CHAPTER 1 OVERVIEW 1. A market participant has a time horizon of one week.

He is typically: (a) (b) (c) (d) (e) !. A trader An investor A speculator A gambler one of the above

"hich one of the following is not one among the broad categories in which shares are classified into# (a) (b) (c) (d) (e) $peculative shares Advancing shares %yclical shares &ncome shares one of the above

'.

A preference share is a hybrid instrument. (a) (rue (b) )alse

*.

+esilience of a market means: (a) (b) (c) (d) (e) (here are no fre,uent price changes in the market ew orders emerge in response to price changes (he market volume is resilient All the above one of the above

-.

(raditionally the cut off between short.term and long.term financial claims has been: (a) (b) (c) (d) (e) (hree years )ive years $i/ months 0ne year one of the above

1.

"hich one of the following factors is not behind the globalisation of financial markets# (a) 2eregulation

(b) (c) (d) (e) 4.

&nstitutionalisation 3iberalisation. %artelisation one of the above

(he most important decision in portfolio management is the: (a) (b) (c) (d) (e) %hoice of the market %hoice of the instruments %hoice of the asset mi/ %ost of the management one of the above

5.

(he true value of a security is its: (a) (b) (c) (d) (e) 6arket value 2iscounted value 7alue at which it was issued 3ong.term average value one of the above

8.

&nvestor performance in the long run may not depend on: (a) (b) (c) (d) (e) 6aintaining composure $ticking to a pattern 9atience 2iligence one of the above

1:.

(he ;refle/ivity< principle is a special insight developed by (a) (b) (c) (d) (e) =eorge $oros "arren >uffett ?.6.@eynes >enAamin =raham one of the above

KEY 1 (a) 1: (a) ! (b) ' (a) * (b) - (d) 1 (d) 4 (c) 5 (e) 8 (b)

CHAPTER 2 INVESTMENT ALTERNATIVES 1. 2eposits in scheduled banks are very safe because: (a) (b) (c) (d) (e) !. (hey are fully insured by the bank (hey are supervised by +>& (hey are guaranteed by +>& upto an e/tent >oth b and c one of the above

A fi/ed deposit in a bank cannot be withdrawn before maturity. (a) (rue (b) )alse

'.

)i/ed deposits mobilised by finance companies are regulated by: (a) (b) (c) (d) (e) +>& %ompany 3aw >oard $B>& +egistrar of %ompanies one of the above

*.

A non.banking finance company can issue deposits for a longer period than a manufacturing company: (a) (rue (b) )alse

-.

"hich one of the following is the most li,uid# (a) (b) (c) (d) (e) ational $avings %ertificate @isan 7ikas 9atra 9ublic 9rovident )und >ank fi/ed deposit one of the above

1.

(here is a ceiling in &ndia on the interest paid on: (a) (b) (c) (d) (e) $avings >ank deposit )i/ed deposit in bank 2ebentures issued by private companies (a/able bonds issued by 9$Cs one of the above

4.

An asset play will typically be a: (a) (b) (c) (d) (e) (urnaround $talwart %yclical )ast grower one of the above

5.

A participating policy allows an investor to: (a) (b) (c) (d) (e) +eceive dividend +eceive bonus Allow inclusion of close dependents All the above one of the above

8.

A paid.up policy can only be a: (a) (b) (c) (d) (e) 9articipating Bndowment Assurance on commutable deferred annuity (erm assurance policy Bndowment benefit policy one of the above

KEY 1 (e) ! (b) ' (a) * (a) - (d) 1 (a) 4 (e) 5 (b) 8 (e)

CHAPTER 3 SECURITIES MARKET 1. >ook building is used to help in better (a) (b) (c) (d) (e) !. 9rice discovery +etail participation &nstitutional participation &nvestor communication one of the above

$ense/ is an e,ual.weighted inde/. (a) (rue (b) )alse

'.

ifty is a (a) (b) (c) (d) (e) 7alue weighted inde/ B,ual weighed inde/ 9rice weighted inde/ Hybrid inde/ one of the above

*.

An e/ample of a collateralised short term lending transaction is (a) (b) (c) (d) (e) $terilization +epo >ank overdraft %ommercial paper one of the above

-.

%ommercial 9apers form part of (a) (b) (c) (d) (e) >ills limit "orking capital limit 3% limit =uarantee limit one of the above

1.

&n a 2utch auction successful bidders pay the actual price (yield) they bid for: (a) (rue (b) )alse

4.

&n a )rench auction successful bidders pay the actual price (yield) they bid for:

(a) 5.

(rue

(b)

)alse

A merchant banker: (a) (b) (c) (d) (e) Cnderwrites an issue of securities )inances an issue of securities 6anages an issue of securities %ollects the subscriptions in an issue of securities. one of the above

8.

Allotment of shares in a public issue is decided in consultation with: (a) (b) (c) (d) (e) $B>& (he stock e/change where the share will be listed +egistrar and (ransfer Agents +egistrar of %ompanies in whose Aurisdiction the %orporate office of the issuing firm falls one of the above

1:.

(he purpose of &90 rating is to assess the: (a) (b) (c) (d) (e) &nvestment attractiveness of the issue %reditworthiness of the company )undamental strength of the company +egulatory compliance of the company one of the above

11.

9referential allotment of shares in &ndia is given mainly to: (a) (b) (c) (d) (e) 9romoters or friendly investors Bmployees 9reference share holders +eserved categories one of the above

1!.

&n a block dealD the price is: (a) (b) (c) (d) (e) 2iscovered by transparent bidding egotiated in advance Arrived at as per a formula set by the e/change Average of the top ten bids one of the above

1'.

>y holding shares in the physical form as against the demat formD an investor can retain his voting rights:

(a) 1*.

(rue

(b)

)alse

6arket impact cost will come down: (a) (b) (c) (d) (e) "ith the deepening of the market &f the open cry system is reintroduced &f there are large number of institutional investors &f there are restrictions on the speculators one of the above

1-.

)or non.delivery based trades (day trades and arbitrage trades) in e,uity the $(( is less than that for delivery based trades: (a) (rue (b) )alse

11.

3i,uidity in a market is supplied by: (a) (b) (c) (d) (e) (hose placing active limit orders 6arket makers ?obbers All the above one of the above $BD which one of the

14.

"hile matching orders for e,uity trading in following gets precedence over all the others# (a) (b) (c) (d) (e) (ime of the order 9rice of the order $ize of the order >oth b and c one of the above

15.

)ree float represents: (a) (b) (c) (d) (e) 9romoters< non.strategic shareholding on.promoter non.strategic shareholding $hareholdings by non. )&s and non.)&&s on.government shareholdings one of the above

18.

B2&)A+ is maintained by (a) (b) (c) (d) $B>& +>& $B >$B

(e) !:.

one of the above

"hich one of the following is not one of the factors that attract young technology companies to list on A$2AE# (a) (b) (c) (d) (e) +elatively low listing costs +elatively low listing re,uirements +elatively low settlement time All the above one of the above

!1.

