Q1

7% Debenture 100 FV
life 8 N
CMP 77 Coupon Rate
Compute YTM Coupon Amount
Value of Bond
Trial and Error Method (Find

Discount Rate
PV Of CI (Annual CI*PVIFAr,n)+(Terminal value*PVIFr,n) PV Of CI

Interpolation Calculation
LDR
HDR
PV of bond at LDR
PV of bond at HDR
CMP
YTM= LDR+(PV@LDR-CMP)/(PV@LDR-PV@HDR)*(HDR-LDR) YTM

INTERPRETATION:-
If investor invest Rs 77 in 7% Rs 100 debt and hold it till the
end of maturity (end of 8th year) then investor might earn a
yield of 11.584% p.a.
 100
8
7%
7

Trial and Error Method (Finding Bracketing Rates)

r1 r2 r3
7% 10% 12%
₹ 100.00 ₹ 84.00 ₹ 75.16

Interpolation Calculation
10%
12%
₹ 84.00
₹ 75.16
77
11.584%

hold it till the

r might earn a
Q2
6 % Debenture of Rs. 50 FV 50
Life: 6 years Coupon rate 6%
Current market price: Rs. 41 Coupon amt 3
Compute YTM N 6
CMP 41

Value of Bond
Trial and Error Method (Finding Bracketing Rates)
r1 r2
Discount Rate 6% 11%
PV Of CI ₹ 50.00 ₹ 39.42

Interpolation Calculation
LDR 6%
HDR 11%
INTERPRETATION:- PV of bond at LDR ₹ 50.00
If investor invest Rs 41 in 6% Rs 50 PV of bond at HDR ₹ 39.42
debt and hold it till the end of CMP 41
maturity (end of 6th year) then
investor might earn a yield of YTM 10.255%
10.133% p.a.
racketing Rates)
Q3
8% Debenture of Rs. 100 FV 100
Life: 7 years Coupon rate 8%
Current market price: Rs. 87 Coupon amt 8
Compute YTM N 7
CMP 87

Value of Bond
Trial and Error Method (Finding Bracketing Rates)
r1 r2
Discount Rate 8% 11%
PV Of CI ₹ 100.00 ₹ 85.86

Interpolation Calculation
LDR 8%
HDR 11%
PV of bond at LDR ₹ 100.00
PV of bond at HDR ₹ 85.86
CMP 87
YTM 10.76%
Q.4
9% Debenture of Rs. 500 FV 500
Life: 10 years Coupon rate 9%
Current market price: Rs. 467 Coupon amt 45
Compute YTM N 10
CMP 467

Value of Bond
Trial and Error Method (Finding Bracketing Rates)
r1 r2
Discount Rate 9% 11%
PV Of CI ₹ 500.00 ₹ 441.11

Interpolation Calculation
LDR 9%
HDR 11%
PV of bond at LDR ₹ 500.00
PV of bond at HDR ₹ 441.11
CMP 467
YTM 10.12%
(Finding Bracketing Rates)
Q.5
15% Debenture of Rs. 10 FV 10
Life: 8 years Coupon rate 15%
Current market price: Rs. 7.75 Coupon amt 1.5
Compute YTM N 8
CMP 7.75

Value of Bond
Trial and Error Method (Finding Bracketing Rates)
r1 r2
Discount Rate 15% 23%
PV Of CI ₹ 10.00 ₹ 7.19

Interpolation Calculation
LDR 15%
HDR 23%
PV of bond at LDR ₹ 10.00
PV of bond at HDR ₹ 7.19
CMP 7.75
YTM 21.40%
racketing Rates)
Q.6
6 % Debenture of Rs. 100 FV 100
Life: 6 years Coupon rate 6%
Discount rate: 8% Coupon amt 6
YTM: 9% N 6
Compute Duration and convexity Discount rate 8%
Change in Interset rate 0.5 % and in YTM is 0.8 % YTM (Modified/ Convexity) 9%
What will be the impact on Debenture price? Change in int 0.50%
Change in YTM 0.80%

Year C.I PVIF PV of C.I Pvof C.I/Vd (PVof C.I/Vd)*n

1 6 0.926 5.556 0.0612 0.0612
2 6 0.857 5.144 0.0567 0.1134
3 6 0.794 4.763 0.0525 0.1574
4 6 0.735 4.410 0.0486 0.1944
5 6 0.681 4.083 0.0450 0.2250
6 106 0.630 66.798 0.7360 4.4162
Vd 90.754 1.000 5.17

