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07-16-2010, 06:10 PM
FINALTERM EXAMINATION
Spring 2009
FIN630- Investment Analysis & Portfolio Management
Marks: 81
Question No: 1 ( Marks: 1 ) - Please choose one
The price at which a security dealer sells a security is known as:
Bid price
Market price
Offer price
Order price
Question No: 2 ( Marks: 1 ) - Please choose one
__________ is a temporary restriction on program trading in a particular security or
market, usually to reduce dramatic price movements.
SuperDot
NYSE direct
Trading curb
Ticker tape
Question No: 3 ( Marks: 1 ) - Please choose one
A brokerage account in which broker lends the customer cash to purchase securities is
called:
Margin account
Cash account
IRA account
Option account
Question No: 4 ( Marks: 1 ) - Please choose one
The Dow theory use _______ to follow three major types of market movements.
Charting
Key indicators
Fundamental analysis
Technical analysis
Question No: 5 ( Marks: 1 ) - Please choose one
Which of the following is defined as a procedure for valuing the price of a stock by using
predicted dividends and discounting them back to present value?
Relative Strength Index
On Balance Volume
Dividend Discount Model
Bollinger bands
Question No: 6 ( Marks: 1 ) - Please choose one
When inflation and interest rates are low, Price per Earning (P/E) ratio tend to be:
High
Low
Minimum
Average
Question No: 7 ( Marks: 1 ) - Please choose one
Which of the following is EXCLUDED from Porter s competitive factors?
Substitute products or services
Changes in the economy
Bargaining power of buyers
Rivalry between existing competitors
Question No: 8 ( Marks: 1 ) - Please choose one
Which of the following is a basket of stocks that tracks a particular sector, investment
style, geographical area, or the market as a whole?
Exchange traded fund
Open-end fund
Closed-end fund
Unit investment trust
Question No: 9 ( Marks: 1 ) - Please choose one
If an investor wants to avoid transaction costs, which of the following strategy should he
select?
Active strategy
Defensive strategy
Buy and hold strategy
Sector rotation
Question No: 10 ( Marks: 1 ) - Please choose one
Which of the following is the annual net income from an average investment expressed as
a percentage of average amount invested?
Net asset value
Return on equity
Return on average investment (ROI)
Discounted value
Question No: 11 ( Marks: 1 ) - Please choose one
Which of the following would justify an investor preference for cash dividends?
Illusion of control
Anchoring
Mental accounting
Asset segregation
Question No: 12 ( Marks: 1 ) - Please choose one
Which of the following is NOT a "value-weighted" index?
NYSE Composite Index
Dow-Jones Industrial Average
NASDAQ Composite Index
Standard & Poor's 500 Index
Question No: 13 ( Marks: 1 ) - Please choose one
Which of the following focuses on how investors interpret and act on information to
make informed investment decisions?
Dividend discount model
Efficient market hypothesis
Dow Theory
Behavioral finance
Question No: 14 ( Marks: 1 ) - Please choose one
Which of the following is expressed as index number relative to a base index value of 10?
Dow-Jones Industrial Average
NASDAQ Composite Index
Standard & Poor's 500 Index
NYSE Composite Index
Question No: 15 ( Marks: 1 ) - Please choose one
Which of the following is NOT included in money market securities?
Treasury Bill
Certificate of deposit
Commercial paper
Future
Question No: 16 ( Marks: 1 ) - Please choose one
Which of the following is an example of a non-marketable security?
Treasury bill
Negotiated CD
U.S. Government savings bond
Banker s acceptance
Question No: 17 ( Marks: 1 ) - Please choose one
Which of the following statement is TRUE about yield to maturity?
Yield to maturity is inversely related to bond price
Yield to maturity is always less than the yield to call
Yield to maturity will be less than the current yield
Yield to maturity tends to fall with a rise in duration
Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following statement is TRUE about yield to maturity?
Yield to maturity is inversely related to bond price
Yield to maturity is always less than the yield to call
Yield to maturity will be less than the current yield for bonds purchased at a
discount
Yield to maturity tends to fall with a rise in duration
Question No: 19 ( Marks: 1 ) - Please choose one
Which of the following statement is TRUE regarding bond prices?
