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22. Problems:
1. The risk free return of Security A is 8%. The expected market return is 14%. What is the expected
return of Security A with beta of 0.70? (17.8%)
2. Company A’s most recent dividend was Rs. 2.35. The dividends are expected to grow at 4%
indefinitely. If you expect a 12% return What is the price that you are willing to pay for the share.
(ans: 30.55)
3. A fund’s investments at market value totals Rs.500 crores. Total liabilities are Rs. 25 lakhs and
the number of units outstanding is 10 crores. What is the NAV?
4. A investor buys one unit of a fund at NAV Rs. 15. He receives a dividend of Rs. 3 when the NAV
is Rs. 18. The unit is redeemed at an NAV of Rs. 22. Calculate the total return earned by the
investor?
5. If the NAV of an open ended fund was Rs. 14 at the beginning of the year and Rs. 25 after 14
months , what is the annualized return on the NAV?
6. A stock of face value of Rs. 10 is currently priced at Rs. 175. The company has paid a dividend of
125% in the previous fiscal year and the absolute amount of dividend is expected to grow by an
average of 5% year on year. It has a beta of 0.8. You expect the market to give a return of 12%
whereas the risk free return is 5%. Find out the extent of undervaluation or overvaluation of the
stock by dividend discount model
7. Mr. X’s portfolio consists of two stocks A and B in which he has invested Rs. 45,000 and Rs.
55,000 respectively. Stock A has a beta of 1.4 and Stock B has a beta of 0.80. The return expected
from the market in current scenario is 12% while the return on the treasury bonds is 7%. What is
the expected return on the portfolio?
8. The average inflation over the last 2 years is 9% p.a. You invested Rs. 2 lakhs in a security 2
years ago which you have redeemed for Rs. 2.15 lakh. What real return have you obtained from
the investment?
9. An investor invested a total of Rs. 2500 in two mutual funds. One fund earned a 8% profit while
the other earned a 3% profit. If the investors total profit was Rs.110, how much was invested in
each mutual fund?
10. The risk-free return is 10% and the market return is 15%. Stock A has a beta of 1.2 and is
currently selling for Rs.30. If the expected dividend on the stock is Rs.4 , then calculate the
growth rate of the company.