their
correlation of return is 1,0.5,0, and -0.5. Discuss the results in relation to
portfolio risks.
2. Mr. Ravil wants to
invest in the financial market. He often heard about money market securities
and capital market securities. You as a financial advisor of Ravil, discuss the
types of securities in these markets and share your opinion on which types of
market securities are better if his time horizon is short term.
3. a. Shares of L&
T are selling for Rs1500. An investor buys 100 shares. After one year the
market price is selling for Rs 1650. The investor sells his holding after a
year. During the year the company gives dividend of Rs 45 per share. Find out
his total return, capital gain, and dividend yield. Would your calculations of
return change had the investor not sold the stock
3. b. stock with beta
of 0.7 currently priced at Rs 50 is expected to increase in price to Rs 55 by
year end and pay a dividend of Rs1. The expected market return is 15 % and the
risk free rate is 8%. Evaluate whether the stock is overpriced or underpriced
Strategic Cost Management
1. X Ltd has to replace
its machine and the production manager has to decide between Machine A and
Machine B. Machine A is having installation cost of 160 and annual electric
bill 200. Machine B has installation cost of 760 and annual electric bill of 80.
If both have life of 8 years which machine will you recommend if interest rate
is 9 % for five years. P/V factor @ 9 % for 8 years is 5.5348
2. A company
manufacturing two products furnishes the following data for a year.
Product Annual Output
Units
Total machine
hours
Total No. of
purchase orders
Total No. of
setups
A 5,000 20,000 160 20
B 60,000 1,20,000 384
44
The annual Overheads
are as under:
Volume related activity
cost ( Activity driver-Machine hours ) 5,50,000
Setup related cost
8,20,000
Purchase related cost
6,18,000
You are required to
calculate cost per unit of each product A & B based on
i. Traditional method
of charging overhead and
ii. Activity based
costing method
3. Project X Involves
an initial outlay of 32,400.Its working life is 3 years. The cash streams are
as follows
Year Inflows P .V
Factor @ 14% P .V Factor @ 16%
1 16,000 0.877 0.862
2 14,000 0.769 0.743
3 12,000 0.675 0.641
Calculate
a. NPV at 14 % &
16% (5 Marks)
b. IRR
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