$pot the odd member in the following group: (a) (b) (c) (d) 92A& )&662A A6)& (+A&

!!.

(he largest holders of =.secs in &ndia are: (a) (b) (c) (d) (e) &nsurance companies )&&s >anks 9rovident funds one of the above

!'.

"hich one of the following facilities is provided by +>&# (a) (b) (c) (d) (e) $=3 "26 >03( $(( one of the above.

!*.

(he most popular bond market inde/ in &ndia is provided by: (a) (b) (c) (d) (e) %+&$&3 $B &.$ec %%&3 one of the above.

!-.

(he bulk of corporate debt in &ndia is issued through: (a) 9referential allotment

(b) (c) (d) (e) !1.

9rivate placement 2utch auction )rench auction. one of the above.

&f you are doing a reverse repoD you: (a) (b) (c) (d) (e) 3end the securities >orrow the securities 9ledge the securities Auction the securities one of the above

!4.

All trades on $B are guaranteed by: (a) (b) (c) (d) (e) $B>& $23 $%% %2$3 one of the above.

!5.

&n respect of the sample sharesD $ense/ reflects the movement of: (a) (b) (c) (d) (e) Average total market value of the floating stocks Average market value of the floating stocks times a fi/ed multiple Average capitalisation of the issued and paid up stocks Average aggregate market value of the subscribed stocks one of the above

KEY 1 (a) 1: (c) 18(a) !5(e) ! (b) 11(a) !:(c) ' (a) 1!(b) !1(d) * (b) 1'(b) !!(c) - (b) 1*(a) !'(a) 1 (b) 1-(a) !*(c) 4 (a) 11(d) !-(b) 5 (c) 14(b) !1(b) 8 (b) 15(b) !4(c)

CHAPTER 4 RISK AND RETURN 1. 7ariance will always be (a) (b) (c) (d) (e) 9ositive egative 7ariable 7ery high one of the above

!. An investor for whom the certainty inde/ is less than the e/pected valueD is (a) (b) (c) (d) (e) +isk loving +isk averse +isk neutral +isk allergic one of the above

'. A normal distribution is completely characterised by (a) (b) (c) (d) (e) B/pected return and standard deviation +e,uired return and variance B/pected return and range $tandard return and e/pected variance one of the above

*. &f a variable is normally distributed what percentage of the values fall within a band of one standard deviation on either side of the arithmetic mean. (a) (b) (c) (d) (e) 8-.* percent 15.' percent 88.4 percent -4.- percent one of the above

-. &f a variable is normally distributed what percentage of values will fall within a band of three standard deviations on either side of the arithmetic mean# (a) 8-.* percent (b) 15.' percent (c) 88.4 percent (d) 88.8 percent (e) one of the above

1. A return relative is (a) (b) (c) (d) (e) (otal return F1 1. (otal return 1G (otal return 1 F 1G (otal return one of the above

4. >ond horizon premium refers to the difference between the returns on (a) (b) (c) (d) (e) 5. 3ong term corporate bonds and treasury bills 3ong term government bonds and treasury bills 3ong term corporate bonds and long term government bonds $hort term corporate bonds and treasury bonds one of the above

"hich of the following is true# (a) (he geometric mean is always less than the arithmetic mean (b) (he geometric mean is always greater than the arithmetic mean (c) (he geometric mean and the arithmetic mean are always the same (d) (he geometric mean is always less than the arithmetic meanD e/cept when all the return values being considered are e,ual (e) one of the above

8.

"hich one of the following cannot be negative# (a) %urrent return (b) %apital return (c) (otal return (d) >oth a and b (e) one of the above

1:.

=eometric measure is more accurate than arithmetic mean: (a) (rue (b) )alse

11.

+eal returns are typically less than notional returns: (a) (rue (b) )alse

1!.

&n generalD investors are: (a) +isk.neutral (b) +isk.loving (c) +isk.averse

(d) one of the above 1'. Cse of probability distribution in investment analysis makes it: (a) 6ore rational (b) 6ore obAective (c) 6ore subAective (d) >oth a and b (e) one of the above 1*. "hen the probability distribution of rate of return of a security is definedD the possible outcomes: (a) (b) (c) (d) (e) 1-. $hould be mutually e/clusive $hould be collectively e/haustive $hould not add to more than 1 All the above one of the above

9reparing the probability distribution of rate of return of a security is: (a) (b) (c) (d) (e) An obAective e/ercise based on the prevailing market conditions An obAective e/ercise based on the past history of the securities performance An obAective e/ercise based on the future prospects of the security A subAective e/ercise one of the above

11.

"hile analysing the returns of a security based on a continuous probability distributionD probabilities are assigned to: (a) (b) (c) (d) (e) &ndividual points on the curve &ntervals between two points on the curve (he gradient between any two referenced points on the curve Bither b or c one of the above

KEY 1 (a) 1: (b) ! (b) 11(a) ' (a) 1!(c) * (b) 1'(e) - (c) 1*(d) 1 (a) 1-(d) 4 (b) 11(b) 5 (d) 8 (a)

CHAPTER 5 THE TIME VALUE OF MONEY 1. &f you were scheduled to receive +s. 1::D::: five years henceD but you wish to sell your contract note for its present valueD which type of compounding would you rather have the purchaser of your contract note to use to find the purchase priceD 5 percent compounded: (a) (b) (c) (d) (e) !. %ontinuously Euarterly $emi.annually Annually 6onthly

According to the rule of 18D the doubling period is e,ual to (a) (b) (c) (d) (e) :.!- F (18G &nterest rate) :.'- F (18G &nterest rate) :.18 F (:.'-G &nterest rate) :.18 F (:.!- G &nterest rate) one of the above

'.

)or a depositorD when the fre,uency of compounding is increased (a) (b) (c) (d) (e) Additional gains increase Additional gains dwindle Additional gains are unaffected (here are no additional gains one of the above

*.

9resent value interest factor of a perpetuity represents (a) (b) (c) (d) (e) &nterest rate in percentage terms +eciprocal of interest rate in percentage terms +eciprocal of interest rate in decimal terms &nterest rate in decimal terms one of the above

-.

(he present value of a perpetuity of one rupee when the interest rate is r percent is : (a) (b) 1Gr 1G r!

(c) (d) (e) 1.

1Gr:.! r! one of the above

(he present value of an annuity due is e,ual to the present value of a regular annuity multiplied by: (a) (b) (c) (d) (e) r (1 F r) 1Gr r(1 F r) one of the above

4.

+ecurring deposit in a bank is a typical e/ample of: (a) (b) (c) (d) (e) 2eferred annuity Annuity due +egular annuity %ompound annuity one of the above

5.

2eposits in a sinking fund is an e/ample of: (a) (b) (c) (d) (e) 2eferred annuity Annuity due +egular annuity Bither a or c one of the above

8.

