DFIN301 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT JULY-AUG 2025

Description

SESSION	JULY-AUG 2025
PROGRAM	MASTER OF BUSINESS ADMINISTRATION (MBA)
SEMESTER	III
COURSE CODE & NAME	DFIN301 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

 

 

Assignment Set – 1

 

Q1. ABC Foods Ltd. is expecting returns under various economic scenarios. Based on the data below, compute the expected average return and Expected Risk:

• State A: Probability = 0.3, Return = 12%
• State B: Probability = 0.2, Return = 20%
• State C: Probability = 0.1, Return = -10%
• State D: Probability = 0.3, Return = 16%
• State E: Probability = 0.1, Return = 30% 5+5

Ans 1.

Expected Average Return and Expected Risk

1. Expected Average Return

Given:

• State A:
• State B:
• State C:
• State D:
• State E:

Formula for Expected Return:

 

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Q2. A) Analyse the major concerns and limitations involved in conducting fundamental analysis for investment decision-making.

1. B) Discuss the key heuristic biases and cognitive errors that adversely affect individual judgment and decision-making. 5+5

Ans 2.

Fundamental Analysis – Concerns, Limitations, and Behavioural Biases

1. A) Major Concerns and Limitations of Fundamental Analysis

Fundamental analysis is a widely used method for assessing the intrinsic value of securities by examining economic conditions, industry dynamics, and company-specific financial performance. Although it is central to long-term investment decisions, several concerns and limitations reduce its predictive reliability. One major limitation is its dependence on historical financial statements, which may not always reflect future prospects accurately. Industries affected by rapid technological change, regulatory shifts, or geopolitical

 

 

Q3. Illustrate the practical use of technical indicators in making investment decisions.

Ans 3.

Practical Use of Technical Indicators in Investment Decisions

Technical indicators convert market data—such as price, volume, and momentum—into actionable signals that help investors time entry and exit points. Unlike fundamental analysis, which focuses on intrinsic value, technical analysis uses patterns and mathematics to interpret market psychology and price trends. Technical indicators are crucial for traders who operate in short-term or medium-term horizons.

Moving Averages and Trend Identification

Moving averages (MA) smooth out price fluctuations and help investors identify market

 

 

Assignment Set – 2

 

Q4. a) Describe the benefits of investing in mutual funds for retail investors.

1. b) Explain the drawbacks of the Markowitz Portfolio Model and how the Single Index Model addresses those limitations. 5+5

Ans 4.

(A). Benefits of Investing in Mutual Funds for Retail Investors

Mutual funds have become a preferred investment avenue for retail investors due to their professional management, diversification benefits, and accessibility. They simplify investment processes and enable small investors to participate in markets that would otherwise require substantial expertise and capital.

Professional Fund Management

One major benefit is access to professional portfolio management. Skilled fund managers

 

 

Q5. A portfolio consists of 40% investment in Stock A and 60% in Stock B. The standard deviations of Stock A and Stock B are 5% and 7.5%, respectively. The expected return of Stock A is 10 % and for Stock B, it is 15 % ,The correlation coefficient between the two stocks is 0.45. Compute the Risk and return of the portfolio.

5+5     

Ans 5.

Risk and Return of the Portfolio (Two-Stock Portfolio)

• Weight in Stock A:
• Weight in Stock B:
• Standard deviation of A:
• Standard deviation of B:
• Expected return of A:
• Expected return of B:
• Correlation:

1. Expected Return of Portfolio

Formula:

Substitute:

Calculate:

 

 

Q6. Critically examine the Arbitrage Pricing Theory (APT), highlighting its assumptions, key components, and relevance in asset pricing. 10           

Ans 6.

Arbitrage Pricing Theory (APT)

The Arbitrage Pricing Theory (APT), developed by Stephen Ross, provides an alternative to the Capital Asset Pricing Model (CAPM) by suggesting that asset returns are influenced by multiple macroeconomic factors rather than a single market portfolio. APT proposes that securities are priced based on their sensitivities to various systematic risks, and any mispricing creates arbitrage opportunities that rational investors can exploit until equilibrium is restored.

Key Assumptions of APT

APT relies on several core assumptions that define its theoretical framework.