If volume of trading is high, it is considered that market is bullish; and if with high trading volume the

prices are also increasing then market is considered very bullish on that day.

1 point

True

False

Fair value now = DPS1 / Kc. is formula to estimate fair value of share of a company whose business is not
expected to grow in all future years till infinity.

1 point

True

False

If short selling is not allowed and you are using the simple ranking method to find weights (Xs) of an
efficient portfolio, then only those stocks whose [(Ri - Rf) / VARi] ratio is greater than their respective Ci
are included in the efficient portfolio.

1 point

True

False

In Pakistan, by combining 2 stocks in different proportions to build different portfolios, you can make
infinite number of inefficient portfolios.

1 point

True

False

While using simultaneous equation method to estimate weights (Xs) of an efficient portfolio, ∑ Zi = λ *∑
Xi; and you know ∑ Xi is always 1 for any portfolio, therefore ∑ Zi = λ and λ is slope of a straight line
emerging from Rf and touching one Markowitz efficient portfolio (portfolio P) on the efficient curve;
therefore this slope ca be written as (Rp - Rf ) / (VARp - VAR Rf).

1 point

True

False
For all portfolios the formula VARp = 1/N (Avg VAR i – Avg COV i,j) + Avg COV implies as “N” approaches
0, the term [1/N (Avg VAR i – Avg COV i,j)] approaches infinity; and therefore for practical purposes total
risk of such a portfolio approaches average covariance in that country between pairs of stock returns.

1 point

True

False

Z Engro / ∑ Zi = X Engro .

1 point

True

False

Sharpe , while doing simplification of calculations required to estimate total risk of portfolio, assumed
that Expected Ri = αi + βiRm + ei; and further assumed that term ei has an expected value of zero and
therefore its variance is also zero.

1 point

True

False

If you know correlation between returns of 2 stocks and the standard deviations of returns of both the
stocks, then you can estimate betas of both the stocks.

1 point

True

False

In New York Stock Exchange if on a given day, the short interest ratio of a share is above 6 then it is
considered high and indicates pessimistic sentiments prevailing about that share on that day. But the
same logic does not apply to the whole market as well.

1 point

True

False

Momentum is said to be present in a share price or the index of share prices if after a rise in one period
(say a month), in the next period a decline is experienced in the price.
1 point

True

False

In this course this fact was emphasized again and again that investment decisions made with giving total
attention to risk without giving attention to expected returns can also be good investment decisions.

1 point

True

False

One lesson from this course, based on the nature of shares of corporate equities, is that you should buy
shares not for yourself but for your grandchildren; only then you would be able to experience truly
exponential growth in your wealth.

1 point

True

False

Fair Value of share now = [DPS1 (1 + g)] / (Kc – g) is called DDM.

1 point

True

False

To use simultaneous equations method to estimate weights (Xi) of an efficient portfolio you need as
inputs COVs between pairs of stock returns, VARs of stock returns, expected Ri of stocks, and an
assumed Rf.

1 point

True

False

If trend line for the KSE-100 index is rising for a period but A – D (Advances minus Declines) line is falling
for the same period then this divergence in 2 trends is taken as a signal of change in the trend of KSE
-100 index (the market) in near future from upward to downward, and it is a sign of strengthening of
market.

1 point
True

False

Equity cash flows per year = NI + depreciation expense + Retention.

1 point

True

False

In Pakistan, you do not find brokerage houses indulging in constructing efficient frontier of Markowitz.

1 point

True

False

If Lintner short selling is viewed as more realistic assumption about short selling, then weight (Xi) of each
stock included in the efficient portfolio comes out significantly smaller as compared to the weight (Xi) of
that stock if standard short selling is assumed.

1 point

True

False

If on a give day, on the risk return space on the graph paper, you see Markowitz efficient curve for
Pakistan is lying higher than the Markowitz efficient curve for USA, then you would conclude that
Pakistani market is offering superior risk-return trade-off than US market .

1 point

True

False

The nature of corporate shares is such that these are securities with no maturity, that is, theoretically
their maturity is infinitely long period of time. Therefore, logically, holding period of investors in
corporate shares should be a very short such as a few days.

