Subject: Portfolio Management Instructions: Answer all the questions. Marks allotted 100.

0. Each Question carries equal marks. General Instructions: The Student should submit this assignment in the handwritten form (not in the typed format) The Student should submit this assignment within the time specified by the exam dept Each Question mentioned in this assignment should be answered within the word limit specified The student should only use the Rule sheet papers for answering the questions. The student should attach this assignment paper with the answered papers. Failure to comply with the above Five instructions would lead to rejection of assignment Question.1 (a) Explain Markowitz Model of Risk-Return Optimization. (b) Write a short note on Portfolio Rebalancing. Question.2 An investor is holding 1,000 shares of Fatlass Company. Presently the rate of dividend being paid by the company is Rs. 2 per share and the share is being sold at Rs. 25 per share in the market. However, several factors are likely to change during the course of the year as indicated below: Existing Revised Risk Free Rate 12% 10% Market Risk Premium 6% 4% Beta value 1.4 1.25 Expected growth rate 5% 9% In view of the above factors whether the investor should hold or sell the shares? Question.3 (a) An investor holds two equity shares X and Y in equal proportion with the following risk and return characteristic: X Y Expected return 24% 19% S.D. 28% 23% The return of these securities has a positive correlation of 0.6. You are required to calculate the portfolio return and risk. Further, suppose the investor wants to reduce the portfolio risk to 15%. How much should the correlation coefficient be to bring the portfolio risk to the desired level? 1

(b) What is the difference between Hedge Funds and Mutual Funds? Question.4 Batliboi ltd has been enjoying a substantial net cash inflow, and until the surplus funds are needed to meet tax and dividend payments and to finance further capital expenditure in several months time, they have been invested in a small portfolio of short term equity investments. Details of the portfolio, which consists of shares in four UK listed companies, are as follows: Company No of shares Beta equity Market price Latest Expected held coefficient per share(Rs) dividend yield return on % equity in the next year% 60000 1.16 4.29 6.10 19.50 80000 2.28 2.92 3.40 24.00 100000 0.90 2.17 5.70 17.50 125000 1.50 3.14 3.30 23.00

LG ltd ITC ltd L&T ltd MGF ltd

The current market return is 19% a year and the risk free rate is 11% a year. You are required: 1) On the basis of the data given, calculate the risk of Batliboi ltds short term investment portfolio relative to that of the market. 2) Recommend, whether Batliboi ltd should change the composition of its portfolio.