Macaulay's Duration 5.17

Modified Duration 4.74
Convexity 4.349

1) Macaulay's Duration (Consider int) If Interest Increase 0.50%= Vd dec. to

0.0258 (Mac. Dur.*change in int) 88.409
If Interest decrease 0.50%= Vd Inc. to
2.3449 (Vd*0.0258) 93.099
93.099
88.409

2) Modified Duration (Consider Yield)

If YTM Increase 0.80%= Vd dec. to 87.312
If YTM decrease 0.80%= Vd Inc. to 94.312
0.037927
3.442045
94.196
87.312

3) Convexity (consider Yield)

0.034796
3.15784
93.912
87.596
Q.7
7% Debenture of Rs. 300 FV
Life: 8 years Coupon rate
Discount rate: 12% Coupon amt
YTM: 10% N
Compute Duration and convexity Discount rate
Change in Interset rate 1.5 % and in YTM is 1 % YTM (Modified/ Convexity)
What will be the impact on Debenture price? Change in int
Change in YTM

Year C.I PVIF PV of C.I Pvof C.I/Vd (PVof C.I/Vd)*n

1 21 0.893 18.750 0.0832 0.0832
2 21 0.797 16.741 0.0742 0.1485
3 21 0.712 14.947 0.0663 0.1989
4 21 0.636 13.346 0.0592 0.2367
5 21 0.567 11.916 0.0528 0.2642
6 21 0.507 10.639 0.0472 0.2831
7 21 0.452 9.499 0.0421 0.2949
8 321 0.404 129.647 0.5750 4.5997
Vd 225.49 1.00 6.11

Macaulay's Duration 6.11

Modified Duration 5.55
Convexity 5.05

1) Macaulay's Duration (Consider int)

0.0916
20.6631
246.149
204.822

2) Modified Duration (Consider Yield)

0.055538
12.5231
238.01
212.96

3) Convexity (consider Yield)

0.050489
11.38463
236.87
214.10
 300
7%
21
8
12%
10%
1.50%
1.00%
Q.8
8% Debenture of Rs. 400 FV
Life: 7 years Coupon rate
Discount rate: 14% Coupon amt
YTM: 11% N
Compute Duration and convexity Discount rate
Change in Interset rate 2 % and in YTM is 1.5 % YTM (Modified/ Convexity)
What will be the impact on Debenture price? Change in int
Change in YTM

Year C.I PVIF PV of C.I Pvof C.I/Vd (PVof C.I/Vd)*n

1 32 0.877 28.070 0.0945 0.0945
2 32 0.769 24.623 0.0829 0.1658
3 32 0.675 21.599 0.0727 0.2181
4 32 0.592 18.947 0.0638 0.2551
5 32 0.519 16.620 0.0559 0.2797
6 32 0.456 14.579 0.0491 0.2944
7 432 0.400 172.643 0.5811 4.0679
Vd 297.081 1.000 5.376

Macaulay's Duration 5.376

Modified Duration 4.84
Convexity 4.36

1) Macaulay's Duration (Consider int)

0.1075
31.9395
329.020
265.141

2) Modified Duration (Consider Yield)

0.072643
21.58074
318.66
275.50

3) Convexity (consider Yield)

0.065444
19.44211
316.52
277.64
 400
8%
32
7
14%
11%
2.00%
1.50%
Q9
9% Debenture of Rs. 800 FV
Life: 8 years Coupon rate
Discount rate: 8% Coupon amt
YTM: 12% N
Compute Duration and convexity Discount rate
Change in Interset rate 0.7 % and in YTM is 0.6 % YTM (Modified/ Convexity)
What will be the impact on Debenture price? Change in int
Change in YTM

Year C.I PVIF PV of C.I Pvof C.I/Vd (PVof C.I/Vd)*n

1 72 0.926 66.667 0.0788 0.0788
2 72 0.857 61.728 0.0730 0.1459
3 72 0.794 57.156 0.0676 0.2027
4 72 0.735 52.922 0.0626 0.2502
5 72 0.681 49.002 0.0579 0.2896
6 72 0.630 45.372 0.0536 0.3218
7 72 0.583 42.011 0.0497 0.3476
8 872 0.540 471.114 0.5569 4.4551
Vd 845.973 1.000 6.092

Macaulay's Duration 6.092

Modified Duration 5.44
Convexity 4.86

1) Macaulay's Duration (Consider int)

0.0426
36.0746
882.048
809.898

2) Modified Duration (Consider Yield)

0.032635
27.60813
873.58
818.36

3) Convexity (consider Yield)

