SAPM Interview Questions

1. Investment: it is the employment of funds on assets with the aim of earning income or capital
appreciation.
2. Securities: According to the Securities Contracts Regulation Act 1956, securities include share,
scrips, stocks, bonds, debentures or other marketable of any incorporated company or the body
corporate or government.
3. Share: Share capital of a company is divided into a number of small units of equal value called
shares.
4. Stock: Is the aggregate of members fully paid up shares of equal value merged into one fund. It is a
set of shares put together in a bundle. The stock is expressed in terms of money and not as many
shares. Stock can be divided into fractions of any amount and such fractions of any amount and such
fractions may be transferred like shares.
5. Scrip: A written document that acknowledge the debt.
6. Debenture: debenture is a debt instrument raised for long term capital. These are generally issued by
a private sector companies as a long term promissory note for raising loan capital.
7. Bonds: bond is a long term debt instrument that promises to pay a fixed annual sum as interest for
specific period of time.
8. Mutual Funds: The funds collected from investor to invest behalf of the investor by investing
company.
i. Open-ended schemes: There is an uninterrupted entry and exit.
ii. Close-ended schemes: These are fixed for maturity period.
9. Risk: Is the possibility of loss or injury.
i. Systematic Risk or Unavoidable Risk: The risk factors beyond the control of
the corporate and the investor.
ii. Unsystematic Risk: A controllable risk. (Managerial inefficiency, technological
change)
10. Fundamental Analysis:
i. Economic Analysis
ii. Industry Analysis
iii. Company Analysis
11. Technical Analysis: It is a process of identifying trend reversals at an earlier stage to formulate the
buying and selling strategy. (Ex: Dow Theory)
12. Dow Theory: Stock price movements are divided into three: primary movement, the secondary
movement and the daily fluctuations.
SAPM Interview Questions
i. Primary trend may be a bull market moving in a steady upward direction, or a
bear market steadily dropping.
ii. Secondary trend or secondary reaction is the movement of the market contrary to
the primary market.
iii. Support level is the barrier for further decline.
13. Efficient Market Theory: The market efficiency is the accuracy and the quickness in which the price
reflects the market related information. The Random Walk Theory.
14. The Random Walk Theory:
i. Weak form of market: current prices reflect all information found in the past
prices and traded volumes.
ii. Semi-strong form market: all the publicly available information is reflected by
the security price.
iii. Strong form or market: all the information is fully reflected by the stock prices.
15. Option: An option is a contract between two investors that provides the buyer the right (but not an
obligation) to sell or buy the specified asset form the other investors at the predetermined price with a
specific period.
16. The Black-Scholes Theory: it says that the options price is determined by the market price of the
stock, the exercise price, the life of the option, the risk free rate and the risk of the common stock.
The last two factors are assumed to be constant over the options life.
17. Portfolio: Is a combination of various securities.
18. Markowitz Model or Modern Approach to Portfolio Construction: He developed algorithms to
minimize portfolio risk. Diversification reduces the unsystematic risk component of the portfolio.
19. The Sharpe Model: It is based on the securitys return relationship with the index return. Beta is the
deciding factor in measuring the systematic risk. The systematic and unsystematic risk can be
computed with this.
20. Capital Asset Pricing Theory: The relationship between expected return and unavoidable risk. It
combines risk free assets with risk securities.
21. Arbitrage Pricing Theory: An asset pricing model based on the idea that an asset's returns can be
predicted using the relationship between that same asset and many common risk factors. Created in
1976 by Stephen Ross, this theory predicts a relationship between the returns of a portfolio and the
returns of a single asset through a linear combination of many independent macro-economic
variables.