FINALTERM EXAMINATION Spring 2009 FIN630- Investment Analysis & Portfolio Mana

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FINALTERM EXAMINATION
Spring 2009
FIN630- Investment Analysis & Portfolio Management (Session - 2)
 
                                                                                                            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
(Q# 6)http://highered.mcgrawhill.com/sites/0073523097/student_view0/chapter3/quiz_1.html
Question No: 2 ( Marks: 1 ) - Please choose one
Which of the following includes fixed income securities?
Bonds
Shares
Derivatives   
Options
(lesson #1 slide )Fixed Income Securities: e.g. bonds, preferred stock
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
(lesson #6 slide) Small-cap stocks : A firm with capitalization less than $500 million.
Question No: 4 ( Marks: 1 ) - Please choose one
In bar chart, which color indicates share prices are going down?
Blue
Black
White
Red
(lesson # 7 slide) Blue color indicates market or share price is going up.
Red color indicates market or share price is going downQuestion 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
(lesson # 12 slide) Gross Margin is the resulting percentage when Gross Profit is
divided by Net Sales.
Gross Margin = Gross Profit/Net Sales
Question No: 6 ( Marks: 1 ) - Please choose one
In bottom-up approach of fundamental analysis, investors begin their analysis with:
Industry
Economy
Market
Company
(page 90 )With the bottom-up approach, investors focus directly on a company’s
basics, or fundamentals. Analysis of such information as the company’s products, its
competitive position, and its financial status leads to an estimate of the company’s
earnings potential and, ultimately, its value in the, market.
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
Depreciation is the gradual loss in value of equipment and other tangible assets
over the course of its useful life.
http://nptel.iitm.ac.in/courses/IIT-MADRAS/Management_Science_II/Pdf/2_2.pdf
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
http://nptel.iitm.ac.in/courses/IIT-MADRAS/Management_Science_II/Pdf/2_2.pdf
Income statement: prepared from the revenue, expenses, gains, and losses.
http://www.netmba.com/accounting/fin/process/
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(Q# 13) http://highered.mcgrawhill.com/sites/0073523097/student_view0/chapter3/quiz_1.html
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
(Lesson # 23 slide # 23) Technical analysis: Not valuable if the weak form holds.
• Fundamental analysis of intrinsic value.
– Not valuable if semi-strong form holds.
– Experience average results.
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
Prospect theory suggests people express a different degree of emotion towards
gains than towards losses. Individuals are more stressed by prospective losses
than they are happy from equal gains.
http://www.investopedia.com/articles/05/032905.asp#axzz1OrPt4cId
Question No: 13 ( Marks: 1 ) - Please choose one
LSE 25 index was last reconstituted on_______ in line with regular review policy.
20th December, 2002
1st July, 2006
25th July, 2007
1st July, 2008
(Lesson # 25 , Slide # 25 )
• LSE launched a new 25-Index on December 20, 2002, which replaced the 101-
Index.The Index has a Base Figure of 1000. (The Index closed at 5442.69 on
24th April, 2006).
• LSE 25-Index includes the top 25 traded companies at LSE and captures 53% of
the market capitalization and 98% of the total trading volume of LSE.
• The Index was last reconstituted on July 1st 2006, in line with the regular
review policy.
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
An equity security is described as a security representing an ownership interest
such as common, preferred, or other capital stock.http://www.uamont.edu/facultyweb/gulledge/Intermediate_III/Questions/Ch17%20Q
uestions.pdf
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
The yield to maturity is inversely related to the bond price. Bond prices and market
interest rates move in opposite directions. Why? As interest rates rise, new bonds will
pay higher coupon rates than existing bonds. The prices of existing bonds fall in the
secondary market, so the yield to maturity rises. This negative relationship between
interest rate and value is true for all debt securities, not just coupon bonds.
http://www.oswego.edu/~edunne/340ch6part1.htm
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
Q# 14) http://highered.mcgrawhill.com/sites/007338240x/student_view0/chapter10/multiple_choice_quiz.html
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
Bond duration — In finance, the duration of a financial asset measures the
sensitivity of the asset s price to interest rate movements, expressed as a number of
years.
http://universalium.academic.ru/83867/bond_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
Duration is measured in years; however, do not confuse it with a bond’s maturity. 
For all bonds, duration is shorter than maturity except zero coupon bonds, whose
duration is equal to maturity.  This is because all cash flows are received at
maturity.
Market Valuations and Duration - TreasuryDirect
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
Duration is measured in years; however, do not confuse it with a bond’s maturity. 
For all bonds, duration is shorter than maturity except zero coupon bonds, whose
duration is equal to maturity.  This is because all cash flows are received at
maturity.
