Security Analysis and Portfolio Management (FIBA732)-Semester II

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2nd Module Assessment

Question 1. The return basically compensates for many factors like

Select one:

a. Risk Free Rate

b. Inflation

c. Time Value of Money

d. All of the above

Clear my choice

Question 2. If the steel price increases, automobile sector takes a hit

Select one:

a. Market Risk

b. Systematic Risk

c. Sector Risk

d. Both A and B

Clear my choice

Question 3. Non-Systematic risk is also called as:

Select one:

a. Industrial Risk

b. Reinvestment risk

c. Firm specific risk

d. Management Risk

Clear my choice

Question 4. Due to economy of scale, few companies might beat the pricing of others

Select one:

a. Industrial Risk

b. Reinvestment risk

c. Business Risk

d. Purchasing Power Risk

Clear my choice

Question 5. This is also known as Inflation risk

Select one:

a. Investment Risk

b. Reinvestment risk

c. Business Risk

d. Purchasing Power Risk

Clear my choice

Question 6. Higher risk

Select one:

a. guarantees higher return

b. does not guarantee higher return

c. leads to lower return

d. None of the above

Clear my choice

Question 7. If the Interest rate is increased cost of capital for companies will

Select one:

a. Increase

b. Decrease

c. Remain constant

d. Both A and B

Clear my choice

Question 8. If the interest or return earned from an investment can be invested in some other securities where the expected return

Select one:

a. Investment Risk

b. Reinvestment risk

c. Business Risk

d. Management Risk

Clear my choice

Question 9. A good risk and return model should:

Select one:

a. equally applicable to all asset classes

b. translate the risk measure into a return expectation of investor

c. model should fit for historical data

d. All of the above

Clear my choice

Question 10. if the economy of a company fails, entire ecosystem including all the companies in the economy also fail

Select one:

a. Market Risk

b. Systematic Risk

c. Business Risk

d. Both A and B

Clear my choice

is calculated by subtracting the average of all the returns µ from each return value and then squaring them, adding and then averaging

a. Standard Deviation

b. Average Return

c. Mean

d. Variance

Question 11. Only measures the systematic risk or the risk which cannot be diversified

Select one:

a. Alpha

b. Beta

c. Variance

d. Covariance

Clear my choice

Question 12. It shows the risk per unit of return

Select one:

a. Standard Deviation

b. Covariance

c. Mean

d. Variance

Clear my choice

Question 13. …………shows the range between with the price moves from the expected level of return

Select one:

a. Inflation

b. Deflation

c. Volatility

d. None of the above

Clear my choice

Question 14. Statistical measure which shows how closely a stock is related to Index.

Select one:

a. Covariance

b. Value at risk

c. R-squared

d. All of the above()

Clear my choice

Question 15. If market is efficient, then IRR is …….. the required return

Select one:

a. less than

b. grater than

c. equal to

d. Any of the above

Clear my choice

Question 16. Variance of returns of stock A and B is 0.09 and 0.04 for stock A and stock B. Covariance between the returns is 0.006. What is the correlation between A and B

Select one:

a. 0.2

b. 0.1

c. 0.05

d. 0.25

Clear my choice

Question 17. Holding period return is measured by

Select one:

a. cash return

b. return from the price appreciation

c. return from the price depreciation

d. Only A and B

3rd Module Assessment

Question 1. Individuals or companies that prefer low-risk, low-return investments are:

Select one:

a. risk neutral

b. risk-averse

c. risk-loving

d. risk-taking

Clear my choice

Question 2. There is a relationship between risk and return:

Select one:

a. when risk decreases, return increases

b. when risk increases, return increases

c. when risk decreases, return is unchanged

d. when risk increases, return decreases

Clear my choice

Question 3. Using the CAPM, ß is a measure of:

Select one:

a. cost volatility

b. share price volatility

c. dividend volatility

d. profit volatility

Clear my choice

Question 4. An important portfolio theory was developed in 1952 by:

Select one:

a. Markowitz

b. Mankovich

c. Markorich

d. Mankovitz

Clear my choice

Question 5. The stock above the security market line is

Select one:

a. Overpriced

b. Underpriced

c. Appropriately priced

d. Of high risk

Clear my choice

Question 6. An investor’s indifference curve is also called:

Select one:

a. utility curve

b. probability curve

c. ability curve

d. independence curve

Clear my choice

Question 7. The starting point of a capital market line (CML) is the:

Select one:

a. risk-free return

b. high-risk return

c. market return

d. low-risk return

Clear my choice

Question 8. Which of the following is not a measure of risk?

Select one:

a. correlation coefficient

b. standard deviation

c. expected value

d. coefficient of variation

Clear my choice

Question 9. Financial risk is not:

Select one:

a. caused by exchange rate fluctuations

b. one part of systematic risk

c. one part of unsystematic risk

d. caused by interest rate fluctuations

Clear my choice

Question 10. The slope of a capital market line (CML) is:

Select one:

a. risk-free return/(market portfolio return – risk-free return)

b. market portfolio risk/(market portfolio return – risk-free return)

c. (risk-free return – market portfolio return)/market portfolio risk

d. (market portfolio return – risk-free return)/market portfolio risk

Clear my choice

Business risk:

Select one:

a. is influenced by sales price

b. is due to the variability in operating profits or cash flows

c. is one part of unsystematic risk

d. is affected by market demand

For any or lower degree of risk, the highest or any expected return are the concepts used in

Select one:

a. riskier portfolios

b. behavior portfolios

c. inefficient portfolios

d. efficient portfolios

Question 11. In arbitrage pricing theory, the required returns are functions of two factors which have

Select one:

a. dividend policy

b. market risk

c. historical policy

d. both A and B

Clear my choice

Question 12. An unsystematic risk which can be eliminated but the market risk is the

Select one:

a. aggregate risk

b. remaining risk

c. effective risk

d. ineffective risk

Clear my choice

Question 13. Portfolio theory is based on the idea that:

Select one:

a. Combining investments increases returns

b. Combining investments makes companies easier to run

c. Combining investments reduces risk

d. Shareholders like companies that have a wide range of interests

Clear my choice

Question 14. In regression of CAPM model, an intercept of excess returns is classified as

Select one:

a. Sharpe’s reward to variabilty ratio

b. Treynor’s reward to volatility ratio

c. Jensen’s alpha

d. Treynor’s variance to volatility ratio

Clear my choice

Question 15. By investing in a portfolio of risky (i.e. the stock market) and risk free assets an investor can:

Select one:

a. Produce negative riskx

b. Avoid risk altogether

c. Achieve the best possible returns

d. Achieve the appropriate returns for the amount of risk they are prepared to take

Clear my choice

Question 16. An indication in a way that variance of y-variable is explained by x-variable which is shown as

Select one:

a. degree of dispersion is one

b. degree of dispersion is two

c. degree of dispersion is three

d. degree of dispersion is four

Clear my choice

Question 17. The beta reflects the stock risk for investors which is usually

Select one:

a. individual

b. wieghted

c. collective

d. linear

4th Module Assessment

Question 1. The term structure of the bond is the relationship between the:

Select one:

a. Interest rate and bond’s maturity period

b. Interest rate of the bond and market rate of interest

c. Interest rate and the price of the bond

d. Yield and time taken to mature

Clear my choice

Question 2. Duration is the measure of:

Select one:

a. Time structure of the bond

b. Interest rate risk

c. Time structure and market risk

d. Time structure and the interest rate risk

Clear my choice

Question 3. Yield to maturity is the single factor that makes:

Select one:

a. The future values of the preent cash flows from a bond equal to bond value

b. The future value of the present cashflows equal to the future price of the bond

c. Present value of the future cash flows of the bond equal to the current price of the bond

d. The future value of the bond equal to the present price

Clear my choice

Question 4. The value of the bond depends on:

Select one:

a. The coupon rate

b. Years to maturity

c. Expected yield to maturityq

d. All of the above

Clear my choice

Question 5. Riding the yield curve means

Select one:

a. Switiching over from short term bonds to long term when the latter yields better

b. Switching from bonds to stocks

c. Switching over from long term bonds to short term bonds to get more yield

d. Switching over to short term bonds from long term bonds when yield curve is downward sloping

Clear my choice

Question 6. Coupon yield of the bond is:

Select one:

a. The discounted value of bond

b. Coupon payment stated as a percentage of bond features

c. Coupon payment stated as a percentage of bond’s present price

d. both “a” and “c”

Clear my choice

Question 7. Default risk is lower in:

Select one:

a. Treaury Bills

b. Government bonds

c. ICICI Bonds

d. IDBI Bonds

Clear my choice

Question 8. The bond portfolio manager has to watch carefully:

Select one:

a. The shape of the yield curve

b. The market interest rate

c. The shape of the yield curve and shifts that occur in the market interest rate

d. The repaying capacity of the issuers

Clear my choice

Question 9. The stock portfolio with the highest book to market ratios is considered as

Select one:

a. H portfolio

b. L portfolio

c. S portfolio

d. B to M portfolio

Clear my choice

Question 10. Marketability risk of bond is:

Select one:

a. The market risk which affects all the bonds

b. Variation in return caused by difficulty in selling bonds

c. The failure to pay the agreed value of the bond by the issuer

d. both “a” and “b”

Clear my choice

The bond yield remains constant over its life and the discount or premium amount will decrease:

Select one:

a. At an decreasing rate as it life gets shorter

b. At an decreasing rate as its life gets longer

c. At an increasing rate as its life gets shorter

d. At an increasing rate as its life gets longer

Required rate of return>Coupon rate, the bond will be valued at

Select one:

a. Premium

b. Par Value

c. Discount

d. None of the above

Question 11. The Leeward Company just issued 15 year, 8 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms?

Select one:

a. discounted

b. note

c. debenture

d. callable

Clear my choice

Question 12. A bond’s coupon rate is equal to the annual interest divided by which one of the following?

Select one:

a. current price

b. face value

c. call price

d. clean price

Clear my choice

Question 13. If the coupon rate is constant, the value of bond when close to maturity will be

Select one:

a. Issued Value

b. Par Value

c. Redemption Value

d. All of the above

Clear my choice

Question 14. In a variable growth model, the dividend is believed to grow at a constant pace forever after an initial growth period.

Select one:

a. Partially True

b. FALSE

c. TRUE

d. None of the above

Clear my choice

Question 15. A $1,000 face value bond can be redeemed early at the issuer’s discretion for $1030, plus any accrued interest. The additional $30 is called which one of the following?

Select one:

a. call premium

b. coupon

c. redemption value

d. yield

Clear my choice

Question 16. Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called?

Select one:

a. face value

b. coupon

c. discount

d. yield

Clear my choice

Question 17. Mary just purchased a bond which pays $60 a year in interest. What is this $60 calledd?

Select one:

a. face value

b. coupon

c. discount

d. yield

5th Module Assessment

Question 1. The first step in detemining the efficient portfolio is to consider

Select one:

a. set of attainable portfolios

b. set of unattainable portfolios

c. set of attributable portfolios

d. None of the above

Clear my choice

Question 2. We can compare the price earnings ratio of a market to its historical average to make judgement about, whether market is:-