1 point

True

False
Brokers as a community strongly believe in passive investment strategy.

1 point

True

False

A price level above which price hesitates to go after repeatedly touching that level from below is called
ceiling or resistance level for that share or for that share price index.

1 point

True

False

In a bears market , you would take long positions in shares.

1 point

True

False

All the weights also called Xs of a portfolio can be negative.

1 point

True

False

If short selling is allowed and you are using the simple ranking method to find weights (Xs) of an efficient
portfolio, then C* is the Ci of that stock whose [(Ri - Rf) / ßi] greater than its Ci.

1 point

True

False

As a rule of thumb, if PB ratio ( price per share to book value per share ratio) is more than one, then the
share is considered undervalued in the market at its current market price.

1 point

True

False
Answer to question : When to buy? Is wait until you see the market is oversold , if you are a long term
investor.

1 point

True

False

Optimal portfolio for each one of you lies on Markowitz efficient curve.

1 point

True

False

Technical Analysis of a stock uses data from Income statement of that co.

1 point

True

False

In most of the countries, you can have an open short position in a share for unlimited time period, but
not an open long position.

1 point

True

False

If both A-D (Advance minus Decline) line and index line are showing upward trend over a period then
technical analysts conclude that the market is technically strong.

1 point

True

False

For an closed ended portfolio, both the time weighted method and the value (rupee) weighted are
correct for calculating its holding period returns.

1 point

True
False

MCB share price / KSE-100 index is showing upward slope , but Meezan bank share price / KSE -100
index ratio is showing a down ward trend for the same period. You would conclude MCB share is
showing relative strength compared to the overall stock market, while Meezan bank share is showing
relative weakness compared to overall stock market; you would further conclude to buy Meezan and
not to buy MCB.

1 point

True

False

Legally, each mutual fund is a separate legal entity (a separate company) with its own income statement
and balance sheet; and owner of this entity are its unit holders (shareholders), that is general public who
typically own 20% shares, and 80% shares are owned by the AMC (Asset Management Company) that
launched that mutual fund, and later on manages the mutual fund portfolio for a fee.

1 point

True

False

The final lesson you draw from modern portfolio theory as presented by Markowitz and as improved by
Sharpe , Lintner, and Mossin is that investors must not invest in single stock, or in a few stocks; rather
they should build inefficient portfolios to reduce risk of investment by diversifying their portfolio.

1 point

True

False

US Dollar cannot depreciate more than 100% against Pakistani rupee.

1 point

True

False

Beginning book value * ROE is actual NI; whereas beginning book value * Kc is expected NI.

1 point

True
False

Fundamental security analysis is aimed at identifying the mispriced securities.

1 point

True

False

If you invest in any 2 assets, the resulting portfolio is always efficient.

1 point

True

False

CML equation represents a restricted theory about risk and returns that is applicable only to the efficient
portfolios built by investing in M and RF in a society where risk free asset is present and risk free lending
and borrowing is possible.

1 point

True

False

You should look for those stocks which have low, ideally negative, Covariance between their RORs and
include those in your portfolio to build low risk portfolios.

1 point

True

False

A company whose ‘g’ is estimated as relatively higher than other competing companies , is likely to have
relatively high fair value of share now, but it price is likely to fall in future years.

1 point

True

False

Free cash flows per year = EBIT (1 - T) + ( increase in NWC + increase in FA).

1 point
True

False

In this course you learnt to calculate 5 types of risk present in an efficient portfolio of stocks , but not in
an inefficient portfolio of stocks.

1 point

True

False

Expected rate of return from investment in a share is equal to percentage increase in its price since you
bought it plus cash dividend received since you bought it plus stock dividend received since you bought
it , and sum of both dividends divided by selling price.

1 point

True

False

PIBs (Pakistan Investment Bonds) were issued in 2013 by the Government of Pakistan to meet its budget
deficit; and at that time maturity was set 10 years. The face value of one bond is Rs 1,000 and it pays
annual interest at the coupon (contractual) interest rate of 10% of face value. Today it has left exactly 3
years in its maturity, and in the market it is trading at 850 Rs. You would conclude it is promising an IRR
of above 17% per year for the next 3 years of its life to investors who buy it at Rs 850 today.