0.029138
24.65012
870.62
821.32
 800
9%
72
8
8%
12%
0.70%
0.60%
Q10
10% Debenture of Rs. 200 FV 200
Life: 5 years Coupon rate 10%
Discount rate: 6% Coupon amt 20
YTM: 8% N 5
Compute Duration and convexity Discount rate 6%
Change in Interset rate 0.6 % and in YTM is 0.9 % YTM (Modified/ Convexity) 8%
What will be the impact on Debenture price? Change in int 0.60%
Change in YTM 0.90%

Year C.I PVIF PV of C.I Pvof C.I/Vd (PVof C.I/Vd)*n

1 20 0.943 18.868 0.0807 0.0807
2 20 0.890 17.800 0.0762 0.1523
3 20 0.840 16.792 0.0719 0.2156
4 20 0.792 15.842 0.0678 0.2712
5 220 0.747 164.397 0.7035 3.5173
Vd 233.699 1.000 4.237

Macaulay's Duration 4.237

Modified Duration 3.92
Convexity 3.63

1) Macaulay's Duration (Consider int)

0.0254
5.9412
239.640
227.758

2) Modified Duration (Consider Yield)

0.035309
8.251637
241.95
225.45

3) Convexity (consider Yield)

0.032693
7.640404
241.34
226.06
Q11
Shares A B C D
Avg Return 17% 15% 16% 14%
Risk 1.8 1.7 1.9 1.3
Beta 0.8 1.3 -1.1 1.1

Rm 15.50%
Rf 6%
Are the shares fairly priced?

CAPM Bond Return Rf+(Rm-Rf)*Beta

Pricing Status Decision
A 13.6% Actual return is higher than Expected return Undervalued(Good to buy)
B 18.4% Actual return is lower than expected return Overpriced(Sell)
C -4.5% Actual return is much higher than Expected return Undervalued(Buy)
D 16.5% Actual return is lower than Expected return Overpriced(Sell)

Alpha Coefficient Expected return - CAPM based return

Result
A 3.40% Undervalued
B -3.35% Overpriced
C 20.45% Undervalued
D -2.45% Overpriced
 INTERPRETATION
Undervalued(Good to buy) A :- Undervalued Expected return (13.6%) < Actual (17%)- offers higher
Overpriced(Sell) return for its risk.
Undervalued(Buy) B :- Overpriced Expected (18.35%) > Actual (15%)- lower return for
Overpriced(Sell)
higher risk.
C :- Undervalued Negative beta- moves opposite to market gives high
return (16%). Those stock which have less tha 1 beta is called defensive
beta .
D :- Overpriced Expected (16.45%) > Actual (14%) - lower return for
higher risk.
Q12
Shares X Y Z W
Avg Return 19% 18% 21% 23%
Risk 2.1 1.2 1.4 2.3
Beta 1.5 1.8 0.8 1.9

Rm 20.00%
Rf 7%
Are the shares fairly priced?

CAPM Bond Return Rf+(Rm-Rf)*Beta

Pricing Status Decision
X 26.5% Actual return is lower than Expected return Overpriceded(sell)
Y 30.4% Actual return is lower than expected return Overpriced(Sell)
Z 17.4% Actual return is higher than Expected return Undervalued(Buy)
W 31.7% Actual return is lower than Expected return Overpriced(Sell)

Alpha Coefficient Expected return - CAPM based return

Result
X -7.50% Overpriced
Y -12.40% Overpriced
Z 3.60% Undervalued
W -8.70% Overpriced
Q13
Shares A B C D
Avg Return 12% 11% 16% 14%
Risk 3.4 3.1 3.8 2.94
Beta 0.6 0.9 1.7 1.3

Rm 13.00%
Rf 4%
Are the shares fairly priced?

CAPM Bond Return Rf+(Rm-Rf)*Beta

Pricing Status Decision
X 9.4%Actual return is higher than Expected return Undervalued(buy)
Y 12.1%Actual return is lower than expected return Overpriced(Sell)
Z 19.3%Actual return is lower than Expected returnOverpriced(Sell)
W 15.7%Actual return is lower than Expected returnOverpriced(Sell)

Alpha Coefficient Expected return - CAPM based return

Result
X 2.60% Undervalued
Y -1.10% Overpriced
Z -3.30% Overpriced
W -1.70% Overpriced
Q14
Shares A B C D
Avg Return 19% 21% 18% 25%
Risk 1.85 1.9 1.45 2.13
Beta 1.35 1.55 0.92 1.76

Rm 18.70%
Rf 5%
Are the shares fairly priced?

