FINALTERM EXAMINATION
Spring 2009
FIN630- Investment Analysis & Portfolio Management

Marks: 81

Question No: 1 ( Marks: 1 ) - Please choose one
Shares of McDonald Corporation are an example of a (n):

  • Standardized financial instrument
  • Non-standardized financial instrument since their prices can differ over time
  • Standardized financial liability instrument
  • Open-end investment


Question No: 2 ( Marks: 1 ) - Please choose one
Which of the following includes fixed income securities?

  • Bonds
  • Shares
  • Derivatives
  • Options


Question No: 3 ( Marks: 1 ) - Please choose one
Companies that have capitalization amounts of less than $500 million are known as
_________.

  • Small cap companies
  • Mid cap companies
  • Growth companies
  • Large cap companies


Question No: 4 ( Marks: 1 ) - Please choose one
In bar chart, which color indicates share prices are going down?

  • Blue
  • Black
  • White
  • Red


Question No: 5 ( Marks: 1 ) - Please choose one
What will be the resulting figure,when gross profit is divided by net sales?

  • Gross margin
  • Operating margin
  • Net margin
  • Profit margin


Question No: 6 ( Marks: 1 ) - Please choose one
In bottom-up approach of fundamental analysis, investors begin their analysis with:

  • Industry
  • Economy
  • Market
  • Company


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 defined as the gradual loss in value of equipment and other
tangible assets over the course of its useful life?

  • Appreciation
  • Depreciation
  • Revaluation
  • Amortization


Question No: 9 ( Marks: 1 ) - Please choose one
On which of the following financial statements, revenues and expenses can be found?

  • Balance sheet
  • Income statement
  • Statement of cash flows
  • Statement of changes in equity


Question No: 10 ( Marks: 1 ) - Please choose one
Which of the following is an example of brokerage fee charged by a stockbroker?

  • Margin profit
  • Insurance premium
  • Transaction cost
  • Capital expenditure


Question No: 11 ( Marks: 1 ) - Please choose one
Technical analysis is NOT applicable in which form of efficient market hypothesis?

  • Weak form efficiency
  • Semi-strong form efficiency
  • Strong-form efficiency
  • Weak and strong form of efficiency


Question No: 12 ( Marks: 1 ) - Please choose one
Which of the following suggests that people express a different degree of emotion
towards gains than towards losses?

  • Prospect theory
  • Illusion of control
  • Anchoring
  • Loss aversion


Question No: 13 ( Marks: 1 ) - Please choose one
LSE 25 index was last reconstituted on _______ in line with the regular review policy.

  • 20th December, 2002
  • 1st July, 2006
  • 25th July, 2007
  • 1st July, 2008


Question No: 14 ( Marks: 1 ) - Please choose one
Which of the following is considered to be a characteristic of an equity security?

  • Fixed income
  • Debt
  • Price
  • Ownership


Question No: 15 ( 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: 16 ( Marks: 1 ) - Please choose one
The yield to maturity is equal to the realized compound return if all coupon interest
payments:

  • Are not reinvested
  • Are reinvested at the market rate
  • Are reinvested at the bond's coupon rate
  • Are reinvested at the bond's yield to maturity


Question No: 17 ( Marks: 1 ) - Please choose one
Which of the following measures the sensitivity of an asset's price to interest rate
movements, expressed as a number of years?

  • Duration
  • Yield to maturity
  • Convexity
  • Immunization


Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following statement is FALSE regarding bond duration?

  • Duration is shorter than maturity for all bonds except zero coupon bonds
  • Duration is equal to maturity for zero coupon bonds
  • Duration is directly related to coupon yield
  • Duration is measured in years


Question No: 19 ( Marks: 1 ) - Please choose one
Which of the following statement is TRUE about duration of a bond?

  • It is less than maturity for bonds paying coupon interest
  • It is directly related to coupon yield
  • It decreases with maturity
  • It is greater than maturity for zero coupon bonds


Question No: 20 ( Marks: 1 ) - Please choose one
Which of the following statement is FALSE regarding bond duration?

  • Bond duration is inversely related to coupon rate
  • Duration of a zero-coupon bond equals its time to maturity
  • Holding maturity constant, a bond s duration is higher when the coupon rate is
  • lower
  • Duration is longer than maturity for all bonds except zero coupon bonds


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


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Question No: 22 ( Marks: 1 ) - Please choose one
Which of the following is referred to as risk-free bond?

  • Government bond
  • Municipal bond
  • Sovereign bond
  • Junk bond


Question No: 23 ( Marks: 1 ) - Please choose one
Diversification is the only way to protect investors from:

  • Market risk
  • Nonsystematic risk
  • Systematic risk
  • General risk


Question No: 24 ( Marks: 1 ) - Please choose one
The excess return that an individual stock or the overall stock market provides over a
risk-free rate is known as _____________.