1 point

True

False

A temporary decline in prices in an otherwise upward moving price trend is caused by profit taking in
the terminology of Technical Analysis; and it happens on a a day when a large number of investors sell
their previously bought share thus causing increase in supply of shares and resultantly decline in share
prices.

1 point

True

False

According to CML , risk premium of an efficient portfolio “p” is equal to market risk premium from CML
multiplied by total risk of portfolio “p” as measured by its SD.
1 point

True

False

Expected return of a stock is risky but not the expected return of a portfolio.

1 point

True

False

According to Markowitz formula for total risk of a portfolio, diversification done by adding more stocks
in the portfolio has no effect on the variance of portfolio.

1 point

True

False

Correlation of returns of UBL with market is 0.5, SD UBL is 10, SDM is 20. You would conclude that COV
UBL, M is 100.

1 point

True

False

EBIT = Sales – CGS – Operating Expenses – Interest Expense .

1 point

True

False

Beta of MCB is slope of the characteristic lie of MCB stock.

1 point

True

False

After solving the simultaneous equations If Z UBL is found positive then to build efficient portfolio you
would have to take short position in the UBL share.
1 point

True

False

Total risk of portfolio is variance of rate of return of the portfolio.

1 point

True

False

VARp of an n- stock portfolio = X1* VAR1 + X2 *VAR2 + …….+ Xn *VARn .

1 point

True

False

Non-diversifiable risk of a stock can be equal to total risk of stock market.

1 point

True

False

To calculate variance of a 25 stock portfolio, you need to calculate 25 covariances and 25 2 unique
variances.

1 point

True

False

By building a portfolio of 4, or 10, or 20 stocks, you are deliberately taking some risk that could have
been avoided if you had built portfolio by investing in M and Rf.

1 point

True

False
Covariance between returns of 2 stocks can be any positive number , any negative number, or even
zero; but correlation can be only between +1 and -1.

1 point

True

False

If Intrinsic leading PE ratio of a share is greater than its Actual trailing PE ratio, then the share is over-
valued in the market at its current price.

1 point

True

False

1/Kc is Intrinsic leading PE ratio of a company whose dividend payout ratio, d, is equal to 1.

1 point

True

False

When weight (Xi) of a security in a portfolio is negative, it means TA of portfolio are more than OE
invested by you to build that portfolio; such portfolios are called levered portfolios.

1 point

True

False

Beta MCB is 2, Beta PTC is 1, VAR M is 100 in Pakistan; you would conclude COV MCB , PTC is 20.

1 point

True

False

Technical analysts claim to know when an upward trend in price would change to a down ward trend
and vice a versa.

1 point
True

False

If you expect price of UBL share to rise in future, then you would take long position in UBL share.

1 point

True

False

If returns of 2 stocks have perfect negative correlation then all portfolios made up by investing different
proportions of your OE in these 2 stocks would fall on a straight line on the graph paper where returns
are on the vertical axis and total risk measured as standard deviation is on the horizontal axis.

1 point

True

False

If beta of a stock is -1, expected RM is 15, and expected return of the stock are 25, then you would
conclude that alpha of that stock is -10.

1 point

True

False

According to Accounting Valuation Model, If ANI (abnormal net income) per share of every future year is
expected to higher than the previous years, then fair value of the share now is greater than its beginning
book value.

1 point

True

False

On long position in a share, your dividend yield is positive, if that company gives cash dividends.

1 point

True

False
Earning positive ROR on long position makes you wealthy; and earning a negative ROR on short position
makes you poorer.

1 point

True

False

Sum -of the weights of a portfolio (summation Xi) is always one.

1 point

True

False

Investing only in M and Rf to build you portfolio is called Passive Investment Strategy.

1 point

True

False

If semi-strong form of market efficiency is a correct theory, then fundamental analysis of securities is a
waste of time.

1 point

True

False