CAPM Bond Return Rf+(Rm-Rf)*Beta

Pricing Status Decision
X 23.5% Actual return is lower than Expected return Overpriced(Sell)
Y 26.2% Actual return is lower than expected return Overpriced(Sell)
Z 17.6% Actual return is higher than Expected return Undervalued(buy)
W 29.1% Actual return is lower than Expected return Overpriced(Sell)

Alpha Coefficient Expected return - CAPM based return

Result
X -4.50% Overpriced
Y -5.24% Overpriced
Z 0.40% Undervalued
W -4.11% Overpriced
Q15
Shares A B C D
Avg Return 19% 23% 18% 26%
Risk 1.85 1.9 1.45 1.94
Beta 1.35 1.55 0.92 1.65

Rm 22.00%
Rf 5%
Are the shares fairly priced?

CAPM Bond Return Rf+(Rm-Rf)*Beta

Pricing Status Decision
X 27.9%Actual return is lower than Expected return Overpriced(Sell)
Y 31.3%Actual return is lower than expected return Overpriced(Sell)
Z 20.6%Actual return is lower than Expected returnOverpriced(Sell)
W 33.1%Actual return is lower than Expected returnOverpriced(Sell)

Alpha Coefficient Expected return - CAPM based return

Result
X -8.95% Overpriced
Y -8.35% Overpriced
Z -2.64% Overpriced
W -7.05% Overpriced
Q16
Mutual Funds A B C D
Avg Return 22.80% 27.60% 21.60% 31.20%
Risk 2.22 2.28 1.74 2.328
Beta 1.62 1.86 1.104 1.98

Rm 24%
Rf 9%
Comment on the performance of the Mutual Funds using Sharpe ratio, Treynor ratio and Jensen measure?

1) Sharpe Ratio (Rp-Rf)/Risk

Mutual funds Rp-Rf Risk Sharpe Ratio Ranking

A 13.80% 2.22 6.22% 4
B 18.60% 2.28 8.16% 2
C 12.60% 1.74 7.24% 3
D 22.20% 2.328 9.54% 1

2) Treynor's Ratio (Rp-Rf)/Beta

Mutual funds Rp-Rf Beta Treynor's RatioRanking

A 13.80% 1.62 8.52% 4
B 18.60% 1.86 10.00% 3
C 12.60% 1.104 11.41% 1
D 22.20% 1.98 11.21% 2

3) Jenson Ratio Alpha = Actual Returnof portfolio - CAPM Expected Return

Rm 24%
Rf 9% CAPM Based Return = Rf+(Rm-Rf)*Beta

Mutual funds Actual Return Beta Rm-Rf CAPM Based Return Jenson Ratio Ranking
A 22.80% 1.62 15.00% 33.3% -10.50% 4
B 27.60% 1.86 15.00% 36.9% -9.30% 3
C 21.60% 1.104 15.00% 25.6% -3.96% 1
D 31.20% 1.98 15.00% 38.7% -7.50% 2

INTERPRETATION:-
sen measure?
Q17
Mutual Funds A B C D
Avg Return 27.36% 33.12% 25.92% 37.44%
Risk 2.664 2.736 2.088 2.7936
Beta 1.944 2.232 1.3248 2.376

Rm 23%
Rf 8%
Comment on the performance of the Mutual Funds using Sharpe ratio, Treynor ratio and Jensen measure?

1) Sharpe Ratio (Rp-Rf)/Risk

Mutual funds Rp-Rf Risk Sharpe RatRanking

A 19.36% 2.664 7.27% 4
B 25.12% 2.736 9.18% 2
C 17.92% 2.088 8.58% 3
D 29.44% 2.7936 10.54% 1

2) Treynor's Ratio (Rp-Rf)/Beta

Mutual funds Rp-Rf Beta Treynor's RRanking

A 19.36% 1.944 9.96% 4
B 25.12% 2.232 11.25% 3
C 17.92% 1.3248 13.53% 1
D 29.44% 2.376 12.39% 2

3) Jenson Ratio Alpha = Actual Returnof portfolio - CAPM Expected Return

Rm 23%
Rf 8% CAPM Based Return = Rf+(Rm-Rf)*Beta

Mutual funds Actual RetBeta Rm-Rf CAPM Based Return Jenson Ratio Ranking
A 27.36% 1.944 15.00% 37.16% -9.80% 4
B 33.12% 2.232 15.00% 41.48% -8.36% 3
C 25.92% 1.3248 15.00% 27.87% -1.95% 1
D 37.44% 2.376 15.00% 43.64% -6.20% 2
n measure?
Q18
Mutual Funds A B C D
Avg Return 32.83% 39.74% 31.10% 44.93%
Risk 3.1968 3.2832 2.5056 3.35232
Beta 2.3328 2.6784 1.58976 2.8512

Rm 34%
Rf 9%
Comment on the performance of the Mutual Funds using Sharpe ratio, Treynor ratio and Jensen measure?