&n a loan amortization scheduleD as the number of years increases: (a) (b) (c) (d) (e) (he interest amount increases (he principal repayment amount increases (he annual instalment amount decreases >oth a and c one of the above

KEY 1 (d) ! (b) ' (b) * (c) - (a) 1 (b) 4 (b) 5 (d) 8 (a)

CHAPTER 6 FINANCIAL STATEMENT ANALYSIS 1. An e/ample of an intangible asset is (a) (b) (c) (d) (e) 9rovisions %opyrights 9repaid e/penses 2epreciation one of the above

!. "hich of the following is not a source of cash (a) (b) (c) (d) (e) '. &ncrease in liabilities &ncrease in assets &ncrease in owner<s e,uity All the above one of the above

+evaluation reserve is a: (a) (b) (c) (d) (e) %apital reserve +evenue reserve %apital redemption reserve =eneral reserve one of the above

*.

"hich one of the following is not a secured loan# (a) (b) (c) (d) (e) 3oan against hypothecation 3oan against pledge 3oan against commercial paper 3oan against certificate of deposit one of the above

-.

Allocation of cost to various accounting periods is done in respect of: (a) (b) (c) (d) (e) &nventory >uilding 9atent &nvestment one of the above

1.

"hich one of the following is not a current asset as per the %ompanies Act classification#

(a) (b) (c) (d) (e) 4.

$hort.term holding of units of mutual fund schemes 9repaid e/penses Advances to suppliers &nterest accrued on investments one of the above

2iscount allowed on the issue of securities is classified under: (a) (b) (c) (d) (e) %urrent liability &nvestment %urrent asset 6iscellaneous e/penses and losses one of the above

5.

"hich one of the following is a leverage ratio (a) (b) (c) (d) (e) Acid.test ratio &nterest coverage ratio 9rice earning ratio Barning power one of the above

8.

0ther things being e,ualD you will prefer to invest in a company that has (a) (b) (c) (d) (e) %urrent ratio more than 1 and debt e,uity ratio less than 1 2ebt e,uity ratio more than 1 and current ratio less than 1 >oth current ratio and debt e,uity ratio more than 1 >oth current ratio and debt e,uity ratio less than 1 one of the above

1:.

A company<s current ratio is !.:. &f the company uses cash to pay a trade creditorD would this transaction increase or decrease the current ratio and asset turnover ratio# Current ratio (a) (b) (c) (d) (e) Asset turnover ratio &ncrease 2ecrease &ncrease 2ecrease

&ncrease &ncrease 2ecrease 2ecrease one of the above

11.

All other things being e,ualD what effect will the payment of a cash dividend have on the following ratios# Times Interest Earned Ratio o effect &ncrease o effect 2ecrease one of the above Debt/Equity o effect &ncrease &ncrease 2ecrease

(a) (b) (c) (d) (e) 1!.

"hich one of the following ratios will be of special interest for a person investing in corporate bonds# (a) (b) (c) (d) (e) Asset turnover ratio 9rice.earning ratio )i/ed charges coverage ratio Acid.test ratio one of the above

1'.

&n debt service coverage ratio interest on term debt appears in (a) (b) (c) (d) (e) umerator 2enominator owhere >oth a and b one of the above

1*.

(obin , ratio is the ratio of (a) (b) (c) (d) (e) >ook value to market value >ook value to replacement cost 6arket price to replacement cost 6arket price to li,uidation value one of the above

1-.

0ther ratios being e,ualD better short. term solvency is indicated by (a) (b) (c) (d) (e) Higher current ratio 3ower debt.asset ratio 3ower debt.e,uity ratio Higher fi/ed charges coverage ratio one of the above

11.

"hich one of the following is the most stringent measure of li,uidity#

(a) (b) (c) (d) (e) 14.

Acid.test ratio. Euick ratio %ash ratio %urrent ratio one of the above

&f sales are steady and no capital e/penditure is to be incurredD fi/ed assets turnover ratio of a firm over the years will: (a) (b) (c) (d) (e) &ncrease 2ecrease +emains steady Bither b or c one of the above

15.

=ross profit margin ratio measures the efficiency of: (a) (b) (c) (d) (e) 9roduction 9ricing %ollection >oth a and b one of the above

18.

et working capital is e,ual to (a) (b) (c) (d) (e) B/cess of current assets over current liabilities B/cess of long term assets over long term liabilities B/cess of long term liabilities over current assets B/cess of current assets over long term liabilities one of the above

KEY 1 (b) 1: (a) 18(a) ! (b) 11(a) ' (a) 1!(c) * (c) 1'(d) - (c) 1*(c) 1 (a) 1-(a) 4 (d) 11(c) 5 (b) 14(a) 8 (a) 15(b)

CHAPTER 7 PORTFOLIO THEORY

1.

2iversification eliminates risk if returns are:

!.

&f the return on a security is negatively correlated with the market returnD its beta is: (a) (b) (c) (d) (e) 3ess than zero 3ess than one but more than zero 6ore than one &ndependent of the market return one of the above

'.

9erfect co.movement between two securities is indicated when the coefficient of correlation between them is: (a) (b) (c) (d) (e) 1 .1 Hero. Bither a or b one of the above

*.

&n respect of an efficient portfolio: (a) (b) (c) (d) (e) (here is no alternative with the same e/pected return and a lower risk (here is no alternative with the same risk and a higher e/pected return (here is no alternative with a higher e/pected return and a lower risk All the above one of the above

-.

Iou have developed the following data on three stocks: Stock Standard deviation Beta 9 1- percent :.48

E +

!- percent !: percent

:.11 1.!8

&f you are a risk minimiserD you should choose stock JJ if it is to be held in isolation and stock JJ if it is to be held as part of a well.diversified portfolio. (a) (b) (c) (d) (e) 1. +KE 9KE +K9 EK9 one of the above

B/pected return is always (a) (b) (c) (d) (e) Higher than the fair return Higher than the average return B,ual to the re,uired return 3ess than the re,uired return one of the above

4.

&n which of the following situations can you get the largest reduction in risk by diversifying your investment across two stocks# (a) (b) (c) (d) (e) (here is perfect positive correlation (here is perfect negative correlation "hen there is no correlation "hen the beta of one of the stocks is one one of the above

5.

&f the returns of two firms are negatively correlatedD then one of them must have a negative beta. (a) (rue (b) )alse

8.

"hat is the e/pected return of a zero.beta security# (a) (b) (c) (d) (e) 6arket return +isk.free rate of return 6arket return. +isk. free return 6arket return F +isk.free return one of the above

1:.

(he single inde/ model re,uires: (a) (b) (c) (d) (e) n(nF1) estimates n(n.1) estimates 'nF! estimates 'n.! estimates one of the above

11.

