# Capital Market and Portfolio Management

1. Mr. Shabd Kumar has to make a choice of investment between the two stocks, namely A and B. The possible returns with the associated probabilities of their occurrence for both stock A and B have been provided in the Table given below. Based on the data provided in Table which stock he should choose to invest in?

 Stock A Stock B Probability Return Probability Return 10% -10% 35% 15% 15% 0% 25% 10% 20% 5% 20% 20% 25% 25% 10% -10% 30% 15% 10% 25%

2. Mr. Saran Kumar, aged 35, is employed with Mumbai University as a Lecturer in the English Department. He is the sole earning member of his family. He stays in a joint family with his parents, his wife and two children aged 5 years and 2 years. He has been deploying his savings in primarily in bank fixed deposits and other tax savings instruments such as Public Provident Fund (PPF) etc. However, he is not sure that whether his savings would be adequate to meet future financial needs of his family or not. His friends have been suggesting him to invest in stock market and have been giving him tips also for specific stocks. Mr. Saran is reluctant to follow his friends’ advice as his uncle had lost significant amount of money in the stock market around 10 years back. Not only his uncle had to sell off his house and his wife’s jewelry to compensate for the loss incurred but the whole family had also faced loss of reputation with relatives and friends. Torn between the choice of losing money in the stock market or ending up with insufficient savings to meet his future needs and exigencies, he decides to seek professional help to solve his problem. He approaches his bank manager for his advice. The bank manager directs him to you for further discussions. You are employed in the Wealth Management Department of the bank. The department’ role is to advise the bank’s client and offer tailor -made solutions with respect to the client’s investment needs.

Discuss how should I go about investing my savings? Is there a way that I make enough money without losing may savings? If yes, how? Provide your rationale for the same.

3. Historical price of Stock A and the closing level of a Market Index is provided in the Table given below.

 As on December 31 Price of Stock A Closing level of the market index 2000 23 1264 2001 22 1059 2002 40 1094 2003 114 1880 2004 128 2081 2005 139 2837 2006 113 3966 2007 199 6139 2008 106 2959 2009 153 5201 2010 171 6135 2011 127 4624 2012 135 5905 2013 107 6304 2014 166 8283 2015 214 7946 2016 325 8186

a) Calculate Beta of the stock A.

b) The Table given below gives the expected market index values for 31 December 2017 and the associated probabilities of occurrence for the same.

 Probability Closing level of the market index 10% 7500 15% 8000 20% 8500 25% 10000 30% 9000

If the 10 Year Government of India Bond (G-Sec) yield is 7%. What is the expected prices of the stock A as on 31 December 2017?