Security Analysis & Portfolio Management Semester III (Fin) Section - A (1 mark each)

December 21, 2011

Que. 1 _________ measures the extra return earned on a scheme on a risk adjusted beta. (a) Alpha (b) Beta (c) Theta (d) Gamma Que. 2 _____________ refers to the annual recurring costs as a percentage of the net assets of the scheme. (a) Rate of Return (b) Expense ratio (c) Gross dividend yield (d) Standard deviation Que. 3 The market price of a ______________ scheme tends to be lower than its NAV. (a) Diversified (b) Open ended (c) Close ended (d) Balanced Que.4 A mutual fund scheme can not make any investment in the listed securities of group companies of the sponsor in excess of _________ of the net asset. (a) 30% (b) 15% (c) 25 % (d) 10% Que. 5 ______________ fund try to seek out fundamentally sound companies whose shares are currently under priced in the market. (a) Balanced (b) Growth (c) Value (d) Gilt Que.6 Nifty 50 is a stock index of NSE consists of ______ sectors of the economy (a) 22 (b) 23 (c) 24 (d) 25 Que. 7 ____________ is a hybrid of a close ended index fund and an open ended index fund. (a) Exchange traded fund (b) Hedge fund (c) Gold index fund (d) None of the above
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Que.8 ______________ is short term unsecured promissory note issued by a company to raise short term cash. (a) Negotiable certificates of deposits (b) Commercial paper (c) Call money (d) treasury bill Que.9 Which of the following statement is not true (a) Capital market is a market in equity and long term debts (b) Money market provide investors a place for parking surplus funds for long term duration (c) An auction market is one in which investors trade directly with each other (d) A primary market is one in which a borrower issues new securities in exchange for cash from an investor Que.10 Bottom up approach is also known as ________ (a) EIC analysis (b) CIE analysis (c) Bottom up approach (d) ICT analysis Que. 11 In Reliance mutual fund, Anil Dhirubhai Ambani Group ( ADAG ) is _____ of the mutual fund. (a) Custodian (b) AMC (c) Trustee (d) Sponsor Que. 12 When investments made in the country by foreigners is more than the investment in foreign countries made by local players it is known as ____________ (a) Capital account deficit (b) Current account deficit (c) current account surplus (d) capital account surplus Que. 13 A ______________ fund is a mutual fund that confines itself to investments in securities from a specified geographical area, such as Latin America, Europe or Asia. (a) Regional (b) Country (c) ADR (d) Domestic Que. 14 Financial markets facilitate competition so that best price may be available to the investors. This activity is known as: (a) Transfer price (b) Price discovery (c) Paralysis of analysis (d) Price movement Que.15 ____________ model predicts a securitys return based on unexpected changes in economic factors such as inflation, industrial production, bond risk premium and the term structure of interest rate.
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(a) (b) (c) (d)