1) Sharpe Ratio (Rp-Rf)/Risk

Mutual funds Rp-Rf Risk Sharpe RatRanking

A 23.83% 3.1968 7.45% 4
B 30.74% 3.2832 9.36% 2
C 22.10% 2.5056 8.82% 3
D 35.93% 3.35232 10.72% 1

2) Treynor's Ratio (Rp-Rf)/Beta

Mutual funds Rp-Rf Beta Treynor's RRanking

A 23.83% 2.3328 10.22% 4
B 30.74% 2.6784 11.48% 3
C 22.10% 1.58976 13.90% 1
D 35.93% 2.8512 12.60% 2

3) Jenson Ratio Alpha = Actual Returnof portfolio - CAPM Expected Return

Rm 34%
Rf 9% CAPM Based Return = Rf+(Rm-Rf)*Beta

Mutual funds Actual RetBeta Rm-Rf CAPM BaseJenson RatRanking

A 32.83% 2.3328 25.00% 67.32% -34.49% 2
B 39.74% 2.6784 25.00% 75.96% -36.22% 4
C 31.10% 1.58976 25.00% 48.74% -17.64% 1
D 44.93% 2.8512 25.00% 80.28% -35.35% 3
Q19
Mutual Funds A B C D
Avg Return 39.40% 47.69% 37.32% 53.91%
Risk 3.83616 3.93984 3.006721 4.022784
Beta 2.79936 3.21408 1.907712 3.42144

Rm 43%
Rf 12%
Comment on the performance of the Mutual Funds using Sharpe ratio, Treynor ratio and Jensen measure?

1) Sharpe Ratio (Rp-Rf)/Risk

Mutual funds Rp-Rf Risk Sharpe Ratio Ranking

A 27.40% 3.83616 7.14% 4
B 35.69% 3.93984 9.06% 2
C 25.32% 3.00672 8.42% 3
D 41.91% 4.022784 10.42% 1

2) Treynor's Ratio (Rp-Rf)/Beta

Mutual funds Rp-Rf Beta Treynor's Ratio Ranking

A 27.40% 2.79936 9.79% 4
B 35.69% 3.21408 11.11% 3
C 25.32% 1.907712 13.27% 1
D 41.91% 3.42144 12.25% 2

3) Jenson Ratio Alpha = Actual Returnof portfolio - CAPM Expected Return

Rm 43%
Rf 12% CAPM Based Return = Rf+(Rm-Rf)*Beta

Mutual funds Actual RetBeta Rm-Rf CAPM Based Return Jenson Ratio Ranking
A 39.40% 2.79936 31.00% 98.78% -59.38% 2
B 47.69% 3.21408 31.00% 111.64% -63.94% 3
C 37.32% 1.907712 31.00% 71.14% -33.81% 1
D 53.91% 3.42144 31.00% 118.06% -64.15% 4
Q20
Mutual Funds A B C D
Avg Return 47.28% 67.23% 44.79% 64.69%
Risk 4.603392 4.727808 3.60806 4.82734
Beta 3.35923 3.856896 1.289254 4.105728

Rm 51%
Rf 16%
Comment on the performance of the Mutual Funds using Sharpe ratio, Treynor ratio and Jensen measure?

1) Sharpe Ratio (Rp-Rf)/Risk

Mutual funds Rp-Rf Risk Sharpe Ratio Ranking

A 31.28% 4.603392 6.79% 4
B 51.23% 4.727808 10.84% 1
C 28.79% 3.60806 7.98% 3
D 48.69% 4.82734 10.09% 2

2) Treynor's Ratio (Rp-Rf)/Beta

Mutual funds Rp-Rf Beta Treynor's Ratio Ranking

A 31.28% 3.359232 9.31% 4
B 51.23% 3.856896 13.28% 2
C 28.79% 1.289254 22.33% 1
D 48.69% 4.105728 11.86% 3

3) Jenson Ratio Alpha = Actual Returnof portfolio - CAPM Expected Return

Rm 51%
Rf 16% CAPM Based Return = Rf+(Rm-Rf)*Beta

Mutual funds Actual RetBeta Rm-Rf CAPM Based Return Jenson Ratio Ranking
A 47.28% 3.359232 35.00% 133.57% -86.30% 3
B 67.23% 3.856896 35.00% 150.99% -83.76% 2
C 44.79% 1.289254 35.00% 61.12% -16.33% 1
D 64.69% 4.105728 35.00% 159.70% -95.01% 4