(he 6arkowitz model re,uires (a) (b) (c) (d) (e) ' n F ! estimates n (n F 1) G! estimates n (n L 1) G! estimates n (n F ') G! estimates one of the above

1!.

(he distribution of rates of return for securities M and I are given below: State of the Economy >oom ormal +ecession robabi!ity of "ccurrence :.!: :.1: :.!: M 1:N -N :N I L1:N -N -:N

"e can conclude from the above information that security M will reduce the riskiness of a well.diversified portfolio more than security I (a) (rue (b) )alse

KEY 1 (c) 1: (c) ! (a) 11(d) ' (d) 1!(b) * (d) - (b) 1 (e) 4 (b) 5 (b) 8 (b)

CHAPTER 8 CAPITAL ASSET PRICING AND ARBITRAGE PRICING THEORY 1. A defensive stock is characterised by (a) (b) (c) (d) (e) !. egative beta 9ositive beta less than one 9ositive beta amore than one >eta e,ual to one one of the above

Cnderpriced securities plot: (a) (b) (c) (d) (e) Above the $ecurity 6arket 3ine >elow the $ecurity 6arket 3ine +andomly above or below the $ecurity 6arket 3ine Any of the above one of the above

'.

"hich one of the following is an assumption on which Arbitrage 9ricing (heory is based# (a) (b) (c) (d) (e) (he utility functions of investors are ,uadratic $ecurity returns are normally distributed (he market portfolio is mean L variance efficient All the above one of the above

*.

A portfolio consists of a stock and a treasury bill. &ts covariance will be (a) (b) (c) (d) (e) 6ore than 1 3ess than 1 1 Hero one of the above

-.

An efficient portfolio is one in which there is no alternative with (a) (b) (c) (d) (e) (he same e/pected return at a lower risk Higher e/pected return at higher risk 3ower e/pected return at lower risk (he same e/pected return at a higher risk one of the above

1.

As an investor relying on %A96D you will buy a stock if its return plots (a) (b) (c) (d) (e) Above the $63 0n the $63 >elow the $63 >elow the %63 one of the above

4.

(he law of one price guides the following (a) (b) (c) (d) (e) %apital asset pricing model $ingle inde/ model Arbitrage pricing theory (b) and (c) one of the above

5.

"hich of the following is not an assumption of %A96 (a) (b) (c) (d) (e) &ndividuals are risk averse &ndividuals have homogeneous e/pectations (he ,uantity of risk assets in the market is unlimited (he market is perfect one of the above

8.

"hich of the following is true (a) (b) (c) (d) (e) (he $63 is a special case of %63 (he %63 is a special case of the $63 (he %63 is more reliable than the $63 (he $63 represents only efficient portfolios one of the above

1:.

(he security market line depicts (a) (b) (c) (d) (e) (he market portfolio as the optimal portfolio of risky securities How the returns of a security are linked to the return on an inde/ How the e/pected return of a security is linked to its systematic risk A combination of the market portfolio and the risk.free return one of the above

11.

(he arbitrage pricing theory (A9() differs from the single.factor capital asset pricing model (%A96) because the A9(: (a) (b) (c) (d) (e) +ecognises multiple systematic risk factors 2oes not recognise multiple systematic risk factors 2oes not treat risk as diversifiable >oth b and c one of the above

1!.

&n contrast to the capital asset pricing modelD the arbitrage pricing theory: (a) (b) (c) (d) (e) +e,uires that the markets be in e,uilibrium Cses risk premium based on macro variables 2efines the number and identifies specific factors that determine e/pected returns 2oes not re,uire the restrictive assumptions concerning the market portfolio one of the above

KEY 1 (b) 1: (c) ! (a) 11(a) ' (e) 1!(d) * (d) - (a) 1 (a) 4 (c) 5 (c) 8 (b)

CHAPTER EFFICIENT MARKET HYPOTHESIS 1. (a) (b) (c) (d) (e) !. (a) (b) (c) (d) (e) '. (a) *. Bfficient market hypothesis says that (he market prices are e/aggerated 9rice movements are irrational 6arket prices impound all available information 0nly efficient investors can beat the market one of the above According to "eak .form efficiencyD market prices impound available 9ast information 9rivate information 9ublic information )uture information one of the above $trong Lform efficiency supports technical analysis (rue (b) )alse

According to the semi.strong form of the efficient market hypothesisD stock prices (a) (b) (c) (d) (e) )ully reflect all historical price information )ully reflect all informationD public as well as private 6ay be predictable )ully reflect all publicly available information one of the above

-.

"hich of the following would provide evidence against the semi.strong form of the efficient market theory# (a) (b) (c) (d) (e) 3ow 9GB stocks tend to provide positive abnormal returns over the long run About -: percent of mutual funds underperform the market in any year All investors have learnt to e/ploit signals about future performance (rend analysis is worthless in determining stock prices one of the above

1.

6arket efficiency implies that:

(a) (b) (c) (d) (e) 4.

Brrors in the market prices are biased 6arket price e,uals intrinsic value 9rice deviations cannot be predicted &t is not possible to identify over and under.valued stocks one of the above

6arket efficiency e/ists becauseK (a) (b) (c) (d) (e) 9ortfolio managers are doing their Aob well (here is keen competition among market participants ew information cannot be predicted in advance All the above one of the above

5.

"hich of the following is a calendar anomaly# (a) (b) (c) (d) (e) "eek end effect ?anuary effect >udget effect >oth a and b one of the above

8.

$erial correlation testsD run tests and filter rules tests have been commonly employed to verify: (a) (b) (c) (d) (e) $trong form of efficient market hypothesis $emi. strong form of efficient market hypothesis "eak form of efficient market hypothesis >oth a and b one of the above

1:.

&n an efficient marketD the market price of a security is: (a) (b) (c) (d) (e) An unbiased predictor of its intrinsic value An unbiased estimate of its intrinsic value A logical mean of the market participants< e/pectations (he e/pected value of a normal distribution one of the above

KEY 1 (c) 1: (b) ! (a) ' (b) * (d) - (a) 1 (e) 4 (d) 5 (d) 8 (c)

CHAPTER 1! BEHAVIOURAL FINANCE 1. (a) (b) (c) (d) (e) !. (a) (b) (c) (d) (e) '. (a) (b) (c) (d) (e) *. Cnder mental accountingD investors have a tendency (o prolong the sale of winners ot to realise losses ot to dip into the capital All the above one of the above arrow framing leads to 6ental accounting 6yopic risk aversion House.money effect Bndowment effect one of the above &nformation cascade is regarding A deluge of new information >eginning of large fads %ascading effect of inside information Access to restricted information one of the above

Horizon of arbitrage is limited for a portfolio manager because of (a) (b) (c) (d) (e) 3ack of mandate from investors Bvaluation once every few months +egulatory restrictions &nade,uacy of skills one of the above

-.

Cnder self.attribution bias an investor is prone to attribute a loss to: (a) (b) (c) (d) (e) &nade,uacy of data >ad luck $elf.made mistakes All the above one of the above

1.

