MODEL QUESTION PAPER

SUBJECT CODE : MF0010 SUBJECT : Security Analysis and Portfolio Management

SECTION A 1. Investment in houses, land building, diamond are investments in ____________ a. Primary securities b. Derived Instruments c. Physical assets d. Non-Marketable Financial Asset

2. Primary Securities are ___________ a. Common and Preferred Stocks, Govt Bonds, Corporate Bonds, Treasury Bills. b. Mutual Funds, Put and Call Options, Futures & Forward Contracts c. House, Land, Buildings, Precious Stones d. Fixed Deposit with Banks

3. ______________ is a process by which investment portfolios are tried to match the performance of an index. a. Active portfolio management b. Passive portfolio management c. Security revision d. Benchmark index

4. Financial markets facilitate competition so that best price may be available to the investors. This activity is known as: a. Transfer price b. Price discovery c. Paralysis of analysis d. Price movements

5. Financial market is a market for creation and exchange of ___________ a. Real assets b. Derivatives c. Financial assets d. Physical and financial assets

6. Financial market is broadly classified into: a. Primary Market and Secondary Market b. Primary Market and Money Market c. Primary Market and Derivative Market d. Primary Market and Commodity Market

7. Risk and Return are: a. Directly proportional b. Inversely proportional c. Not correlated d. Dependent on each other

8. Which type of risk represents the variations in GDP, government spending, money supply, interest rate structure? a. Interest rate risk b. Market risk c. Inflation risk d. Business risk

9. Which type of investor will choose investment that has lowest standard deviation for an equal rate of return? a. A risk seeking investor b. A risk averse investor c. An indifferent investor d. A financial illiterate

10. Securities are selected based on fundamental analysis and technical analysis. The former focuses on: a. Historical price of the security and the volume information. b. Financial data of the issuer of the security c. Future cash flows of the issuer and growth potential d. Financial data and future cash flows.

11. The firm's security is considered as overvalued if its: a. Intrinsic value > Market price b. Intrinsic value < Market price c. Intrinsic value = Market price d. None

12. Which of the following leads to a situation when a country receives less international inflows than the investment made by residents of the country in foreign countries? a. Current account surplus b. Current account deficit c. Capital account surplus d. Capital account deficit

13. The assumption' The market discounts everything ' denotes that at any given point of time security's price incorporates: a. Economic factors, fundamentals and market psychology b. Economic factors and company's risk c. Company's risk and Industry life cycle d. Market psychology and volumes

14. In candlestick chart, the candles are shaded with blue/green and red colour. The red colour is used when the: a. closing price is higher than opening price b. opening price is higher that closing price c. closing price is equal to lowest price d. opening price is equal to lowest price

15. A situation where a falling price can be expected to halt is known as _______ a. Resistance level b. Support level c. Primary d. Intermediate

16. In an efficient market the only way an investor can get higher returns is by taking on __________________ a. Moderate risk b. High risk

c. Low risk d. No risk at all.

17. The financial markets are efficient for 3 reasons: choose the odd man out: a. To encourage speculative trading b. To encourage share buying c. To give correct signals to company managers d. To help allocate resources

18. In random walk, subsequent price change represents random deviations from ______ a. Current price b. Future price c. Previous price d. None

19. Which of the following refers to the tendency to form judgments based on stereotypes? a. Overconfidence b. Anchoring c. Representativeness d. Aversion to ambiguity

20. People are unable to know the difference between nominal and real changes that takes place in purchasing power. This refers to: a. Innumeracy b. Representativeness c. Aversion to ambiguity d. Overconfidence

21. After incurring a loss, people are less inclined to take risk. People become more cautious. This refers to: a. House-money effect b. Snake -bite effect c. Trying to break even effect d. Emotional time line

22. A bond maturing after 5 years from now has a par value of Rs. 100 and a coupon rate of 8%. If the current market price of the bond is Rs. 104.35 what is its current yield? a. 7.67% b. 8.00% c. 6.94% d. 6.24%

23. It represents the length of time that elapses before the average rupee of present value from the bond is received. a. YTM b. Value of the bond c. YTC d. Duration of the bond

24. Current yield a. Annual interest / current price b. Annual interest / face value c. Annual interest / Aug of current & market price d. YTM

25. The exact trade off between risk and reward differs across investors is due to. a. Individual risk aversion characteristics b. Collective wisdom c. Market trend & new information d. Government policies & the stage of the firm in the industry

