Security Analysis and Portfolio Management V1
Security Analysis and Portfolio Management V1
Security Analysis and Portfolio Management V1
SECTIONB:
Q1 When someone refers to efficient capital markets, they mean that security pric
es
fully reflect all available information.
Q2 CAPM postulates the nature of relationship between the expected return and the
systematic risk of a security. Explain.
Q3 Forward contracts are a part of everyday life. Explain.
CASE STUDY:
You are given the following historical performance information on the capital ma
rket and
a mutual fund:
Year Mutual fund
beta
Mutual fund
return
(per cent)
Return on
market index
(per cent)
Return on
Govt.
securities
(per cent)
1
2
3
4
5
6
7
8
9
10
0.90
0.95
0.95
1.00
1.00
0.90
0.80
0.75
0.75
0.70
- 3.00
1.50
18.00
22.00
10.00
7.00
18.00
24.00
15.00
- 2.00
- 8.50
4.00
14.00
18.50
5.70
1.20
16.00
18.00
10.00
8.00
6.50
6.50
6.00
6.00
5.75
5.75
6.00
5.50
5.50
6.00
Calculate the following risk adjusted return measures for the mutual fund:
(a) Reward-to-variability ratio or Sharpe ratio
(b) Reward-to-volatility ratio or Treynor ratio
Comment on the mutual fund s performance.
7.2% (c)
6.42% (d)
10%
Q22 Which of the following statements regarding Efficient frontier are incorrect
?
(a) Efficient frontier represents that set of portfolios that provides the maxim
um
rate of return for every given level of risk.
(b) Efficient frontier provides the maximum risk for each level of return.
(c) Points along the efficient frontier dominate all points beneath the curve.
(d) Points along the curve to the right of any other point on the curve must hav
e a
higher expected return and higher level of risk.
Q23. Brokerage fee charged by a stockbroker is an example of:
(a) Margin profit
(b) Insurance premium
(c) Transaction cost
(d) Capital expenditure
Q24 A form of the EMH which states that security prices fully reflect all public
and
private information.
(a) Strong form efficiency
(b) Weak form efficiency
(c) Semi strong form efficiency
(d) None of the given options
Q25 The computation of the Dow Jones Industrial Average is known as a _
index.
(a) Price-weighted
(b) Market value
(c) Equal-weighted
(d) Volume weighted
Q26. Which of the following is defined as an investment strategy that involves o
ngoing
buying and selling actions by the investors?
(a) Active strategy
(b) Passive strategy
(c) Buy-and-hold strategy
(d) All of the given options
Q27. In Security Analysis and Portfolio Management beta is the measure of:
(a) Systematic risk
(b) Unsystematic risk
(c) Total risk
(d) Business risk
Q28 Which of the following statement is (are) inconsistent with Markowitz theory
of
portfolio management?
1. Investors maximize a one-period expected utility curve with inherent diminish
ing
marginal utility of wealth.
2. Investors use the risk measure of beta as the basis of determining risk.
3. Investors base their investment decisions exclusively on the basis of expecte
d risk and
return.
4. A single asset of portfolio of assets is considered to be efficient if no ava
ilable asset has a
superior return for a given risk level, or lower risk given a return level.
(a) 1. only
(b) 2. only
(c) 3. only
(d) 3. and 4.