;Anchoring< in behavioural finance refers to: (a) (b) (c) (d) (e) Aversion to ambiguity %onservatism +epresentativeness Holding centre stage one of the above

4.

According to behavioural financeD familiarity breeds: (a) (b) (c) (d) (e) Aversion %ontempt &nvestment &llusion one of the above

5.

An event representing the normal e/perience is referred to as: (a) (b) (c) (d) (e) (he base rate (he case rate (he par rate Bither b or c one of the above

8.

6odigliani.6iller approach to corporate finance is: (a) (b) (c) (d) (e) %ase. dependent >ase. independent )rame L dependent. )rame.independent one of the above

1:.

According to 9rospect (heoryD people value gainsGlosses according to a utility function which is: (a) (b) (c) (d) (e) $.shaped 7.shaped 9arabolic ormally distributed one of the above.

11.

arrow framing can lead people to:

(a) (b) (c) (d) (e) 1!.

+educe risk 0verestimate risk Cnderestimate risk >ecome risk averse one of the above

6yopic risk aversion means: (a) (b) (c) (d) (e) 6ental accounting )rame dependence Aversion to ambiguity %ognitive dissonance one of the above

1'.

A lottery winner is more likely to donate to a charity than a non.winner because of: (a) (b) (c) (d) (e) %ognitive dissonance 0ver.money effect House L money effect =uilt effect one of the above

1*.

According to psychologist 3ola 3opesD hope finally converts into: (a) (b) (c) (d) (e) Anticipation 9ride. An/iety +egret one of the above

1-.

Available evidence indicates that stocks that have appreciated in the past tend to perform poorly in future and vice versa: (a) (rue (b) )alse

11.

$ummer<s 6odel is consistent with (a) (b) (c) (d) (e) 0verreactions )ads $peculative bubbles All the above one of the above

KEY 1 (d) 1: (a) ! (b) 11(b) ' (b) 1!(e) * (b) 1'(c) - (b) 1*(b) 1 (b) 1-(a) 4 (c) 11(d) 5 (a) 8 (d)

CHAPTER 11 BOND PRICES AND YIELDS 1. (he annual interest on a bond in relation to its prevailing market price is called its: (a) (b) (c) (d) (e) !. %oupon rate 9romised yield %urrent yield Iield to maturity one of the above

6arket price of a coupon bond is independent of : (a) (b) (c) (d) (e) 6aturity period %oupon rate +e,uired rate of return &nflation rate one of the above

'.

"hen inflation is e/pected to rise in the coming decadeD as a bond issuerD you will prefer to issue (a) (b) (c) (d) (e) )i/ed rate bonds )loating rate bonds %allable bonds 9uttable bonds one of the above

*.

+einvestment risk for a bond refers to the risk that the periodic interest payment may have to be reinvested at (a) (b) (c) (d) (e) A lower interest rate A higher interest rate A risk.free rate (a) and (c) one of the above

-.

&nternal rate of return on a bond investment is its (a) (b) (c) %urrent yield Iield to maturity Holding period return

(d) (e) 1.

+ealised yield one of the above

"hich set of conditions leads to a bond with the highest price volatility# (a) (b) (c) (d) (e) A short maturity and a high coupon A short maturity and a low coupon A long maturity and a high coupon A long maturity and a low coupon one of the above

4.

>ond e,uivalent yield is (a) (b) (c) (d) (e) (he effective annual yield Annualised yield based on simple interest Annualised yield based on compound interest Annualised yield with half.yearly rests one of the above

5.

%hanges in real interest rate is not caused by (a) (b) (c) (d) (e) %hange in competition for funds %hange in supply of funds %hange in e/pected inflation rate %hange in government policies one of the above

8.

"hich one of the following can affect real interest rate: (a) (b) (c) (d) (e) B/pected higher inflation (a/ law changes Heightened competition for funds >oth b and c one of the above

KEY 1 (c) ! (e) ' (a) * (a) - (b) 1 (d) 4 (b) 5 (c) 8 (d)

CHAPTER 12 BOND PORTFOLIO MANAGEMENT 1. "hich of the following features of a yield curve is attractive to a bond investor# (a) (b) (c) (d) (e) !. %oncavity %onve/ity %omple/ity 3inearity one of the above

&mmunisation attempts to balance (a) (b) (c) (d) (e) 9rice risk and default risk 9rice risk and reinvestment risk +ecall risk and reinvestment risk &nflation risk and price risk one of the above

'.

)or a zero coupon bond (a) (b) (c) (d) (e) 2uration is zero 2uration is one.half the term to maturity 2uration is undefined 2uration is the same as the term to maturity one of the above "hich bond has the longest duration# (a) (b) (c) (d) (e) 1!.year maturityD - N coupon 1!.year maturityD 4N coupon 5.year maturity D 4N coupon 5.year maturity D - N coupon one of the above

*.

-.

An increase in yield causes a proportionately smaller price change than a decrease in yield of the same magnitude (a) (rue (b) )alse

1. (a) (b) (c)

An ascending yield curve means that : 3ong. term rates are e/pected to rise in future $hort.term rates are e/pected to rise in future &nvestors may be willing to hold long term bonds

(d) (e) 4.

>oth a and d one of the above

I(6s for valuing ;available.for.sale< bonds is announced by: (a) (b) (c) (d) (e) +>& A6)& )immda $B>& one of the above

5.

&mmunisation by way of cash flow matching involves buying: (a) (b) (c) (d) (e) High conve/ity bond Hero coupon bond $terilised bond Any one of the above one of the above

8.

+iding the yield curve is a particular version of horizontal analysis (a) (rue (b) )alse

1:.

&n a substitution swapD the bonds involved are very similar in terms of (a) (b) (c) (d) (e) %redit rating %oupon payments 6aturity All the above one of the above

11.

&n a ta/ swapD the bond seller: (a) (b) (c) (d) (e) 6akes a capital gain &ncurs a capital loss &ncurs a current loss Bither a or c one of the above

KEY 1 (b) 1: (d) ! (b) 11(b) ' (d) * (a) - (a) 1 (b) 4 (c) 5 (b) 8 (a)

CHAPTER 13 E"UITY VALUATION 1. (he constant.growth dividend discount model will not produce a finite value if the dividend growth rate is: (a) (b) (c) (d) (e) !. Above its historical average >elow its historical average Above the market capitalisation rate >elow the market capitalisation rate one of the above.

)or any given stockD which of the following must be true# (a) (b) (c) (d) (e) 6arket value > book value > par value >ook value > market value > par value 9ar value > market value > book value 9ar value O book value < market value one of the above must be true

'.

3imited growth prospects are indicated by (a) (b) (c) (d) (e) High dividend High 9GB ratio 3ow dividend High dividend and low 9GB ratio one of the above

*.