Bond prices are expressed as a percentage of discounted value
Bond prices are expressed as a percentage of par value
Bond prices are expressed as a percentage of future value
Bond prices are expressed as a percentage of intrinsic value
Question No: 20 ( Marks: 1 ) - Please choose one
The value of the bond is NOT directly tied to the value of which of the following assets?
Real assets of the business
Liquid assets of the business
Fixed assets of the business
Long term assets of the business
Question No: 21 ( Marks: 1 ) - Please choose one
Which of the following is known as speculative bond?
Government bond
Municipal bond
Sovereign bond
Junk bond
Question No: 22 ( Marks: 1 ) - Please choose one
Bond horizon premium is the difference between which of the following types of
securities?
Long- and short-term government securities
Stock and risk-free returns
Equity and shot-term government securities
None of the given options
Question No: 23 ( Marks: 1 ) - Please choose one
The market value of a company stock has declined due to competition in the market. The
investors of this company are faced with what type of risk?
Financial risk
Market risk
Interest rate risk
Business risk
Question No: 24 ( Marks: 1 ) - Please choose one
Which of the following bond redeems the principal amount at maturity and pays no
periodic income?
Municipal bond
Corporate bond
Junk bond
Zero coupon bond
Question No: 25 ( Marks: 1 ) - Please choose one
Diversifying without looking at relevant investment characteristics is known as:
Random diversification
Non-random diversification
Horizontal diversification
Vertical diversification
Question No: 26 ( Marks: 1 ) - Please choose one
Which of the following statement is FALSE about efficient portfolio?
An efficient portfolio provides greatest expected return for a given level of risk
Investors can identify efficient portfolios by specifying an expected portfolio
return
Investors can identify efficient portfolios by maximizing the portfolio-risk
Efficient portfolio risks are measured by the standard deviation
Question No: 27 ( Marks: 1 ) - Please choose one
Which of the following statement is CORRECT?
One hundred stocks are required to eliminate the bulk of the diversifiable risk from
a portfolio
Standard deviation measures diversifiable risk
The number of stocks needed to highly diversify a portfolio is constant over time
A fully diversified portfolio still contains undiversifiable risk
Question No: 28 ( Marks: 1 ) - Please choose one
Which of the following statement is TRUE regarding efficient frontier?
It is a downward sloping curved line
It is an upward sloping straight line
It is a downward sloping straight line
It is an upward sloping curved line
Question No: 29 ( Marks: 1 ) - Please choose one
When beta of a security >1.0, it indicates that:
Security is more risky than the market
Security is less risky than the market
Security is as risky as the market
Security is not risky at all
Question No: 30 ( Marks: 1 ) - Please choose one
A bond will sell at a discount when __________.
The coupon rate is greater than the current yield and the current yield is greater
than yield to maturity
The coupon rate is greater than yield to maturity
The coupon rate is less than the current yield and the current yield is greater than
the yield to maturity
The coupon rate is less than the current yield and the current yield is less than
yield to maturity
Question No: 31 ( Marks: 1 ) - Please choose one
The _________ is a measure of the average rate of return an investor will earn if the
investor buys the bond now and holds until maturity.
Current yield
Dividend yield
P/E ratio
Yield to maturity
Question No: 32 ( Marks: 1 ) - Please choose one
Nominal rate of interest
inflation is equal to which of the following?
Interest amount
Nominal interest
Risk premium
Real rate of interest
Question No: 33 ( Marks: 1 ) - Please choose one
The APT was developed in 1976 by ____________.
Lintner
Modigliani and Miller
Ross
Sharpe
Question No: 34 ( Marks: 1 ) - Please choose one
Which of the following is a financial instrument whose return is derived from the return
on another instrument?
Derivative security
Fixed income security
Equity security
Money market security
Question No: 35 ( Marks: 1 ) - Please choose one
Which of the following is a derivative in which one party exchanges a stream of interest
payments for another party's stream of cash flows?
Foreign currency swap
Total return swap
Credit default swap
Interest rate swap
Question No: 36 ( Marks: 1 ) - Please choose one
Which of the following is a commodity/security market in which goods are sold and
delivered immediately?
Spot market
Forward market
Laissez-faire market
Future market
Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following statement is FALSE regarding forward contracts?
