Define speculation with example.
List out major types of orders in stock market.
Outline the major methods of stock market index calculation.
State the meaning of holding period return.
List out any four assumptions of CAPM.
State the meaning of fiscal policy and monetary policy.
List out any two differences of technical and fundamental analysis.
ABC Company has maintained a dividend rate of Rs 4 per share for many years. The same rate is expected to be paid in the coming years. If investors require a 12 percent rate of return on similar investments, determine the present value of the company's stock.
Laxman has deposited Rs 150,000 in a margin account with a brokerage firm. If the initial margin requirement is 50%, what is the maximum rupee amount of stock that Laxman can purchase on margin?
A year ago, Melisa purchased 50 shares of common stock for Rs 20 per share. During the year, the value of her stock decreased to Rs 18 per share. If the stock did not pay a dividend during the year, what yield did Melisa earn on her investment?
Distinguish between real and financial assets.
Technical analysts believe that one can use past price changes to predict future price changes. How do they justify this belief?
Discuss the factors affecting domestic macro economy.
The risk-free rate is 8 percent and the expected return on the market portfolio is 16 percent. A firm considers a project that is expected to have a beta of 1.3.
a. What is the required rate of return on the project?
b. If the expected IRR of the project is 19 percent, should it be accepted?
Suppose that the borrowing rate that your client faces is 9 percent. Assume that NEPSE index has an expected return of 13 percent and standard deviation of 25 percent, that risk-free rate is 5 percent. Suppose you form a portfolio comprising of your investment in NEPSE and risk-free asset so that the portfolio standard deviation is 15 percent.
a. What is the expected return on your portfolio as per capital market line?
b. What is the equilibrium price of risk and what does this mean?
c. What proportion of your wealth is devoted to NEPSE in this portfolio?
You purchased a share of stock on January 15, 19X8 for Rs.40 and sold it on July 15, 19X8 for Rs.42 after collecting a Rs.2 per share cash dividend.
a. What was your single-period rate of return for that half-year investment?
b. What was your single-period rate of return over the half-year investment period, stated at an annualized rate?
Through a margin account, Candy Cummings short sells 200 shares of Madison Inc. stock for Rs 50 per share. The initial margin requirement is 45%.
a. If Madison stock subsequently raises to Rs 58 per share, what is the equity in Candy's account?
b. If Madison stock subsequently falls to Rs 42 per share, what is the equity in Candy's account?
c. Calculate Candy Cummings's rate of return in Parts a and b, assuming that the short loan was flat but the initial margin deposit earned interest at a rate of 8%, and that the prices of Rs 58 and Rs 42 were observed after one year during which the firm did not pay any dividends.
What do you understand by investment process? Describe the various steps involved in the investment process.
Assume that following three stocks: A, B and C represent the universe of a stock market. The closing price and number of shares outstanding for two dates are given below:
| Stock | Number of shares outstanding on both dates | Closing price | |
| 2023 | 2024 | ||
| A | 1,000,000 | 600 | 800 |
| B | 10,000,000 | 200 | 350 |
| C | 30,000,000 | 180 | 250 |
a. What is the price weighted index of these three stocks? Also compute the percentage change in the index from 2023 to 2024.
b. What is the value weighted index of these three stocks? Also compute the percentage change in the index from 2023 to 2024.
c. What is the equally weighted index of these three stocks? Also compute the percentage change in the index from 2023 to 2024.
d. Briefly discuss the difference in the results obtained above.
The stock of Nano Corporation is currently selling for Rs 10 per share. Earnings per share in the coming year are expected to be Rs 2. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 20% rate of return per year. This situation is expected to continue indefinitely.
a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Nano's investors require?
b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested?
c. If Nano were to cut its dividend payout ratio to 25%, what would happen to its stock price? What if Nano eliminated the dividend?
An 11 percent coupon bond with Rs 1,000 par value has 15 years maturity and is currently trading at Rs 900 per bond.
a. What is the actual yield to maturity (YTM) of the bond?
b. What is the current yield of the bond?
c. What would be the value of the bond if yield to maturity of the bond falls to 10 percent?
d. How does yield to maturity affect the value of bond?
You have recently been appointed in the post of chief investment officer of a Retirement Fund. The fund has invested Rs 50 million in a simple diversified portfolio of Stock Fund A (40 percent) and Stock Fund B (60 percent). Now you are asked to analyze risk return of existing portfolio, minimum variance portfolio, optimal risky portfolio and portfolio considering risk free assets and optimal risky portfolio.
To assist you, the following expected return and standard deviation of stock fund A, Stock Fund B and risk-free asset have been developed:
| Stock fund A | Stock fund B | Risk free asset | |
| Average rate of return | 25% | 40% | 10% |
| Standard deviation of return | 20% | 35% | 0 |
The covariance between return on Stock Fund A and Stock Fund B is – 210.
Required:
a. Calculate return and risk of existing portfolio that is 40 percent of investment in Stock Fund A and 60 percent of investment in Stock Fund B.
b. What are the investment proportions in the minimum variance portfolio of the two risky funds? Also calculate the expected value and standard deviation of rate of return on minimum variance portfolio of two risky funds.
c. What is the weight of each risky assets in optimal risky portfolio? Solve numerically for the expected return and standard deviation of the optimal risky portfolio.
d. If you invest 20 percent fund in risk free asset and 80 percent fund in the portfolio formed in part 'c', what will be the return and standard deviation of your new portfolio?