DFIN305 SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT JAN FEB 2026

Description

SESSION	JAN-FEB 2026
PROGRAM	MASTER OF BUSINESS ADMINISTRATION (MBA)
SEMESTER	III
COURSE CODE & NAME	DFIN305  SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

 

 

Assignment Set – 1

 

 

Q.1. Given the following details:

Cost of equity = 11%; Return on investment = 12%

Earnings per share = ₹15; Using the Gordon Model, find the price per share when the dividend payout ratio is:

1. a) 10% b) 30%.

Ans 1.

Gordon’s Growth Model is a commonly used method of valuing dividends that estimates the value of equity shares on the basis of anticipated future dividends, and consistent growth. The model highlights the relationship between dividend payout as well as retained earnings, growth rates, as well as shareholder wealth. It is especially useful for making long-term investments.

Gordon’s Growth Model

Gordon’s Dividend Discount Model (DDM), developed by Myron J. Gordon, is a essential model

 

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Q.2. Elaborate on the strategies to overcome psychological biases. (10 Marks)

Ans 2.

Psychological biases result from systematic behavioral and emotional faults that affect financial decision-making as investors are prone to deviation from rational behaviour and make suboptimal investing decisions. Behavioural finance has discovered a variety of such biases including overconfidence, shedding, loss aversion anchoring, confirmation bias, and the disposition effect. These biases are embedded in human psychology there are a number of

 

 

Q.3. Explain the key errors that occur in investment management practices. (10 Marks)

Ans 3.

Investment management is a very complex task that requires the integration an analysis of finances, portfolio creation as well as risk management and behavioural discipline. While there is a wealth of modern techniques and frameworks, managers and individual investors consistently fail to avoid the common errors that can affect portfolio performance. Knowing these flaws is the

 

 

Assignment Set – 2

 

Q.4. a) DEF Enterprises has a common stock that just paid its annual dividend today. It is projected to pay a ₹30 dividend one year from now, with dividends growing at a rate of 6% annually for the foreseeable future. If stocks of comparable risk earn 12% effective annual return, what is the price of a share of DEF Enterprises stock?

1. b) Explain the role of factor sensitivities in determining the expected return of an asset according to the Arbitrage Pricing Theory.

Ans 4.

1. a) Cost of DEF Enterprises Stock (Dividend Discount Model)

The Dividend Discount Model (DDM) estimates a company’s value as the present value of the expected future dividends. If the stock has continuous growth in dividends the Gordon Growth Model formula is used: : P₀ = D₁ / (ke – g), The D1 value is the anticipated dividend at beginning of the first year and ke represents the minimum rate of return while g is the recurring growing rate for dividends.

Given: D₁ = ₹30, g = 6% = 0.06, ke = 12% = 0.12

 

 

Q.5. Suppose we have a stock, ABC Ltd., and the market index is represented by the Nifty 50. Market return (Rm) is 6%. The stock has a beta coefficient (βi​) of 1.5 and a specific return (αi​) of 2%. Calculate the expected return of ABC Ltd.

Ans 5.

The Single Index Model (Sharpe’s Market Model)

The Single Index Model is a financial model that estimates the anticipated return of the security through linking it with overall market performance. Developed in the late William Sharpe, the model clarifies how market risk as well as corporate-specific variables affect the returns of stocks. It is widely used in the analysis of portfolios and in investment decisions.

The Single Index Model (Sharpe’s Market Model)

The Single Index Model (SIM) invented by William Sharpe, is a simplified model for estimating

 

 

Q.6. An investor is considering two securities, A and B.

• Security A has an expected return of 12% and a risk (measured by standard deviation) of 20%.
• Security B has an expected return of 20% and a standard deviation of 30%.
• The correlation between the returns of the two securities is -0.5.

If the investor allocates 60% of the total investment in Security A and 40% in Security B, calculate:

1. a) The expected return of the portfolio
2. b) The overall risk (standard deviation) of the portfolio

Ans 6.

Portfolio Return and Risk (Markowitz Framework)

Modern Portfolio Theory (MPT), developed in 1952 by Harry Markowitz in 1952, is a proof that investors should invest in diversified portfolios instead of individual securities, because combining assets reduces total portfolio risk by diversifying it, but not necessarily reducing the anticipated returns. The most important point is that what is important for portfolio risk is not just the individual asset risks but the correlations between them. In the event that assets are not in