CAPM Sharpe Markowitz APT

Que. 16 After experiencing a gain, people are willing to take more risk. This refers to ___________ . (a) Herd instinct (b) Snake bite effect (c) overconfidence (d) House money effect Que. 17 ____________ is characterized by higher tops and higher bottoms. (a) Uptrend (b) Downtrend (c) Sideways trend (d) Horizontal trend Que. 18 Inverse head and shoulder is a chart pattern that gives a single of reversal of _________. (a) Downtrend (b) Uptrend (c) Previous trend (d) Resistance Que. 19 According to technical analysis, market anomalies are a consequence of ______________ (a) investors' errors in information processing (b) investors' errors in decision making (c) both A and B (d) none of the above Que. 20 RSI means ___________ (a) Relative stochastic indicator (b) Relative stock indicator (c) Relative stock index (d) Relative strength index Que. 21 According to ___________ theory any new information is revealed about a firm, it will be incorporated into share price rapidly and rationally. (a) CAPM (b) EMH (c) APT (d) Random Walk Theory Que. 22 Which version of the EMT states that past price information is not useful to find out todays stock price? (a) Strong form (b) Semi strong form (c) Weak form (d) None of these
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Que. 23 Common types of constraints which individual investors should consider in order to establish an investment policy include ____________. (a) risk tolerance, regulatory constraints and taxes (b) investment horizon, liquidity requirements and taxes (c) risk tolerance, return requirements and taxes (d) investment horizon, liquidity requirements and risk tolerance Que. 24 You sold short ABC stock at Rs.90 per share. The current market price of the stock is Rs.70. Which of the following statement is true ? (a) You have profit of Rs.20 per share (b) You have loss of Rs.20 per share. (c) No profit no loss because you dont owned the stock (d) None of the above. Que. 25 _________is the rate earned by an investor who purchases a bond and holds it till its maturity. (a) YTM (b) CTM (c) DTH (d) ATM Que. 26 To immunize a bond portfolio against interest rate risk the investor invests in a bond portfolio whose _________ is equal to his investment horizon. (a) YTM (b) duration (c) Modified duration (d) maturity Que.27 Which of the following is not true regarding the risk of portfolio. (a) Risk is associated with the uncertainty of an investments performance. (b) The measure of risk emphasizes the extent of variability and volatility. (c) Liquidity risk is the possibility that borrowers repay the debt ahead of schedule. (d) Diversification reduces risk by spreading the portfolio across many investment Que. 28 If two securities have low correlation, the interactive risk will be _________. (a) drops out (b) more (c) small (d) negative Que. 29 In an efficient financial market, there would not be any ________________. (a) underpriced or overpriced securities (b) financial intermediaries (c) commissions or other transaction costs (d) taxes Que. 30 According to __________ model investors should select portfolios and not individual securities. (a) Markowitz (b) Single index model (c) CAPM
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(d) EMH Que. 31 ___________was first to prove that imperfect correlation between securities in the portfolio is the key reason why diversification reduces portfolio risk. (a) Markowitz (b) Sharpe (c) Tobin (d) Treyner Que. 32 _________ risk is the possibility that a company that issues bonds is unable to make the contractual payment. (a) Inflation (b) Prepayment (c) Credit (d) Liquidity Que. 33 Which of the following risks does a Indian company face as a direct consequence of operating in a global environment? (a) Political risk. (b) Exchange rate risk. (c) Inflation risk. (d) Both A & B Que. 34 The __________ line plots absolute returns versus risk that begins at the point of the risk free asset and extends to its point of tangency with the efficient frontier for risky assets. (a) SML (b) CML (c) CAPM (d) IML Que. 35 The concept of leverage in Markowitz model was developed by __________ . (a) Markowitz (b) Sharpe (c) Tobin (d) Treyner Que. 36 ____________ model decomposes a portfolio risk into systematic and unsystematic risk. (a) APT (b) CAPM (c) EMT (d) RWT Que. 37 ___________ risk can be measured using beta of the security. (a) Unsystematic (b) Systematic (c) Specific (d) unique Que. 38 APT theory was given by ________ (a) Willium Sharpe
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(b) Treyner (c) Linter (d) Stephen Ross Que. 39 In single factor model i indicates __________ . (a) risk factor component (b) return (c) idiosyncratic return component (d) error Que. 40 The prospects theory was propounded by _________ . (a) James Tobin (b) Fama (c) Miller (d) Kahneman & Tversky
Section - B (2 marks each)

Que.41 Which of the following is not one of the risk involved in international investing. (a) Changes in currency exchange rates (b) political, economic and social events (c) lack of liquidity (d) none of these Que.42 _______________ fund is a mutual fund that restricts its investment to the assets of one country and is able to allocate its funds only within the range of investment opportunities that are available in the specified country. (a) Regional fund (b) Contra fund (c) Single country fund (d) MSCI Que. 43 If the factor sensitivities of two securities are 3 and 5 respectively, and if the variance of factor is 0.0005 then calculate the covariance between the two securities. (a) 0.0025 (b) 0.0023 (c) 0.0075 (d) 0.0095 Que. 44 Following are assumptions of ____________ model. * Return can be described by a factor model * There are no arbitrage opportunities. * There are large numbers of securities that permit the formation of portfolios that diversify the firm specific risk of individual stocks. (a) CAPM (b) EMH (c) APT (d) Random walk theory Que. 45 _______________ leads all investors to invest in the tangency portfolio ( M portfolio ) which is the ideal investment decision.
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(a) (b) (c) (d)