  • Equity risk premium
  • Bond horizon premium
  • Share premium
  • Liquidity premium


Question No: 25 ( Marks: 1 ) - Please choose one
Systematic risk contains all of the following components EXCEPT:

  • Purchasing power risk
  • Market risk
  • Business risk
  • Interest rate risk


Question No: 26 ( 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: 27 ( Marks: 1 ) - Please choose one
Which of the following measures deviation of returns from the mean?

  • Variance
  • Standard deviation
  • Geometric mean
  • Correlation coefficient


Question No: 28 ( Marks: 1 ) - Please choose one
Which of the following statement is FALSE?

  • Each portfolio asset has a weight which represents the percent of the total portfolio
  • value
  • Portfolio risk is not a weighted average of the risk of individual securities in the
  • portfolio
  • Portfolio risk is measured by variance or standard deviation of the portfolio s
  • return
  • None of the given options


Question No: 29 ( Marks: 1 ) - Please choose one
Which of the following is defined as a line that graphs the systematic, or market, risk
versus return of the whole market at a certain time and shows all risky marketable
securities?

  • Security market line
  • Capital market line
  • Budget line
  • Value line



Question No: 30 ( Marks: 1 ) - Please choose one
What is the other name used for optimal portfolio?

  • Business portfolio
  • Market portfolio
  • Mutual fund portfolio
  • Systematic portfolio


Question No: 31 ( Marks: 1 ) - Please choose one
Which of the following is FALSE regarding separation theorem?

  • The firm's investment decision is independent of the preferences of the owner
  • The investment decision is dependent on financial decision
  • Risky portfolios are not tailored to each individual s taste
  • It is possible to separate investment decisions from financial decisions


Question No: 32 ( Marks: 1 ) - Please choose one
Which of the following is a measure of securities volatility or systematic risk in
comparison to the market as a whole?

  • Beta
  • Return on equity
  • Liquidity
  • Rate of return


Question No: 33 ( Marks: 1 ) - Please choose one
A single-index model uses __________ as a proxy for the systematic risk factor.

  • A market index, such as the S&P 500
  • The current account deficit
  • The growth rate in GNP
  • The unemployment rate


Question No: 34 ( Marks: 1 ) - Please choose one
The concept that two identical assets cannot be sold at different prices is associated with
which of the following theory?

  • Prospect Theory
  • Modern Portfolio Theory
  • Dow Theory
  • Arbitrage Pricing Theory


Question No: 35 ( Marks: 1 ) - Please choose one
Which of the following is NOT an anomaly related to efficient market hypothesis?

  • Low PE effect
  • The small firm effect
  • The neglected firm effect
  • Common size effect


Question No: 36 ( Marks: 1 ) - Please choose one
Which of the following is defined as an obligatory agreement to transact in the future,
based on future price expectations?

  • Forward contract
  • Futures contract
  • Annuity contract
  • Spread contract


Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following is defined as a user of the market, who enters into futures contract
to manage the risk of adverse price fluctuation in respect of his existing or future asset?

  • Speculator
  • Broker
  • Hedger
  • Arbitrager


Question No: 38 ( 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: 39 ( Marks: 1 ) - Please choose one
In which of the following situation, the writers of call options expect profit?

  • When the stock price declines
  • When the stock prices remain the same
  • When increase in stock price is less than premium
  • All of the given options


Question No: 40 ( Marks: 1 ) - Please choose one
Which of the following is defined as an option whose payoff depends on whether or not
the underlying asset has reached or exceeded a predetermined price?

  • Barrier option
  • Forward start option
  • Over-the-counter options
  • Compound options


Question No: 41 ( Marks: 1 ) - Please choose one
An over-the-counter market can be defined as:

  • A network of dealers connected electronically
  • An illegal secondary market for stocks used primarily by those attempting to
  • evade taxes
  • A primary market for stocks
  • A form of centralized exchange


Question No: 42 ( Marks: 1 ) - Please choose one
Which of the following is specifically a measure of a volatility of the stock or mutual
fund?

  • Beta
  • Standard deviation
  • Covariance
  • None of the given options


Question No: 43 ( Marks: 3 )
What is the relationship between risk and return?

Question No: 44 ( Marks: 3 )
Define a zero coupon bond?

Question No: 45 ( Marks: 3 )
Describe how derivatives are used as a risk management tool.


Question No: 46 ( Marks: 5 )
Bonds are 100% risk free investments. Do you agree with this statement? Justify your
answer in either case.

Question No: 47 ( Marks: 5 )
The key to maximize profits is diversification . Do you agree with this statement?

Question No: 48 ( Marks: 10 )
Explain the indicators used to measure the fluctuations in equity market.

Question No: 49 ( Marks: 10 )
What is diversification? Describe the impact of diversification on Risk?