26. The expected return on a portfolio is a. Arithmetic average of the return of the securities includes in the portfolio b. Geometric mean of the return of the security included is the prof. c. Weighted return of the security held in the portfolio d. Weighted risk of the security held in the portfolio

27. The range of correlation coefficient is. a. -1.0 < 1,2 < 1.0 b. -1.0 1,2 1.0 c. -1.0 1,2 > 1.0

d. -1.0 1,2 1.0

28. _____________represents the trade-off between risk and expected return faced by an investor when fixing his portfolio. a. Portfolio set b. Portfolio diversification c. Efficient frontier d. Attainable set

29. The subset of attainable set is known as. a. Efficient set b. Leveraged portfolio c. Risky portfolio d. Tangency portfolio

30. Tobin's super-efficient portfolio is a. Portfolio X b. Portfolio F c. Portfolio L d. Portfolio T

31. CAPM evaluates the pricing of: a. All assets b. Risk free asset c. Risky asset d. Government securities

32. The risk that exist in the market portfolio that cannot be eliminated by future diversification is a. Unsystematic risk b. Systematic risk c. Total risk d. None 33. Individual stock's return is measured by the formula. r1 = 1 + i r M + I where I is a. Intercept term b. Slope term

c. Return on market index d. Random error term 34. In single index model total risk of an individual stock is 12 = i2 m2 + i 2 where i2 is a. Variance of return on the market index b. Market risk of the stock c. Unique risk of the stock d. Portfolio risk

35. Factor model or index model assumes that the return on a security is sensitive to the movement of. a. One factor (Market index return) b. Various factors c. Variance d. Covariance

36. Under one factor model , the return on a security ri is given by a. ri = ai + bi F b. ri = bi F + i c. ri = ai + bi F + i d. ri = i + bi F + i

37. Depository receipts (DRs) are negotiable securities that generally represent a publicly traded equity or debt of a. a. local companys securities b. Foreign company's securities c. Local & foreign company's securities d. Government companies.

38. _____________ is a risk management tool a. Restructuring b. Diversification c. Leverage buyout d. Capital infusion

39. Who holds the fund's securities in safe custody, settles securities transactions for the fund? a. Sponsor b. Custodian c. Asset Management Company d. Distributors / agents

40. The functioning of which type of fund doesn't involve much regulations a. Mutual fund b. Hedge fund c. exchange traded fund d. Junk bonds SECTION B

41. In a portfolio investment, ______________ is not included as the asset category. a. Stocks b. Bonds c. Physical assets d. Cash

42. Examining and identifying individual securities within a broad categories of financial assets is known as ________________ a. Security analysis b. Security selection c. Asset allocation d. Fundamental analysis

43. The major difference between Primary & Secondary market is that in Primary market: a. The corporation receives funds from the buyers of new securities. b. The corporation does not receive funds from the buyers of these securities c. Liquidity is high d. Price discovery is possible

44. Money market deals with ___________ a. T-Bills, Commercial papers & Certificate of Deposits b. T-Bills, Commercial papers & Fixed deposits

c. T-Bills, Stocks and Bonds of corporates d. T-Bills, Commercial papers and commodity trading

45. In the normal distribution curve, 95 percent of the area lies within ___________ standard deviation of the expected value. a. +/- 1.96 b. +/- 1.0 c. +/0.67 d. +/- 3.0

46. The straight line in the Investment opportunity set graph denotes: a. Efficient frontier b. Risk averter c. Risk taker d. Capital allocation line

47. A weak stock in a strong industry is better than: a. A weak stock in a well-diversified industry b. A strong stock in a weak industry c. A weak stock in a sunrise industry d. A strong stock in a sunrise industry

48. BOP reflects a country's international monetary transactions for a specific period of time. The surplus BOP leads to ________ a. Rupee appreciation b. Rupee depreciation c. Rupee gaining stability d. More cash outflows

49. _________ denotes the repetitive nature of price movements a. Herd mentality b. Market psychology c. Irrational behaviour of the market participants d. Insider Trading

50. Inverse head and shoulder is a chart pattern that gives a signal of reversal of ________ a. Downward trend b. Upward trend c. Previous trend d. Resistance level and support level

51. An efficient financial market aims at encouraging investors to buy shares through the process of . a. Stake pricing b. Accurate pricing c. Under pricing d. Over pricing