Market Valuations and Duration - TreasuryDirect
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
http://www.investopedia.com/terms/j/junkbond.asp
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
(page 798)
http://books.google.com/books?id=yeM6viq7fAYC&pg=PA798&dq=Government+b
ond+is+referred+to+as+riskfree+bond&hl=en&ei=MF_yTbXWCMPBtAa4uo2IBw&sa=X&oi=book_result&ct=bo
okthumbnail&resnum=3&ved=0CDYQ6wEwAg#v=onepage&q=Government%20bond
%20is%20referred%20to%20as%20risk-free%20bond&f=false
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
Ref: Diversification is the only way to protect a portfolio from unsystematic 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
(page 163)http://books.google.com/books?id=d_LhBol2674C&pg=PA163&dq=The+excess+re
turn+that+an+individual+stock+or+the+overall+stock+market+provides+over+a+ri
skfree+rate+is+known+as&hl=en&ei=YWHyTdDFCcj3sgb14smIBw&sa=X&oi=book_r
esult&ct=bookthumbnail&resnum=1&ved=0CCsQ6wEwAA#v=onepage&q=The%20excess%20ret
urn%20that%20an%20individual%20stock%20or%20the%20overall%20stock%20m
arket%20provides%20over%20a%20riskfree%20rate%20is%20known%20as&f=false
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
(page 21) http://www.scribd.com/doc/54124918/2/#Chapter-
2?query=tematic+risk+has+all+the+following+components+EXCE
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
(page 172) A zero coupon bond has a specific maturity date when it returns the
bond principal, but it pays no periodic income
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
(page 81)
http://books.google.com/books?id=3v_qySWNHxIC&pg=PA81&dq=Which+of+the+
following+measures+deviation+of+returns+from+the+mean?&hl=en&ei=yWryTaLIMrOrQfKwPnCBg&sa=X&oi=book_result&ct=result&resnum=2&ved=0CC8Q6AEw
AQ#v=onepage&q=Volatility%20is%20measured%20by%20the%20standard%20de
viation%20of%20a%20return%20distribution.%20The%20standard%20deviation%2
0is%20the%20square%20root%20of%20the%20variance%2C%20which%20is%20t
he%20expected%20squared%20deviation%20of%20return%20from%20the%20me
an.%20Analyzing%20one%20set%20of%20returns%20without%20...&f=false
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
– Each portfolio asset has a weight, w, which represents the percent of the total
portfolio value– Portfolio risk is not a weighted average of the risk of the individual securities in
the portfolio
Portfolio Risk
Portfolio risk not simply the sum of individual security risks - Emphasis on the risk
of the entire portfolio and not on risk of individual securities in the portfolio -
Individual stocks are risky only if they add risk to the total portfolio
Measured by the variance or standard deviation of the portfolio’s return
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
http://www.investopedia.com/terms/s/sml.asp
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
Risky portfolios are not tailored to each individual’s taste
 The two central results of this two-stage budgeting has become known as the
Fisher Separation Theorem:
    (i) the firm's investment decision is independent of the preferences of the
owner;
    (ii) the investment decision is independent of the financing decision.
http://www.newschool.edu/nssr/het/essays/capital/fisherinvest.htm
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
http://www.investopedia.com/terms/b/beta.aspQuestion 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
(page 213)The Single - Index Model:
William Sharpe, following Markowitz, developed the single-index model, which
relates returns on each security to the returns on a common index. A broad
market index of common stock returns is generally used for this purpose. Think of
the S&P 500 as this index.
Relates returns on each security to the returns on a common index, such as the
S&P 500 Stock Index
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
(page 223) APT is based on the law of one price, which states that two otherwise
identical assets cannot sell at different prices.
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
(page 150) Familiar anomalies include the low PE effect, the small firm effect, the
neglected firm effect, the January effect, and the overreaction 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
A forward contract is a legally enforceable agreement for delivery of goods or the
underlying asset on a specific date in future at a price agreed on the date of
contract.
http://www.sihl.in/Static/FAQCommodity.aspx
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
BrokerHedger
Arbitrager
Hedger is 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.
http://www.sihl.in/Static/FAQCommodity.aspx
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
Basis = Cash price - Futures price
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
(Q#58)http://www.markrosa.com/UNO%20Finance%202302/options_sample_questi
ons.htm
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
Barrier Option - Definition of Barrier Option on Investopedia - A type of option
whose payoff depends on whether or not the underlying asset has reached or
exceeded a predetermined price.
http://ask.reference.com/web?q=Barrier%20option&l=dir&qsrc=2891&o=10616
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
(page 80)http://books.google.com/books?id=GF_EOZxyM4C&pg=PA80&lpg=PA80&dq=over-thecounter+market+A+network+of+dealers+connected+electronically&source=bl&ots
=3rC0VvjmUy&sig=4e5VYIgE28vNzp6GqyTKVIT06Ok&hl=en&ei=N6NTdWcDJHirAfjk6nCBw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CB
MQ6AEwAA#v=onepage&q=over-thecounter%20market%20A%20network%20of%20dealers%20connected%20electro
nically&f=false