+iskier stocks have (a) (b) (c) (d) (e) Higher 9GB multiple 3ower 9GB multiple Higher variance (b) and (c) one of the above

-.

"hich of the following is true# (a) (b) (c) rima facie if the 9B= ratio e/ceeds 1D the stock is deemed undervalued. rima facie if the 9B= ratio e,uals 1D the stock is deemed overvalued. rima facie if the 9B= ratio is less than 1D the stock is deemed over. valued.

(d) (e) 1.

rima facie if the 9B= ratio e/ceeds 1D the stock is deemed overvalued. one of the above.

"hich of the following is not true (a) (b) (c) (d) (e) Barnings.price ratio is e,ual to r when 97=0 is zero Barnings.price ratio is less than r when 97=0 is positive Barnings.price ratio is less than r when 97=0 is negative Barnings.price ratio is more than r when 97=0 is negative one of the above

4.

"hich one of the following represents an ;obAective< measure of value# (a) (b) (c) (d) (e) 6arket price 3i,uidation value >ook value Barnings capitalisation value one of the above

5.

&n e,uity valuationD the dominant e/planatory variable is called: (a) (b) (c) (d) (e) 6ain variable %ompanion variable $ister variable %ore variable one of the above

8.

(he companion variable in 9rice to $ales ratio is : (a) (b) (c) (d) (e) g +0B 96 9>( one of the above

1:.

&n $0(9 valuation a suitable earnings multiple is applied in: (a) (b) (c) (d) (e) %ore business valuation Cnlisted subsidiary valuation 3isted subsidiary valuation All the above one of the above

11.

&f you believe that the market is efficientD in managing an e,uity portfolioD you will adopt a: (a) (b) (c) (d) (e) &nde/ing strategy 6arket timing strategy $tock rotation strategy $ecurity selection strategy one of the above

1!.

An increase in the market value of a company indicates: (a) (b) (c) (d) (e) &ncrease in profitability &ncrease in revenues &ncrease in future prospects All the above one of the above

1'.

&ntrinsic value of a security is its: (a) (b) (c) (d) (e) 2%) value >ook value +eal value 6arket capitalization value one of the above

1*.

"hich one of the following is not a maAor driver of growth# (a) (b) (c) (d) (e) $ales growth ratio 9loughback ratio +eturn on e,uity All the above one of the above.

1-.

&n the case of stocks with lower 9GB multiples: (a) (b) (c) (d) (e) 3i,uidity is low +e,uired return is high +isk is high All the above one of the above

KEY 1 (c) 1: (b) ! (e) 11(a) ' (d) 1!(e) * (d) 1'(a) - (d) 1*(a) 1 (c) 1-(d) 4 (e) 5 (b) 8 (c)

CHAPTER 14 MACROECONOMIC AND INDUSTRY ANALYSIS 1. A current account deficit is indicative of (a) (b) (c) (d) (e) !. B/cess of savings over investments B/cess of investments over savings $lowdown of foreign investments (a) and (c) one of the above

(o check inflationary e/pectations a central bank may (a) (b) (c) (d) (e) &ncrease the income ta/ &ncrease the bank rate 2ecrease the %++ rate All the above one of the above A nation with a growing economy should necessarily have (a) (b) (c) (d) (e) A deficit budget A surplus budget A balanced budget A current account deficit one of the above

'.

*.

&n the recent pastD growth rate in ?apan has e/ceeded the growth rate in emerging countries. (a) (rue (b) )alse

-.

"hich of the following countries has been registering the highest average growth rate : (a) (b) (c) (d) (e) &ndia C$A C@ %hina one of the above

1.

(he prevalence of low interest rates in the C$ is attributed to: (a) (b) (he glut in global savings Heavy regulatory interventions

(c) (d) (e) 4.

&ncreased competitiveness of the C$ corporates 3ow demand for imports one of the above

(he now famous >+&% report is the handiwork of: (a) (b) (c) (d) (e) 6organ $tanley 6erryl 3ynch =oldman $achs ?.9. 6organ one of the above

5.

A large budgetary surplus typically: (a) (b) (c) (d) (e) 2ampens the economy $timulates the economy Has no significant impact on the economy Bither b or c one of the above

8.

2irect impact on interest rate is through: (a) (b) (c) (d) (e) )iscal policy 6onetary policy B/change rate policy All the above one of the above

1:.

6onetary tightening is signaled by (a) (b) (c) (d) (e) &ncrease in %++ 2ecrease in $3+ 2ecrease in >ank +ate All the above one of the above

11.

(he bulk of the household financial savings in &ndia are invested or parked in: (a) (b) (c) (d) (e) $mall savings schemes 9rovident and pension funds &nsurance funds >ank deposits one of the above

1!.

"hen we talk of money supplyD we usually refer to: (a) (b) (c) (d) (e) 6' 6! 61 Bither b or c one of the above

1'.

)oreign direct investment is more desirable than foreign portfolio investment: (a) (rue (b) )alse

1*.

(he sensitivity of a firm<s earnings to the business cycle is determined by: (a) (b) (c) (d) (e) (he sensitivity of the firm<s sales to business conditions (he operating leverage (he financial leverage All the above one of the above

1-.

A firm with higher operating leverage performs better: (a) (b) (c) (d) (e) 2uring an upturn. 2uring a downturn "hen the economy is stable 2uring recession one of the above

11.

"hich one of the following does not find place in the 9orter 6odel on the profit potential of industries. (a) (b) (c) (d) (e) +ivalry among new entrants 9ressure from substitute products >argaining power of buyers >argaining power of sellers one of the above

KEY 1 (b) 1: (a) ! (b) 11(d) ' (e) 1!(a) * (b) 1'(a) - (d) 1*(d) 1 (a) 1-(a) 4 (c) 11(a) 5 (a) 8 (b)

CHAPTER 15 COMPANY ANALYSIS 1. $ustainable growth ratio is a function of (a) (b) (c) (d) (e) !. %urrent ratio +eturn on e,uity >ook value (a) and (c) one of the above

(he key elements of 2ell computer %orporation<s strategy of cost leadership does not include (a) (b) (c) (d) (e) 3ow.cost service 2irect selling egative working capital >uilt.to.order manufacturing one of the above

'.

2ecentralisation almost invariably: (a) (b) (c) (d) (e) Bnhances goal congruence 2iminishes goal congruence )acilitates economies of scale All the above one of the above

*.

"hich among the following is the most popular method of e,uity valuation# (a) (b) (c) (d) (e) 2ividend discount method Horizon bond value method et present value method Barnings multiplier method one of the above

-.

"hich one of the following is a measure of risk# (a) (b) (c) >eta +ange of return 7olatility of return

(d) (e) 1.

All the above one of the above

A good finance manager should take great efforts to manage: (a) (b) (c) (d) (e) (he top line (he middle line (he bottom line >oth a and c one of the above

4.