Forward contracts are traded on over- the-counter market
There is no surety/guarantee of the trade settlement
There are no pre determined standards in future contracts
Forward contracts involve a process known as marking to market
Question No: 38 ( Marks: 1 ) - Please choose one
Which of the following refers to the simultaneous purchase and sale in two markets so
that the selling price is higher than the buying price by more than the transaction cost?
Hedging
Arbitrage
Speculation
Brokerage
Question No: 39 ( Marks: 1 ) - Please choose one
Which of the following statement is FALSE regarding short hedge?
The value of short hedge contracts is equal the value of the stock portfolio
A short futures hedge is appropriate when you know you will purchase an asset in
the future and want to lock in the price
A short futures hedge is appropriate when you know you will sell an asset in the
future & want to lock in the price
A short hedge reduces or possibly eliminates the risk taken in a long position
Question No: 40 ( Marks: 1 ) - Please choose one
S & P 500 future stock index closes at $ 300 and spot price is $ 325. What is its basis?
-25
-30
25
30
Question No: 41 ( Marks: 1 ) - Please choose one
Secondary trend in Dow Theory is known as __________.
Triangle
Wave
Tide
Rounded bottom
Question No: 42 ( Marks: 1 ) - Please choose one
Which of the following is TRUE about profitability ratios?
Profitability ratios are designed to measure a business's ability to generate earnings
Profitability ratios are designed to measure the quality of a company's operations
Profitability ratios are designed to measure a company's ability to cover its shortterm
obligations
Profitability ratios are designed to measure the percentage of earnings paid to
shareholders
Question No: 43 ( Marks: 3 )
Define covariance.What does covariance shows?
Question No: 44 ( Marks: 3 )
What is meant by Interest rate tradeoff"?
Question No: 45 ( Marks: 3 )
What is the difference between the spot market and the futures market?
Question No: 46 ( Marks: 5 )
Describe the general types of risk in detail.
Question No: 47 ( Marks: 5 )
Describe why an investor might purchase a call.
Question No: 48 ( Marks: 10 )
What is meant by expected return? Describe how expected return of a portfolio is
calculated.
Question No: 49 ( Marks: 10 )
Do you agree with the following statements? Justify your answer in each case with proper
reasoning?
a) Stock index acts as effective barometer, which gauge the prevalent market
sentiments and behaviors.
b) Stock market move randomly.
Spring 2009
FIN630- Investment Analysis & Portfolio Management
Marks: 81
Question No: 1 ( Marks: 1 ) - Please choose one
The price at which a security dealer sells a security is known as:
Bid price
Market price
Offer price
Order price
Question No: 2 ( Marks: 1 ) - Please choose one
__________ is a temporary restriction on program trading in a particular security or
market, usually to reduce dramatic price movements.
SuperDot
NYSE direct
Trading curb
Ticker tape
Question No: 3 ( Marks: 1 ) - Please choose one
A brokerage account in which broker lends the customer cash to purchase securities is
called:
Margin account
Cash account
IRA account
Option account
Question No: 4 ( Marks: 1 ) - Please choose one
The Dow theory use _______ to follow three major types of market movements.
Charting
Key indicators
Fundamental analysis
Technical analysis
Question No: 5 ( Marks: 1 ) - Please choose one
Which of the following is defined as a procedure for valuing the price of a stock by using
predicted dividends and discounting them back to present value?
Relative Strength Index
On Balance Volume
Dividend Discount Model
Bollinger bands
Question No: 6 ( Marks: 1 ) - Please choose one
When inflation and interest rates are low, Price per Earning (P/E) ratio tend to be:
High
Low
Minimum
Average
Question No: 7 ( Marks: 1 ) - Please choose one
Which of the following is EXCLUDED from Porter s competitive factors?
Substitute products or services
Changes in the economy
Bargaining power of buyers
Rivalry between existing competitors
Question No: 8 ( Marks: 1 ) - Please choose one
Which of the following is a basket of stocks that tracks a particular sector, investment
style, geographical area, or the market as a whole?
Exchange traded fund
Open-end fund
Closed-end fund
Unit investment trust
Question No: 9 ( Marks: 1 ) - Please choose one
If an investor wants to avoid transaction costs, which of the following strategy should he
select?
Active strategy
Defensive strategy
Buy and hold strategy
Sector rotation
Question No: 10 ( Marks: 1 ) - Please choose one
Which of the following is the annual net income from an average investment expressed as
a percentage of average amount invested?
