FIN630 Investment Analysis & Portfolio Management Spring 2009 Finalterm

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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
  

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?