(he ratio of e/pected future growth to recent growth is called: (a) (b) (c) (d) (e) 7elocity ratio )utures ratio Acceleration ratio B/pectation ratio one of the above

KEY 1 (b) ! (e) ' (b) * (d) - (d) 1 (e) 4 (c)

CHAPTER 16 TECHNICAL ANALYSIS 1. B/tensive analysis of various factors in involved in: (a) (b) (c) (d) (e) !. (echnical analysis )undamental analysis 2%) analysis B7A analysis one of the above

&nverse Head and $houlders (op 9attern is believed to indicate: (a) (b) (c) (d) (e) >ullish development >earish development $ideways movement %onsolidation one of the above

'.

&n technical analysisD a pattern of uncertainty is indicated by: (a) (b) (c) (d) (e) )lags and 9ennants Heads and $houlders (riangles 2ouble bottom one of the above

*.

A technical analyst believes that a high short interest ratio indicates: (a) (b) (c) (d) (e) >ullish development >earish development $ideways movement %onsolidation one of the above

-.

)undamental analysis is superior to technical analysis. (a) (rue (b) )alse

1.

According to chartistsD flags and pennants signify (a) (b) A bullish trend A pause

(c) (d) (e) 4.

A bearish trend A reversal one of the above

)or timing the market investors often use (a) (b) (c) (d) (e) (echnical analysis )undamental analysis %ompany analysis 7iability analysis one of the above

5.

3ow mutual fund li,uidity is supposed to forecast (a) (b) (c) (d) (e) A bullish trend A bearish trend $table market 7olatile market one of the above

8.

"hich of the following is considered a bullish signal by a technical analyst# (a) (b) (c) (d) (e) 2ouble top formation A rise in the putGcall ratio A high short.interest ratio A trin ratio of more than 1 one of the above

KEY 1 (b) ! (a) ' (a) * (a) - (b) 1 (b) 4 (a) 5 (b) 8 (c)

CHAPTER 17 OPTIONS 1. %hange in option value with respect to time to e/piration is denoted by: (a) (b) (c) (d) (e) !. 2elta 7ega (heta =amma one of the above

%hange in option value with respect to the change in the volatility of the underlying price is denoted by: (a) (b) (c) (d) (e) 2elta 7ega (heta =amma one of the above

'.

&n which of the following there is an unlimited downside risk# (a) (b) (c) (d) (e) >uying a call option "riting a call option >uying a put option "riting a put option one of the above

*.

&n the case of a put optionD the intrinsic value is always (a) (b) (c) (d) =reater than or e,ual to the market value =reater than or e,ual to the time value 3ess than or e,ual to the time value one of the above

-.

"hich one of the following is not an assumption underlying the >lack. $choles model: (a) (b) (c) (d) (e) (he call option is the American option (he stock pays no dividend (he risk. free interest rate is constant (here are no transaction costs and ta/es one of the above

1.

7alue of a call option increases when (a) (b) (c) (d) (e) $tock price is high 7olatility is high (ime to e/piration is long All the above one of the above

4.

An out.of.the.money call option means that: (a) (b) (c) (d) (e) 6arket price is more than the e/ercise price B/ercise price is more than the market price (he time to e/piration is over (he call option can not be e/ercised one of the above

5.

&ntrinsic value of an in. the Lmoney option: (a) (b) (c) (d) (e) &s more than the time value of the option &s less than the time value of the option &s e,ual to the market value of the option &s the option value if it were to e/pire immediately one of the above

8.

&f the value of a call option on a stock is e,ual to the value of a put option on the same stock: (a) (b) (c) (d) (e) 6a/imum loss on the call option would be greater than the ma/imum loss on the put option 6a/imum loss on the call option would be less than the ma/imum loss on the put option. 6a/imum loss on the call option would be e,ual to the ma/imum loss on the put option Bither a or b one of the above

1:.

As per the >lack and $choles modelD the value of a call option is affected by the: (a) (b) (c) (d) +isk aversion of the investor +isk appetite of the investor B/pected return on the stock B/pected return on the market

(e)

one of the above.

KEY 1 (c) 1: (e) ! (b) ' (b) * (d) - (a) 1 (d) 4 (b) 5 (d) 8 (c)

CHAPTER 18 FUTURES 1. 0pen interest in a futures market is the (a) (b) (c) (d) (e) !. umber of long contracts outstanding o. of pending orders $um of all contractsD long and short (a) F (b) one of the above

"hich of the following is incorrect# (a) (b) (c) (d) (e) A futures contract is a forward contract A forward contract is a futures contract )utures are standardised contracts )utures are e/change traded one of the above

'.

A normal backwardation implies that: (a) (b) (c) (d) (e) &nvestors are risk neutral $ellers provide service to buyers >uyers provide service to sellers (here will be no tradeD whatsoever one of the above

*.

"hich one of the following is not an investment: (a) (b) (c) (d) (e) )orwards )utures 0ptions All the above one of the above

-.

6a/imum trading cycle for $ P 9 % M ifty futures is: (a) (b) (c) (d) (e) 1 month ! months ' months 1 months one of the above

1.

&n &ndiaD a commodity e/change has to necessarily allow an option to the seller of the futures to give physical delivery at the end of the contract periodD if he so wishes: (a) (rue (b) )alse

4.

(he regulatory authority for futures trading in commodities in &ndia is: (a) (b) (c) (d) (e) )orward 6arkets %ommission )utures 6arkets %ommission $ecurities 6arkets %ommission %ommodities (rading %ommission one of the above

5.

(endering time in a commodity e/change refers to the period during which a purchaser of a futures contract should state his intention of : (a) (b) (c) (d) (e) $ettling the contract by paying cash $ettling the contract by taking physical delivery 6odifying the sales ta/ documents tendered earlier 6odifying the strike price one of the above

8.

(he difference between the futures price and the spot price is called the: (a) (b) (c) (d) (e) >asis $pread %ontango >ackwardation one of the above

1:.

According to empirical evidence the volatility in the underlying cash markets diminishes with the introduction of derivatives: (a) (rue (b) )alse

11.

2erivatives are devices for: (a) (b) (c) (d) (e) Bliminating risk Analysing risk 6anaging risk Cnderstanding risk one of the above

1!.

)or commodities the following relationship is e/pected to hold: )utures price (a) (1Frf)
t

$pot price

)utures price (b) (1Frf) )utures price (c) (1Frf) )utures price (d) (1Frf)t (e) one of the above O $pot price L 9resent value of storage costs F 9resent value of convenience yield
t t

$pot priceF9resent value of storage costs F 9resent value of convenience yield

$pot price F 9resent value of storage costs # 9resent value of convenience yield

KEY 1 (a) 1: (a) ! (b) 11(c) ' (c) 1!(c) * (d) - (c) 1 (a) 4 (a) 5 (b) 8 (a)

CHAPTER 1 MUTUAL FUNDS 1. An Asset 6anagement %ompany to run a mutual fund is appointed by: (a) (b) (c) (d) (e) !. $ponsor (rustees %ustodian $B>& one of the above

An B/change (raded )und is a variety of (a) (b) (c) (d) (e) )und of )und $ectoral )und &nde/ )und 2ebt )und one of the above

'.