CML SML LML PML

Que. 46 Calculate expected return on an asset whose beta = 1.25, Rf = 3% and risk premium = 8% (a) 33% (b) 13% (c) 23% (d) 24% Que. 47 The complete portfolio is ____________. (a) also called the optimal risky portfolio (b) a combination of the risk-free asset and the minimum variance portfolio, and theoretically is the same portfolio for all investors (c) a combination of the risk-free asset and the optimal risky portfolio, and theoretically is the same portfolio for all investors (d) a combination of the risk-free asset and the optimal risky portfolio, and is dependent on each investor's risk aversion Que. 48 If you can use _____ information to earn abnormal returns consistently, then the market cannot be _____ form efficient. (a) public, semi-strong (b) private, weak (c) public, weak (d) private, semi-strong Que. 49 Which of the following is not true? (a) Preference share pays regular dividend and is favoured by investors who want income foremost from their stocks. (b) A zero coupon bonds duration is equal to its maturity. (c) To immune a bond portfolio against interest rate risk the investor invests in a bond portfolio whose YTM is equal to his investment horizon. (d) A technical analyst uses various indicators to predict the stock prices in very short time period. Que. 50 Which of the following is true ? (a) If two securities have low correlation, the interactive risk will be high (b) If two securities are uncorrelated, the interactive risk drops out. (c) If two securities are positively correlated, interactive risk would be negative and would reduce total risk. (d) Total risk of portfolio depends on risk of security A and security B only. Que. 51 The standard deviation of the rate of return for Stock A is 3.46% and the standard deviation of the rate of return for Stock B is 10.58%. The covariance of the returns on Stock A and Stock B is 0.0024. What is the correlation coefficient between the returns on Stock A and Stock B? (a) 0.6556 (b) 0.0856 (c) --0.02886 (d) 0.856
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Que. 52 An investor invests Rs.40,000 in RIL, Rs.50,000 in Tisco and Rs.10,000 in RNRL. The returns from RIL = 10 % , Tisco = 20 % and RNRL = --10 %. What is the overall return from this portfolio ? (a) 22% (b) 15% (c) 13% (d) None of these Que. 53 A bond which gives the bondholder the option to exchange the bond for common stock prior to maturity is a ______________. (a) Callable bond (b) floating rate bond (c) putable bond (d) convertible bond Que. 54 Nirma Ltd. Pays Rs.5 dividend at t=1 and the discount rate is 12%, but the dividends are expected to increase by 10% annually. What should the stock sell for today ? (a) Rs.250 (b) Rs.230 (c) Rs.400 (d) None of these Que. 55 What is the current yield of a bond having 10% coupon rate and price is Rs.980. (a) 8.42% (b) 9.42% (c) 10.20% (d) 11.42% Que. 56 Financial intermediaries which pool and manage the money of many investors are called ___________ . (a) financial engineers (b) investment bankers (c) investment companies (d) credit unions Que. 57 Suppose that weather predictions published in a periodical could be used successfully to predict future prices of certain securities. This would provide evidence against the: (a) weak form of the EMT (b) semi-strong form of the EMT. (c) strong form of the EMT (d) This finding does not provide evidence against any form of the EMT. Que. 58 Which of the following statements is correct? (a) To test the strong form of EMH autocorrelation tests and filter rule are used. (b) To test the semi strong form of EMH event studies are used. (c) According to weak form of the EMH fundamental analysis is useless. (d) According to strong form of the EMH technical analysis is useless Que. 59 The fundamental test between fundamental and technical analysis is in which does the better job of ____________ (a) consistently predicting security prices and returns (b) producing elegant theoretical models
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(c) making use of modern and up-to-date empirical techniques (d) winning the practitioners, that is selling their services to investors Que. 60 Which of the following is a characteristic of the consolidation stage of the industry life cycle? (a) Emergence of industry leaders (b) Slow growth (c) Many competitors (d) New technology

Section - C (4 marks each)