Select one:

a. Under valued

b. Over valued

c. Both (A) and (B)

d. None of the above

Clear my choice

Question 3. In the Treynor Index, the performance of the fund depends on

Select one:

a. The riskless rate of return

b. The risk premium and standard deviation of funds return

c. The risk premium and beta coefficient

d. The rsik premium and the standard deviation

Clear my choice

Question 4. Dow Jones transportation average was previously known as ________

Select one:

a. Rail average

b. Net average

c. Train average

d. None of the above

Clear my choice

Question 5. The feature(s) of bond is (are):-

Select one:

a. collateral

b. call provision

c. sinking funds and protective covenants

d. All of the above

Clear my choice

Question 6. Jensen’s performance index gives importance

Select one:

a. To the asset combination

b. Professional Management

c. The market condition

d. The predictive ability of the manager

Clear my choice

Question 7. Investment is a risk free investment when:-

Select one:

a. Actual return < expected return

b. Actual return > expected return

c. Actual return = expected return:

d. None of the above

Clear my choice

Question 8. The possibility of reduction of risk through the construction of a portfolio depends on the value of ________ between the two assets.

Select one:

a. Correlation coefficient

b. Time

c. Difference

d. None of the above

Clear my choice

Question 9. When a firm can grow net profits by issuing equity, the expected growth rate in net profits is determined by:-

Select one:

a. Price earnings ratio X return on equity

b. Equity reinvestment rate X return on equity

c. Both (A) and (B)

d. None of the above

Clear my choice

Question 10. The Sharpe index assigns the high value to funds that have

Select one:

a. Low standard deviations

b. Higher returns

c. Higher risk adjusted returns

d. Higher risk premium

Clear my choice

Question 11. Corner portfolios are calcuated where a

Select one:

a. Security enters

b. Security leaves

c. Security enters or leaves

d. Security with high extreme value enters

Clear my choice

Question 12. The unsystematic risk is explained by

Select one:

a. Variance of the index

b. Unexplained variance of the index

c. Explained variance of the index

d. None of the above

Clear my choice

Question 13. According to Treynor index, a steep slope would indicate

Select one:

a. The fund is yielding higher returns

b. The fund’s volatile return

c. The fund is sensitive to the market

d. The fund is not sensitive to the market

Clear my choice

Question 14. The relationship between potential unsystematic risk and reward is given by

Select one:

a. Excess return to beta ratio

b. Excess return to security’s standard deviation ratio

c. Excess return to security’s variance ratio

d. Excess return to beta square ratio

Clear my choice

Question 15. The future beta is needed to calculate in most situations is called as

Select one:

a. historical betas

b. adjusted betas

c. standard betas

d. varied betas

Clear my choice

Question 16. An individual stock required return is equal to risk free rate plus bearing risk premium is an explanation of

Select one:

a. security market line

b. capital market line

c. aggregate market line

d. beta market line

Clear my choice

Question 17. The high portfolio return is 6.5% and the low portfolio return is 3%, then HML portfolio will be

Select one:

a. 0.0216

b. 0.095

c. 0.035

d. 0.4615 times

Assignment 2

Case Study:

The shares of two companies, K and L have the following expected returns:

Prob	Return K	Return L
0.3	20%	6%
0.5	15%	10%
0.2	5%	12%

Question 1: The expected returns are:

Select one:

a. K 15% L 10%

b. K 14.5% L 9.2%

c. K 13.3% L 9.3%

d. K 12% L 8%

Clear my choice

Question 2. The variance of returns are:

Select one:

a. K 14.5 L 9.2

b. K 65.02 L 35.3

c. K 27.25 L 4.96

d. K 30.2 L 6.9

Clear my choice

Question 3. The standard deviations are:

Select one:

a. K 27.25 L 4.96

b. K 14.5 L 9.2

c. K 6.8 L 3.4

d. K 5.22 L 2.23

Clear my choice

Question 4. The covariance of the returns of K and L is:

Select one:

a. -5.97

b. 0

c. 2.99

d. 5.97

Clear my choice

Question 5. If I have a portfolio made up of 60% K and 40% L my expected return will be:

Select one:

a. 0.125

b. 0.1238

c. 0.132

d. 0.145