Southern India Regional Council of

The Institute of Chartered Accountants of India

Selected Questions in
Strategic Financial Management
For

CA – Final

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B. Hari Gopal B.Com, PGDBA, FCA, FCMA, DISA (ICAI), EPBM (IIMC), PMP (PMI, USA) ,
 Selected Questions in Strategic Financial Management

Contents
Security Analysis .......................................................................................... 3

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 Selected Questions in Strategic Financial Management

Security Analysis
Theory Questions
1. Briefly discuss the concept of fundamental analysis
2. Discuss briefly the key variables of fundamental analysis
3. Explain the various indicators that can be used to assess the
performance of an economy
4. Explain the factors affecting economic analysis
5. Mention the various types of techniques used in Economic
Analysis
6. Discuss briefly the Barometer Approach – as a Technique of
Economic Analysis
7. How does money supply impacts economy?
8. Explain the Economic model building approach
9. Explain the factors affecting Industry analysis
10. Discuss the techniques used in Industry Analysis
11. Explain the factors affecting Company analysis
12. Mention the various types of techniques used in Company
Analysis
13. Discuss the concept of technical analysis and its underlying
assumptions
14. Explain the principles of Technical analysis
15. Explain the conceptual framework of Dow theory
16. Briefly discuss Elliot Wave theory
17. Describe Random Walk theory
18. What are the charting techniques used in security analysis or
Explain various types of Charts used in security analysis
19. Briefly discuss the Market indicators
20. What do you understand by resistance and support levels
21. Discuss briefly following price patterns
a. Channel
b. Wedge

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 Selected Questions in Strategic Financial Management

c. Head and Shoulders

d. Double Top Form and Double Bottom Form
e. Gap
22. Discuss the concept of moving averages – AMA and EMA
23. Mention the various challenges to the Efficient Market
Theory or Explain the different challenges of Efficient Market
Theory
24. Briefly discuss weak form of Efficient Market Theory
25. Explain the empirical evidence of weak form of Efficient
Market Theory and the types of tests used to verify the same
26. Briefly discuss Semi Strong Efficient Market Theory
27. Briefly discuss Strong form of Efficient Market Theory
28. What are the challenges to Efficient Market Theory
29. What is odd lot theory
30. Explain Breadth Index
31. Discuss “Volume of Transaction” as a Market Indicator
32. What is Confidence Index
33. Explain the Efficient Market Theory and what are the major
misconceptions about this theory
34. In an Efficient market technical analysis may not work
perfectly. However, with imperfections, inefficiencies and
irrationalities, which characterizes the real world, technical
analysis may be helpful. Critically analyze the statement
35. Discuss buy and sell signals provided by Moving Averages

Practical Questions
Calculation of PE Ratio and Long Term Growth Rate
1. A Ltd has an EPS of Rs 2.50 for the previous year and the DPS is
Re. 1. The earnings is expected to grow at 2% a year in long run.

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 Selected Questions in Strategic Financial Management

Currently it is trading at 7 times its earnings. If the Required Rate

of Return is 14%, compute the following:

a. An estimate of the PE Ratio using Gordon Growth Model

b. The Long Term Growth rate implied by the Current PE Ratio
(MTP May 2020)

Key: a. 3.40, b. 7.84%

2. B Ltd has an EPS of Rs 6 for the previous year and the DPS is Rs. 3.
The earnings is expected to grow at 2% a year in long run.
Currently it is trading at 7 times its earnings. If the Required Rate
of Return is 14%, compute the following:
a. An estimate of the PE Ratio using Gordon Growth Model
b. The Long Term Growth rate implied by the Current PE Ratio

Key: a. 4.25, b. 11.35%

3. C Ltd has an EPS of Rs 4 for the previous year and the DPS is Rs.
1.50. The earnings is expected to grow at 4% a year in long run.
Currently it is trading at 7 times its earnings. If the Required Rate
of Return is 12%, compute the following:
a. An estimate of the PE Ratio using Gordon Growth Model
b. The Long Term Growth rate implied by the Current PE Ratio

Key: a. 4.88, b. 6.31%

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 Selected Questions in Strategic Financial Management

Calculation of Share Price

4. A Company has Book value per share of Rs 137.80. Its ROE is 15%
and it follows a policy of retaining 60% of its earnings.

If the opportunity cost of capital is 18%, what is the price of the

share today?
[Old PM]
Key: Rs 91.89

5. B Ltd has Book value per share of Rs 200. Its ROE is 12% and it
follows a policy of retaining 50% of its earnings. If the opportunity
cost of capital is 14%, what is the price of the share today?

