Islamic University – Gaza Investment Management

Faculty of Commerce Date: 16/6/2010

Dep't of Business Administration Dr: Mohamed Kh. El-farra

End-Term Exam (2009/2010)

Student Name: ……………….……………………………..…………………Student No.…………………

Question One: Multiple Choice:

1 – Updated each day, and calculated using a fixed number of previous day's prices
or levels:

a) Relative strength. b) Moving average.

c) Candle stick chart. d) Support level.

2– Price or level below which a stock or the market as a whole is unlikely to fall:

a) Common stocks, b) Fixed income securities c) Support level d) None.

3 – A form of financial intermediaries:

a) Life insurance. b) Mutual funds. c) Commercial banks. d) All

4 – A regulated investment company:

a) Doesn't need to pay taxes, b) Invests its funds in banks,
c) Works as a full service broker, d) All.

5– An investment company that stands ready to invest with a fixed number of

shares is:

a) Discount broker, b) Open- end fund, c) Closed – end fund, d) None

6– A long term funds can be:

a) Stock fund. b) blended fund, c) bond fund. d) All

7 – In secondary market an investors may trade:

a) Directly with other investors, b) Using a broker, c) With a dealer, d) All

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8 – Stock market index in which stocks are held in proportion to their share
price:
a) Bid price, b) Value weighted index c) Deep- discount index d) None

9 – A bond's annual coupon devided by its par value:

a) Dirty price, b) Current Yield, c) Coupon rate, d) Coupon price.

10 - To assess the economic value of common stocks, they use:

a) Dividend discount models. b) Discount broker,
c) Price ratio models, d) a + c

11- The basic idea is to identify “----------------” stocks to buy and

“---------------” stocks to sell.
a) Long-term, Short term b) New, used
c) Expensive, cheap, d) Undervalued, overvalued

12- The growth rate in dividends (g) can be estimated in using:

a) Company’s historical average growth rate.
b) Industry median or average growth rate. c)sustainable growth rate. d) All
13- Both Constant Perpetual Growth Model and Two-Stage Dividend Growth
Model can be:
a) Used when g > k. b) Realistic,
c) Sensitive to the choice of g and k d) None.

14- High-P/E stocks are often referred to as --------------, while low-P/E stocks
are often referred to as --------------.
a) High, Low b) Expensive, cheap, c) Growth, Value,d) federal, Private

15- cash flow is usually taken to be net income plus -------------

a) Tax. b) relievs c) Commission d) Depreciation.

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 Question Two: State whether the following statements are () or ():
1- ( ) You are not adviced to buy a stock when its price doesn't go up.
2- ( ) The fund type is the major determinant of fund's objective.
3- ( ) Trading costs are related to the fund turnover.
4- ( ) the return on an investment measured as a % of the originally invested
5- ( ) Shares in closed end fund may or may not equal to their NAV.
6- ( ) The extra return on a risky asset over the risk-free rate is risk premium.
7- ( ) Standard deviation is a common measure of volatility
8- ( ) The investment company specializes in pooling and investing the individual an

investors funds and invests them.

9- ( ) Mutual funds pool the funds of small groups of investors only.
10- ( ) An investor benefits from decreasing price with short position.
11- ( ) To buy securities directly from the issuer, you need to open brokerage account to

invest.
12- ( ) To sell securities, you deposit money, but to buy, you withdraw.
13- ( ) The SIPC guarantee the value of all securities".
14- ( ) Most analysts agree that in examining a company’s financial performance, net

income can be more informative than cash flow.

15- ( ) Since g > k, the constant growth rate model cannot be used.

Question Three: Match:

A B
1 – NAV (Net Asset Value) ( ) A measure of the performance of one
investment relative to another to be payed" t
" years from nowr
2 – Regulated investment ( ) investment banker does not guarantee the
firm a fixed amount for its securities.
3 – IPOs (Initial Public Offering) ( ) The investment banker guarantees the firm a
fixed amount for its securities.
4 –Fixed commitment ( ) The value of the assets held by a mutual
fund, divided by the number of shares,
5 – Best effort ( ) stock market index in which stocks are held
in proportion to their share price.
6 – Bid price ( ) Holds almost its assets as investment in
stocks, bonds, and other securities, uses
no more than 5% of its assets in a
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 particular securities, and passes through all
realized investment income to shareholders.
7 – Price-weighted index ( ) an initial public oftering occures when a
company offers a stock for sale for the
first time
8 – Asset ( ) The price a dealer is willing to pay
9 – Equity ( ) Anything a company owns that has value.
10 – Operating cash flow ( ) a bond's annual coupon divided by its market
price.
11 – Return on assets ( ) Generated by a firm's normal business
operations
12 – Return on equitty ( ) the price of a bond net of accrued interest;
this is the price that is typically quoted
13 – Relative strength ( ) An ownership interest in the company.
14 – Clean price ( ) cash generated by a firm's normal business
operations
15 – Current Yield ( ) net income stated as a percentage of total
assets
( ) net income stated as a percentage of
stockholder equity

Question Four: Answer the following Questions:

a) Illustrate the arithmetic average of historical dividend growth, consider the following
dividends paid by Jawwal company
Year Dividend Yearly Growth Rate

2003 220

2002 200

2001 180

2000 200

1999 150

1998 150

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b) Return on equity (ROE) = 10%, and earnings per share(EPS) = $2:20, D(O) = $ 1.40.-
What is the retention rate?

What is sustainable growth rate?

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c) D(0) = 15, g = 10, k = 12, t = 20 Calculate V(0)

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To the students who didn't attend med-term exam:

1 - You want to short 150 Sears shares at $30 per share. Your broker has a 50% initial
margin and a 40% maintenance margin on short sales
Worth of stock borrowed = 30 * 150 = $4500
Assets Liabilities & Account Equity

Total Total

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2 - The stock price falls to $20 per share. What is the implication on the balance sheet? Is he subject to
margin call?

Assets Liabilities & Account Equity

Total Total

New margin =

D(1) D(2) D(3) D(T )

V ( 0)      
1  k  1  k  2  1  k  3 1  k  T
D t  1  D t   1  g 

D  0   1  g    1  g T 
V  0  1    
kg   1  k  
V  0  T  D 0 

D  0   1  g  D 1
V  0  
kg kg

Sustainable = ROE ´ Retention ratio

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 growth rate

D 0 1  g1    1  g1 T   1  g1 T D 0 1  g 2 
V  0  1      
k  g1   1  k    1  k  k  g2

ٍBest Regards With the lecturers of Investment Management