Net asset value
Return on equity
Return on average investment (ROI)
Discounted value
Question No: 11 ( Marks: 1 ) - Please choose one
Which of the following would justify an investor preference for cash dividends?
Illusion of control
Anchoring
Mental accounting
Asset segregation
Question No: 12 ( Marks: 1 ) - Please choose one
Which of the following is NOT a "value-weighted" index?
NYSE Composite Index
Dow-Jones Industrial Average
NASDAQ Composite Index
Standard & Poor's 500 Index
Question No: 13 ( Marks: 1 ) - Please choose one
Which of the following focuses on how investors interpret and act on information to
make informed investment decisions?
Dividend discount model
Efficient market hypothesis
Dow Theory
Behavioral finance
Question No: 14 ( Marks: 1 ) - Please choose one
Which of the following is expressed as index number relative to a base index value of 10?
Dow-Jones Industrial Average
NASDAQ Composite Index
Standard & Poor's 500 Index
NYSE Composite Index
Question No: 15 ( Marks: 1 ) - Please choose one
Which of the following is NOT included in money market securities?
Treasury Bill
Certificate of deposit
Commercial paper
Future
Question No: 16 ( Marks: 1 ) - Please choose one
Which of the following is an example of a non-marketable security?
Treasury bill
Negotiated CD
U.S. Government savings bond
Banker s acceptance
Question No: 17 ( Marks: 1 ) - Please choose one
Which of the following statement is TRUE about yield to maturity?
Yield to maturity is inversely related to bond price
Yield to maturity is always less than the yield to call
Yield to maturity will be less than the current yield
Yield to maturity tends to fall with a rise in duration
Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following statement is TRUE about yield to maturity?
Yield to maturity is inversely related to bond price
Yield to maturity is always less than the yield to call
Yield to maturity will be less than the current yield for bonds purchased at a
discount
Yield to maturity tends to fall with a rise in duration
Question No: 19 ( Marks: 1 ) - Please choose one
Which of the following statement is TRUE regarding bond prices?
Bond prices are expressed as a percentage of discounted value
Bond prices are expressed as a percentage of par value
Bond prices are expressed as a percentage of future value
Bond prices are expressed as a percentage of intrinsic value
Question No: 20 ( Marks: 1 ) - Please choose one
The value of the bond is NOT directly tied to the value of which of the following assets?
Real assets of the business
Liquid assets of the business
Fixed assets of the business
Long term assets of the business
Question No: 21 ( Marks: 1 ) - Please choose one
Which of the following is known as speculative bond?
Government bond
Municipal bond
Sovereign bond
Junk bond
Question No: 22 ( Marks: 1 ) - Please choose one
Bond horizon premium is the difference between which of the following types of
securities?
Long- and short-term government securities
Stock and risk-free returns
Equity and shot-term government securities
None of the given options
Question No: 23 ( Marks: 1 ) - Please choose one
The market value of a company stock has declined due to competition in the market. The
investors of this company are faced with what type of risk?
Financial risk
Market risk
Interest rate risk
Business risk
Question No: 24 ( Marks: 1 ) - Please choose one
Which of the following bond redeems the principal amount at maturity and pays no
periodic income?
Municipal bond
Corporate bond
Junk bond
Zero coupon bond
Question No: 25 ( Marks: 1 ) - Please choose one
Diversifying without looking at relevant investment characteristics is known as:
Random diversification
Non-random diversification
Horizontal diversification
Vertical diversification
Question No: 26 ( Marks: 1 ) - Please choose one
Which of the following statement is FALSE about efficient portfolio?
An efficient portfolio provides greatest expected return for a given level of risk
Investors can identify efficient portfolios by specifying an expected portfolio
return
Investors can identify efficient portfolios by maximizing the portfolio-risk
Efficient portfolio risks are measured by the standard deviation
Question No: 27 ( Marks: 1 ) - Please choose one
Which of the following statement is CORRECT?
One hundred stocks are required to eliminate the bulk of the diversifiable risk from
a portfolio
Standard deviation measures diversifiable risk
The number of stocks needed to highly diversify a portfolio is constant over time
A fully diversified portfolio still contains undiversifiable risk
Question No: 28 ( Marks: 1 ) - Please choose one
Which of the following statement is TRUE regarding efficient frontier?