Que. 61 Correct the order of investment process. 1. Perform security analysis 2. Revise the portfolio 3. Set investment policy 4. Evaluate the performance of portfolio 5. Construct a portfolio (a) 12345 (b) 34512 (c) 31524 (d) 12453 Que. 62 _________ are agreements involving the sale of securities by one party to another with a promise to repurchase the securities at a specified date and time (a) Commercial paper (b) Call option (c) Treasury bills (d) Repurchase agreements Que. 63 Which is not true about the fundamental analysis (a) Fundamental analysis is a security valuation method that uses financial and economic analysis to evaluate businesses (b) Fundamental analysis is used to determine the fair or intrinsic value of securities (c) Fundamental analysis is based on the assumption that in the long run the market price of a security can differ from its intrinsic value. (d) The end goal of fundamental analysis is to produce a fair value of security Que. 64 Which of the following is not a case where moving-average analysis indicated a buy recommendation? (a) the moving-average line becomes more horizontal and the price rises up through the line (b) a temporary price rise through a downward sloping moving-average line (c) a temporary price drop through an upward sloping moving-average line (d) a price remaining above the moving-average line drops and then rebounds Que. 65 Which of the following statements is true? (I.) In a strong form efficient market, there are no mispriced assets
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(II) In a strong form efficient market, all information is equally available to all investors. (a) I only (b) Neither I or II (c) Both I and II (d) II only Que. 66 A security analyst has following data of probability distribution of the possible return on Infosys. Find the standard deviation of the stock. Probability Return 0.4 10% 0.5 14% 0.1 20% (a)3.00% (b)4.00% (c)3.5% (d)4.5% Que. 67 Calculate the variance of a portfolio consisting of 2 stocks A & B in equal proportion. For stock A = 1.2 & = 6.06% For stock B = 0.8 & = 4.76% m = 8 % ( Standard deviation of market return ) (a) 0.00036 (b) 0.0021 (c) 0.0079 (d) 0.0097 Que. 68 The value of beta does not depend on ___________ (a) Numbers of observations used (b) Specific time period used (c) Market index used (d) Return on stock Que. 69 Which of the following is not one of the assumptions of CAPM? (a) Investors are risk averse and they have same holding period. (b) Markets are assumed to be perfectly competitive. (c) There are no transaction cost and no taxes to be paid. (d) Information is not freely and instantly available to all investors. Que. 70 If GDP grows by 2.9%, inflation by 3% and factor sensitivities of the security to GDP and inflation are 2.2 and 0.7 respectively, and ai = 5.8%, then find the expected return according to the factor model. (a) 10% (b) 11% (c) 12% (d) 13% Que. 71 Match the following. Index (1) FTSE (2) DAX (3) CAC (4) BOVESPA
Security Analysis & Portfolio Management

Country (a) German (b) France (c) Brazil (d) Germany

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(a) (b) (c) (d)

1-a, 2-b, 3-c, 4-d 1-e, 2-a, 3-b, 4-c 1-a, 2-c, 3-b, 4-e 1-e, 2-a, 3-e, 4-c

(e) England

Que.72 Which of the following statements is true about derivative securities? (a) Derivatives are frequently used to hedge risks. (b) The term "derivatives" stems from the fact that related securities derive their value from options and futures contracts. (c) Since the buyers of derivatives use these securities to hedge risks, only sellers of derivatives take speculative positions in the underlying assets. (d) All of the above statements about derivatives are true. Que. 73 Mr. X wants to buy 13%, 5 year bond that sell for Rs.1036, YTM is 12%, What is duration of the bond ? (a) 3.89 years (b) 3.99 years (c) 3.90 years (d) 4.05 years Que. 74 A company issues a bond with a face value Rs.100. It is currently trading at Rs.98. The interest rate offered by the company is 9% & the bond has a maturity period of 20 years. What is YTM? (a) 12.95% (b) 10.95% (c) 9.19% (d) None of these Que. 75 Mr.X had purchased 100 shares of Rs.10 each of TVS ltd. In 2005 at Rs.78 per share. The company had declared a dividend @ 40 % for the year 2006-2007. The market price of a share as on 1.4.2006 was Rs.104 and on 31.3.2007 was Rs.128. The annual return on the investment for the year 2006-2007 is ________. (a) 36.92% (b) 29.92% (c) 21.92% (d) 26.92%

Security Analysis & Portfolio Management

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