portfolio management sums

7/28/2019 Portfolio Management Sums

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(1) Calculate the holding period return for a security purchased for Rs 4000 and sold for Rs 5000 afterholding for 2 months.

(2) Calculate the annualized return for a security purchased for Rs 4000 and sold for Rs 5000 afterholding for 2 months.

(3) Calculate the returns for the following example:Particulars A Ltd. (Rs) B Ltd. (Rs)

Price as on 31-3-2005 20 10

Price as on 31-3-2006 15 15

Dividend for the year 1 1

(4) In January 2001, Mr. Bhandari purchased the following 5 scrips:Co. s Name No. of shares Purchase price

H Ltd. 100 250

C Ltd. 100 180

S Ltd. 100 80

F Ltd. 100 240

M Ltd. 100 260

He paid brokerage of Rs 1500

During the year 2001, Mr. Bhandari received the following.

Co. s Name Dividend Bonus shares

H Ltd. 300 1:2C Ltd. 290

S Ltd. 450

F Ltd. 500

M Ltd. 600

In January 2002, Mr. Bhandari sold all his holdings at the following prices.

Co.s Name Market price

H Ltd. 275

C Ltd. 240

S Ltd. 108F Ltd. 200

M Ltd. 400

He paid brokerage of Rs. 1865.

Calculate the holding period return.


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(5) Investors assessment of return on a share of X Ltd. under three different situations is as follows:Situation Chance (P) Return (%)

1 0.25 36

2 0.5 26

3 0.25 12

Calculate the expected rate of return.

(6) Mr. Ashok purchased 10 shares of ACC Ltd. four year ago at Rs 50 each. The company paid thefollowing dividends.

Particulars Year 1 Year 2 Year 3 Year 4

Dividend per share (Rs.) 2 2 2.5 3

Dividend amount (Rs.) 20 20 25 30

The current price of the share is Rs. 60. What rate of returns has he earned on his investment if he sells

the shares now?

(7) The probability distribution of annual returns on a security are given below:Return on security Probability

-0.35 0.04

-0.25 0.08

-0.15 0.14

-0.05 0.17

0.05 0.26

0.15 0.18

0.25 0.09

0.35 0.04

Compute the expected rate of return on the security.

(8) Compute the expected rate of return from the following information relating to Company B Ltd.State of the economy Probability of occurrence Rate of return

Boom 0.3 40%

Normal 0.5 30%

Recession 0.2 20%

(9) An investor would like to find the expected return on the share of Golden Ltd. the following datahave been available:

State of the economy Probability of occurrence Rate of return (%)

Boom 0.3 30

Normal 0.5 18

Recession 0.2 10

Calculate the expected rate of return from the share.


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(10)Mr. Abraham has a portfolio of 5 stocks. The expected return and amount invested in each stock isgiven below:

Stocks Expected return Amount invested

A 0.14 10000

B 0.08 20000C 0.15 30000

D 0.09 15000

E 0.12 25000

Portfolio value 100000

Compute the expected return on Mr. Abrahams portfolio.

(11)The rate of return on Stocks of X and Y under different states of the economy are presented belowalongwith the probability of the occurrence of each state of the economy.

Particulars Boom Normal Recession

Probability of occurrence 0.3 0.5 0.2

Return on Stock X (%) 25 35 45

Return on Stock Y (%) 45 35 25

i. Calculate the expected rate of return and the standard deviation of return on stocks X and Y.ii. If you could invest in Stock X or Stock Y , but not in both, which stock would you prefer?

(12)The rates of return on stocks X and Y under different states of economy are presented below alongwith the probability of the occurrence of each state of the economy:

Particulars Boom Normal RecessionProbability of occurrence 4 3 3

Return on Stock X (%) 40 30 20

Return on Stock Y (%) 30 25 15

i. Calculate the expected rates of return and the standard deviation of return on Stock X and Y.ii. If you could invest in Stock X or Stock Y , but not in both, which stock would you prefer?

(13)Mr. A has invested equal amounts in Security X and Security Y . the expected returns during theboom and depression with equal probability of occurrence are as under:

Economic conditions Expected returns of

Security X Security Y

Boom 6 12

Depression 15 5

Calculate expected return and standard deviation of each security.


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(14)Dr. Shah purchased 400 shares of Sundar Ltd. @ Rs 61 each on 15th October, 2004. He paidbrokerage of Rs 600. The company paid the following dividends:

June, 2005 Rs 800

June, 2006 Rs 1000

June, 2007 Rs 1200

He sold all his holdings for Rs 34500 (net) on 15th

October, 2007

i. What is the holding period return?ii. What is the annualized return?iii. Is Mr. Shah a good investor?

(15)Following is the information about shares of ABC Ltd. and XYZ Ltd. under different economicconditions. At present both shares are traded at Rs 100.

Economic conditions Probability Expected price of share ABC Ltd. Expected price of share XYZ Ltd.High growth 0.3 140 150

Low growth 0.4 110 100

Stagnation 0.2 120 120

Recession 0.1 100 80

i. Which company has more risk to invest?ii. Mr. Ram wants to invest Rs 1000

a. Only in ABC Ltd.b. Only in XYZ Ltd.

Which is a better option? Justify

iii.

Will your decision change if probabilities are 0.4, 0.4, 0.1, 0.1 respectively.

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