It is a downward sloping curved line
It is an upward sloping straight line
It is a downward sloping straight line
It is an upward sloping curved line
Question No: 29 ( Marks: 1 ) - Please choose one
When beta of a security >1.0, it indicates that:
Security is more risky than the market
Security is less risky than the market
Security is as risky as the market
Security is not risky at all
Question No: 30 ( Marks: 1 ) - Please choose one
A bond will sell at a discount when __________.
The coupon rate is greater than the current yield and the current yield is greater
than yield to maturity
The coupon rate is greater than yield to maturity
The coupon rate is less than the current yield and the current yield is greater than
the yield to maturity
The coupon rate is less than the current yield and the current yield is less than
yield to maturity
Question No: 31 ( Marks: 1 ) - Please choose one
The _________ is a measure of the average rate of return an investor will earn if the
investor buys the bond now and holds until maturity.
Current yield
Dividend yield
P/E ratio
Yield to maturity
Question No: 32 ( Marks: 1 ) - Please choose one
Nominal rate of interest
inflation is equal to which of the following?
Interest amount
Nominal interest
Risk premium
Real rate of interest
Question No: 33 ( Marks: 1 ) - Please choose one
The APT was developed in 1976 by ____________.
Lintner
Modigliani and Miller
Ross
Sharpe
Question No: 34 ( Marks: 1 ) - Please choose one
Which of the following is a financial instrument whose return is derived from the return
on another instrument?
Derivative security
Fixed income security
Equity security
Money market security
Question No: 35 ( Marks: 1 ) - Please choose one
Which of the following is a derivative in which one party exchanges a stream of interest
payments for another party's stream of cash flows?
Foreign currency swap
Total return swap
Credit default swap
Interest rate swap
Question No: 36 ( Marks: 1 ) - Please choose one
Which of the following is a commodity/security market in which goods are sold and
delivered immediately?
Spot market
Forward market
Laissez-faire market
Future market
Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following statement is FALSE regarding forward contracts?
Forward contracts are traded on over- the-counter market
There is no surety/guarantee of the trade settlement
There are no pre determined standards in future contracts
Forward contracts involve a process known as marking to market
Question No: 38 ( Marks: 1 ) - Please choose one
Which of the following refers to the simultaneous purchase and sale in two markets so
that the selling price is higher than the buying price by more than the transaction cost?
Hedging
Arbitrage
Speculation
Brokerage
Question No: 39 ( Marks: 1 ) - Please choose one
Which of the following statement is FALSE regarding short hedge?
The value of short hedge contracts is equal the value of the stock portfolio
A short futures hedge is appropriate when you know you will purchase an asset in
the future and want to lock in the price
A short futures hedge is appropriate when you know you will sell an asset in the
future & want to lock in the price
A short hedge reduces or possibly eliminates the risk taken in a long position
Question No: 40 ( Marks: 1 ) - Please choose one
S & P 500 future stock index closes at $ 300 and spot price is $ 325. What is its basis?
-25
-30
25
30
Question No: 41 ( Marks: 1 ) - Please choose one
Secondary trend in Dow Theory is known as __________.
Triangle
Wave
Tide
Rounded bottom
Question No: 42 ( Marks: 1 ) - Please choose one
Which of the following is TRUE about profitability ratios?
Profitability ratios are designed to measure a business's ability to generate earnings
Profitability ratios are designed to measure the quality of a company's operations
Profitability ratios are designed to measure a company's ability to cover its shortterm
obligations
Profitability ratios are designed to measure the percentage of earnings paid to
shareholders
Question No: 43 ( Marks: 3 )
Define covariance.What does covariance shows?
Question No: 44 ( Marks: 3 )
What is meant by Interest rate tradeoff"?
Question No: 45 ( Marks: 3 )
What is the difference between the spot market and the futures market?
Question No: 46 ( Marks: 5 )
Describe the general types of risk in detail.
Question No: 47 ( Marks: 5 )
Describe why an investor might purchase a call.
Question No: 48 ( Marks: 10 )
What is meant by expected return? Describe how expected return of a portfolio is
calculated.
Question No: 49 ( Marks: 10 )
Do you agree with the following statements? Justify your answer in each case with proper
reasoning?
a) Stock index acts as effective barometer, which gauge the prevalent market
sentiments and behaviors.
b) Stock market move randomly.