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Sapm Notes (Problems)
Sapm Notes (Problems)
HARI KRISHNA
M.B.A, M.Com, M.Phil, (Ph.D), (ICWAI)
K. HARI KRISHNA
M.B.A, M.Com, M.Phil, (Ph.D), (ICWAI)
K. HARI KRISHNA
M.B.A, M.Com, M.Phil, (Ph.D), (ICWAI)
K. HARI KRISHNA
K. HARI KRISHNA
Equity Valuation
1. ABC Ltd. is currently paying a dividend of Rs. 1 per share and it is expected to grow at
7% per annum infinitely. What is the value if
a) The equity capitalization rate is 15%
b) The equity capitalization rate is 10%
c) The growth rate is 8% instead of 7%
d) Equity capitalization rate is 16% and growth rate is 4%
2. A firm had paid dividend of Rs. 2 per share last year. The estimated growth of the
dividend from the company is estimated to be 5% per annum. Determine the estimated
market price of the equity share if the estimated growth rate of dividends
a) Raises to 8%
b) Falls to 3%
Also find out the present market price of the share given that the required rate of return
of the investor is 15.5%.
3. A firm is paying a dividend of Rs.1.5 per share. the rate of dividend is expected to grow
at 10% for next 3 years and 5% there after infinitely. Find out the value of share given
that the required rate of return of the investor is 15%.
4. Airmail Ltd. has just paid a dividend of Rs. 2 per share in view of the rapid growth of the
company. The dividend is expected to grow at 20% per annum for next 3 years. After
that the growth process will slow down and the earnings are expected to grow only at
7% per annum infinitely. In view of the risk involved in the investment a return of 22% is
considered appropriate. Find the price an investor is ready to pay for the shares.
K. HARI KRISHNA
K. HARI KRISHNA
M.B.A, M.Com, M.Phil, (Ph.D), (ICWAI)
K. HARI KRISHNA
K. HARI KRISHNA
K. HARI KRISHNA
M.B.A, M.Com, M.Phil, (Ph.D), (ICWAI)
Mutual Funds
1. The following three portfolio provides the particulars given below.
Portfolio
Average
Standard
Correlation
Annual return
deviation
coefficient
A
18
27
0.8
B
14
18
0.6
C
15
8
0.9
Risk free interest is 9.
(a) Rank these portfolios using Sharpes and Treynors method..
(b) Compare both the indices.
2. Portfolio X, Y and Z have the following statistics over the past several years.
Portfolio Mean return
Standard
Beta Alpha
X
.17
.24
.85
.012
Y
.21
.29
1.15 .008
Z
.12
.20
.75
.006
Over the time period, mean return of Treasury bill was 0.09. for each
portfolio computer Sharpe, Treynor and Jensen measure of investment
performance. Rank the portfolio using each measure.
3. An investor owns units in 4 different mutual funds (A,B,C and D). he wants to
dispose off the units in any one of these funds. Under Sharpes measure and
treynors measure, which mutual should he dispose off.
Mutual Standard
Beta
Risk free
Return on
Fund
deviation
rate
Fund
A
8
0.50
5%
15%
B
2
1.25
5%
12%
C
10
2.10
5%
8%
D
6
0.90
5%
10%
4. Consider the following information for three mutual funds and the market.
Fund
Mean Return
Standard Deviation Beta
SBI
15%
20%
0.9
BOI
17%
24%
1.10
TATA
19%
27%
1.20
Market Index
16%
20%
The mean risk free rate was 10%. Calculate the Jensen measure and Treynor
measure for the three mutual funds.
K. HARI KRISHNA