52. The efficient market hypothesis assumes that investors are : 1. rational 2. irrational 3. Orderly 4. Tidy a. 1,3 and 4 b. 1 and 3 c. 2,3 and 4 d. 2 and 4

53. Consider a bond having a face value of Rs. 1000 carrying a coupon rate 9% for a stated life of 8 years. Find the value of the bond? a. 1000 b. 997 c. 999 d. 1000.15

54. The total risk could be reduced if the interactive risk is negative. The interactive risk is negative when. a. Two securities are low correlation b. Two securities are un correlated c. Two securities are positively correlated d. Two securities are negatively correlated

55. For a given level of expected return, select the stock that less a. Highest volatility b. Medium volatility c. Lowest volatility d. lowest co-efficient of correlation

56. CAPM states that expected return on an asset is related to its systematic risk & it is denoted by . a. (constant term) b. (Beta co-efficient) c. (error item) d. r (return) 57. Consider a stock which has rm = 15%, 1 = 3% and = 1.25% the expected return on the stock a a. 18.75% b. 21% c. 21.75% d. 21.57%

58. The variance of any security in the single factor model is equal to. a. i2 = bi2 2F + i2 b. i2 = bi2 2F + I c. ij = bi by F2 d. ij2 = bi by F2

59. Exchange rate risk are usually offset by a. Currency stability b. Government policies c. Inflation d. External factors

60. Hybrid scheme is also known as: a. balanced scheme b. Debt scheme

c. Index scheme d. Sectorial scheme

SECTION C 61. Match the following 1. Setting investment policy 2. Performing security analysis 3. Portfolio construction involves 4. Portfolio Revision 5. Portfolio Performance evaluation a. Selectivity , Timing & Diversification b. Asset allocation decision c. Risk -return analysis d. Identify mispriced assets e. Selectivity, Timing. f. Continuous process a. 1b, 2c, 3e, 4a, 5f b. 1b, 2d, 3a, 4f, 5c c. 1d, 2d, 3e, 4a, 5c d. 1d, 2c, 3e, 4f, 5f

62. Match the following 1. Treasury Bills, call money, repurchase agreement 2. Stocks, Bonds 3. Options forwards and futures 4. Commercial Banks, Financial institutions a. Derivative instruments b. Money market instruments c. Financial Intermediaries d. Stock Index e. Capital market instruments a. 1b, 2e, 3d, 4c b. 1e, 2d, 3a, 4c c. 1b, 2e, 3a, 4c d. 1e, 2d, 3a, 4c

63. A stock earns the following returns over a five year period: R1 = 10 %, R2 = 16%, R3= 24 %, R4 = - 2 %, R5 = 12 %, R6 = 15%. Calculate the expected return and the standard deviation of the stock. a. 12.5% and 8.67

b. 10.5% and 8.57 c. 12.5% and 8.57 d. 12.5% and 8.87

64. Fill in the blanks 1. current account surplus 2. Leading indicator 3. Lagging indicators 4. Defensive stock a. Pharmaceutical sector b. Imports > Exports c. Exports > Imports d. Predict the near term activity of economy

e. Tend to follow economic performance a. 1b,2e,3d,4a b. 1b,2d,3e,4a c. 1b,2d,3e,4a d. 1c,2e,3d,4a

65. Match The Following 1. Advance - Decline line 2. Short interest ratio 3. Data Points 4. Repetitive nature of price movements a. 1d,2a,3b,4c b. 1c,2a,3b,4d c. 1d,2c,3b,4a d. 1c,2a,3b,4d a. Sentiment Indicator b. Technical Indicator c. Market Psychology d. Breadth of the market

66. Match the following 1. Strong form of market efficient 2. Weak form of market efficient 3. Semi strong form of market efficiency 4. Zero NPV d. Stock price behave randomly a. Reflect past price, volume b. Price reflect all available information c. Public, private

e. All public available information a. 1b, 2a, 3e, 4c b. 1c, 2a, 3e, 4b c. 1c, 2e, 3a, 4d d. 1a, 2b, 3e, 4d

67. Match the following 1. Representativeness 2. Utility function -loss 3. Utility function - gain 4. Investor's behaviour a. 1c,2d,3a,4b b. 1d,2d,3a,4c c. 1c,2a,3d,4b d. 1d,2a,3d,4c a. convex b. Frame dependent c. Heuristic driven d. concave