Key: Rs 150

Arithmetical Moving Average – Simple Moving Average

6. Closing stock price of X Ltd for 10 Trading days are given below
Trading 1 2 3 4 5 6 7 8 9 10
Day
Closing 25.00 26.00 25.50 24.50 26.00 26.00 26.50 26.50 26.00 27.00
Price

Calculate 5 day moving average

Arithmetical Moving Average – Two Item Centred Moving Average

7. Closing stock price of X Ltd for 10 Trading days are given below

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 Selected Questions in Strategic Financial Management

Trading 1 2 3 4 5 6 7 8 9 10
Day
Closing 25.00 26.00 25.50 24.50 26.00 26.00 26.50 26.50 26.00 27.00
Price

Calculate 5 day moving average – using Two Item Centered

method (SM)

Exponential Moving Average

8. Closing values of BSE Sensex from 6th to 17th day of the month Jan
200X were as follows

Days Date Day Sensex

1 6 THU 14522
2 7 FRI 14925
3 8 SAT No Trading
4 9 SUN No Trading
5 10 MON 15222
6 11 TUE 16000
7 12 WED 16400
8 13 THU 17000
9 14 FRI No Trading
10 15 SAT No Trading
11 16 SUN No Trading
12 17 MON 18000

Compute EMA of Sensex during the above period. The previous

day EMA of Sensex can be assumed as 15,000. The value of
exponent for 31 days EMA is 0.062
(SM)

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 Selected Questions in Strategic Financial Management

9. Closing values of BSE Sensex from 6th to 17th day of the month Jan
200X were as follows
Days Date Day Sensex
1 6 THU 29522
2 7 FRI 29925
3 8 SAT No Trading
4 9 SUN No Trading
5 10 MON 30222
6 11 TUE 31000
7 12 WED 31400
8 13 THU 32000
9 14 FRI No Trading
10 15 SAT No Trading
11 16 SUN No Trading
12 17 MON 33000

Compute EMA of Sensex during the above period. The 30 days

simple moving average of Sensex can be assumed as 30,000. The
value of exponent for 30 days EMA is 0.062 (May 2018 – 5A)

10. Closing values of BSE Sensex from 6th to 17th day of the
month jan 20XX were as follows

Days Date Day Sensex

1 6 THU 34522
2 7 FRI 34925
3 8 SAT No Trading
4 9 SUN No Trading
5 10 MON 35222
6 11 TUE 36000

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 Selected Questions in Strategic Financial Management

7 12 WED 36400
8 13 THU 37000
9 14 FRI No Trading
10 15 SAT No Trading
11 16 SUN No Trading
12 17 MON 38000

Compute EMA of Sensex during the above period. The 30 days

simple moving average of Sensex can be assumed as 35,000. The
value of exponent for 30 days EMA is 0.064. Provide analyzed
conclusion on the basis of your calculations
(Calculations should be up to 3 decimal points)
(Nov 2019 – 3B)
Analyzed Conclusion
The Market is bullish. Market likely to remain bullish for short to Medium
Term, if other factors remains constant. On the basis of this indicator (EMA)
Investors can take a long position

11. Closing values of NIFTY Sensex from 3rd to 12th day of the
month of January of the year 2022 were as follows

Days Date NIFTY

1 03/01/2022 17626
2 04/01/2022 17805
3 05/01/2022 17925
4 06/01/2022 17746
5 07/01/2022 17813
6 10/01/2022 18003
7 11/01/2022 18056
8 12/01/2022 18212

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 Selected Questions in Strategic Financial Management

The Simple Moving Average of NIFTY Index for the month of December
2021 was 17174.
You are required to calculate:
i. The value of exponent for 15 days EMA
ii. The Exponential Moving Average (EMA) of NIFTY during the
above period (Calculations to be done up to 2 decimals only)
iii. Analyse the buy and sell signal on the basis of your calculations
(May 2022 Q 5b)

Weak form of efficient market hypothesis – Correlation Test

12. Mr. X is of the opinion that market has recently shown the
Weak Form of Market Efficiency. In order to test the validity of his
impression he has collected the following data relating to the
movement of the SENSEX for the last 20 days.

Day Closing Sensex

1 33453.99
2 33434.83
3 33431.93
4 33383.41
5 33370.93
6 33340.75
7 33330.98
8 33335.08
9 33301.97
10 33259.03
11 33251.53
12 33285.89
13 33329.28
14 33284.17

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 Selected Questions in Strategic Financial Management

15 33298.78
16 33325.38
17 33329.95
18 33319.67
19 33302.32
20 33319.61

You are required to Test the Weak Form of Markey Efficiency

using Auto Correlation Test, taking time lag of 10 days
(Jan 2021 – Q 1a)

Weak form of efficient market hypothesis – Run Test

13. The Closing Value of Sensex for the month of October 2007is
given below: (SM)

Date Sensex
01.10.07 2800
03.10.07 2780
04.10.07 2795
05.10.07 2830
08.10.07 2760
09.10.07 2790
10.10.07 2880
11.10.07 2960
12.10.07 2990
15.10.07 3200
16.10.07 3300
17.10.07 3450
19.10.07 3360
22.10.07 3290

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 Selected Questions in Strategic Financial Management

23.10.07 3360
24.10.07 3340
25.10.07 3290
29.10.07 3240
30.10.07 3140
31.10.07 3260

You are required to test the weak form of efficient market

hypothesis by applying the run test at 5% and 10% level of
significance
Following value can be used:
Value of ‘t’ at 5% is 2.101 at 18 degrees of freedom
Value of ‘t’ at 10% is 1.734 at 18 degrees of freedom
Value of ‘t’ at 5% is 2.086 at 20 degrees of freedom
Value of ‘t’ at 10% is 1.725 at 20 degrees of freedom
Key:
Mean ( µr ) = 10.26
SD ( σ ) = 2.06
Lower Limit at 5% level at 18 df = 5.932
Upper Limit at 5% level at 18 df = 14.588
Lower Limit at 10% level at 18 df = 6.688
Upper Limit at 10% level at 18 df = 13.832

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