68. Mr. Anupam plan to buy 13% 5 year bond that sell for Rs. 1036, which represents 12% YTM. If interest is paid annually. What is the bond's duration? a. 3.89 years b. 3.90 years c. 3.99 years d. 4.05 years

69. Calculate the covariance between security X and security Y Mark condition Probabity Possible Return in % Security X Boom Moderate Recession a. 27 b. 23 c. 24 d. 25 .33. .33. .33. 15 9 3 Security Y 16 10 4

70. Match the following 1. Due to scarcity of resources 2. According to Markowitz, the risk of portfolio is a. Linear b. For a given level of standard of the deviation, select the one which has - -highest expected return -3. Optimal Portfolio c. All economic decisions involve trade off 4. Efficient Set d. Not linear e. Subset of attainable set a. 1c,2a,3e,4b b. 1c,2d,3b,4e c. 1c,2d,3e,4b d. 1c,2a,3b,4e

71. Investors are considered to be a homogeneous group. a. They have the same a. One-period horizon b. Two-period horizon c. Three-period horizon d. Four-period horizon b. All the assumptions of CAPM are clearly unrealistic. a. True, all are unrealistic b. False, all are realistic c. Some of the assumption are unrealistic d. irrelevant c. Through the risk free asset & the tangency portfolio is the same for all investors . What matters is . a. Homogeneous expectations b. Time period Horizon c. Availability of information d. Proportion of the risk free asset & tangency portfolio d. Investors need to determine the portfolio risky of asset their portfolio & the next step is to leverage or deleverage the tangency portfolio. There is known as a. Portfolio selection

b. Portfolio construction c. Portfolio evaluation d. Portfolio revision

72. a. Consider 3 securities X , Y , and Z with the following betas and standard deviation of random error term. X : = 1.25 = 5.05% Y : = 0.90 = 4.95% Z : = 1.00 = 5.25% The standard deviation of market return is 9 % What is the total risk of X a. .015202 b. .015206 c. .015306 d. .015302 b. Consider 3 securities X , Y , and Z with the following betas and standard deviation of random error term. X : = 1.25 = 5.05% Y : = 0.90 = 4.95% Z : = 1.00 = 5.25% The standard deviation of market return is 9 % what is the total risk of Y a. .01001 b. .00901 c. .00909 d. .01009

c. Consider 3 securities X , Y , and Z with the following betas and standard deviation of random error term. X : = 1.25 = 5.05% Y : = 0.90 = 4.95% Z : = 1.00 = 5.25% The standard deviation of market return is 9 % what is the total risk of Z

a. .01086 b. .01068 c. .0101 d. .0090

d.Consider 3 securities X , Y , and Z with the following betas and standard deviation of random error term. X : = 1.25 = 5.05% Y : = 0.90 = 4.95% Z : = 1.00 = 5.25% The standard deviation of market return is 9 % What is the total unique risk ofX,Y,Z a. .002550 b. .002450 c. .002750 d. .007750 73. In a two factor model, if the variance of the factors F12 and F22 are 0.0004 and 0.0005 respectively the variance of the random error term i2 is equal to 0.0025, the factor sensitivities of a security to the two factors bi1 and bi2 are 2.2 and -1.5 respectively and the covariance between the two factors is 0.00007, what is the variance and the standard deviation of the security? a. .005099 & 7.14% b. .005099 & 7.41% c. .007252 & 8.52% d. .007252 & 7.41%

74. Match the following: 1. The CAPM 2. Systematic Risk 3. Diversification a. Depository Receipt b. Risk Management Tool c. Risk of an asset consist of systematic and ..

unsystematic risk 4. GDRs a. 1d, 2c, 3a,4b b. 1c,2d,3b,4a d. is due to market wide influence.

c. 1d, 2c,3b, 4a d. 1c, 2d, 3a,4b

75. State true or false 1. No term loan shall be granted to a mutual fund scheme 2. A mutual fund scheme shall not invest more than 20% percent of its NAV in debt instruments 3. A mutual fund scheme shall not make any investment in any unlisted security of an associate or group companies 4. A cheme may invest in ADRs/GDRs of Indian companies listed on overseas stock exchange upto a limit prescribed by the exchange a. 1F,2F,3T,4T b. 1T,2F,3T,4T c. 1F,2T,3F,4T d. 1T,2F,3F,4T