An B/change (raded )und has the properties of (a) (b) (c) (d) (e) A close.ended inde/ fund An open.ended inde/ fund. An e,uity fund >oth a and b one of the above B,uity 3inked $avings $chemes are (a) (b) (c) (d) (e) Hybrid schemes 2ebt schemes (a/ planning schemes >ank schemes one of the above

*.

-.

"ho is the &nvestment 6anager for a 6utual )und# (a) (b) (c) (d) (e) (he %ustodian (he $ponsor (he (rustees (he Asset 6anagement %ompany one of the above

1.

+ecurring e/penses are the lowest for: (a) (b) (c) (d) (e) &nde/ fund B3$$ )loating rate debt fund Arbitrage fund one of the above

4.

A fi/ed maturity plan ()69) is debt scheme that isK (a) (b) (c) (d) (e) 0pen ended "ith guaranteed returns "ith indicative returns >oth a and b one of the above

5.

A fund of fund schemeD invests in: (a) (b) (c) (d) (e) $tocks >onds 2erivative schemes 6utual fund schemes one of the above

8.

"hich one of the following is a disadvantage of a fund.of.fund scheme as compared to a mutual fund# (a) (b) (c) (d) (e) (he cost of investment is more &t increases the risk &t is less ta/ efficient All the above one of the above

1:.

&n which of the following mutual fund scheme you cannot withdraw funds as and when you like# (a) (b) (c) (d) (e) A diversified scheme A balanced scheme An open. ended scheme A close. ended scheme one of the above

11.

An open.ended mutual fund scheme is listed in the secondary market: (a) (rue (b) )alse

1!.

Hedge funds are typically not open to: (a) (b) (c) (d) (e) +etail investors &nstitutional investors "ealthy individuals >oth b and c one of the above

1'.

A market.neutral position involves: (a) (b) (c) (d) (e) (aking high risk (aking low risk >eing risk L neutral >eing risk.averse one of the above

1*.

"hich among the following is not an option offered by a mutual fund# (a) (b) (c) (d) (e) 2ividend payout option 2ividend reinvestment option =rowth option %all option one of the above

1-.

&f you have fairly strong speculative instinctsD you should invest mostly in: (a) (b) (c) (d) (e) 6utual funds 9rimary e,uity market $econdary e,uity market $econdary bond market one of the above

KEY 1 (b) 1: (d) ! (c) 11(b) ' (d) 1!(a) * (c) 1'(e) - (d) 1*(d) 1 (a) 1-(c) 4 (c) 5 (d) 8 (a)

CHAPTER 21 PORTFOLIO MANAGEMENT FRAMEWORK 1. +egression of returns to the mean over time is a tendency found in: (a) (b) (c) (d) (e) !. B,uities >onds 2erivatives All the above one of the above

$harpe measure reflects the e/cess return earned on a portfolio per unit of its total risk: (a) (rue (b) )alse

'.

"hich one of the following is not a commonly stated investment goal# (a) (b) (c) (d) (e) =rowth $tability 3i,uidity &ncome. one of the above

*.

Bmpirical studies have shown that nearly 8: percent of the variance of the portfolio return is e/plained by its: (a) (b) (c) (d) (e) &nvestment horizon Cni,ue circumstances Asset.mi/ 3i,uidity position one of the above

-.

(he notion of time diversification can mathematically be shown to be fallacious if returns follow: (a) (b) (c) (d) (e) A secular linear uptrend A random walk An uptrend with conve/ity An uptrend without conve/ity one of the above

1.

(he actual risk of bonds declines more slowly than the theoretical riskD as the holding period increases: (a) (rue (b) )alse

4.

"hich of the following is not a principal vector of an active portfolio strategy# (a) (b) (c) (d) (e) 6arket management $ector rotation $ecurity selection Cse of a specialized concept one of the above

5.

=rowth stocks typically have high: (a) (b) (c) (d) (e) 9rice.earnings ratios 3ow price.to.book value ratios High dividend yields All the above one of the above

8.

An investor who e/tensively analyses publicly available information is a (a) (b) (c) (d) (e) 3i,uidity based transactor 7alue based transactor &nformation based transactor 9seudo.information based transactor one of the above

1:.

(he appropriate measure of risk used in (reynor measure is (a) (b) (c) (d) (e) 7ariance >eta $tandard deviation range one of the above

11.

?ensen measure of a portfolio reflects (a) (b) (c) B/cess return over market portfolio B/cess return over fair return as per %A96 B/cess return over fair return as per A9(

(d) (e) 1!.

B/cess return over risk free return one of the above

&nsured asset allocation calls for (a) (b) (c) (d) (e) $hifting the asset mi/ mechanistically in response to changing market conditions $hifting the asset mi/ as per a predetermined stock.bond mi/ )ollowing a buy and hold policy Annual rebalancing of the portfolio one of the above

1'.

)or good downside protection and riding a bull market you will adopt a (a) (b) (c) (d) (e) 2rifting asset allocation policy %99& policy >alanced asset allocation policy $peculative policy one of the above

1*.

A drifting asset allocation policy (a) (b) (c) (d) (e) =ives rise to a conve/ pay off curve =ives rise to a concave pay off curve =ives rise to a straight line pay off =ives rise to an elliptical pay off curve one of the above

1-.

A constant proportion portfolio insurance (%99&) policy calls for: (a) (b) (c) (d) (e) $elling stocks as they fall and buying stocks as they rise >uying stocks as they fall and selling stocks as they rise >uying a constant number of shares of a stock every month $elling a constant number of shares of a stock every month one of the above

11.

&f a portfolio manager has a good ability to select undervalued securities but a poor ability to forecast overall marketD the following makes sense for him: (a) %oncentrate holdings in selected undervalued stocks and shift beta below and above the desired long.term average based on market forecasts

(b) (c) (d) (e) 14.

Hold a broadly diversified portfolio of stocks and keep beta stable at the desired long.term average %oncentrate holdings in selected undervalued stocks and keep beta stable at the desired long.term average Hold a diversified portfolio of stocks and shift beta above and below desired long.term average based on market forecasts one of the above

&f a portfolio manager has a good ability to forecast overall market but a poor ability to select undervalued securitiesD the following makes sense for him. (a) (b) (c) (d) (e) %oncentrate holdings in selected undervalued stocks and shift beta below and above the desired long.term average based on market forecasts Hold a broadly diversified portfolio of stocks and keep beta stable at the desired long.term average %oncentrate holdings in selected undervalued stocks and keep beta stable at the desired long.term average Hold a diversified portfolio of stocks and shift beta above and below desired long.term average based on market forecasts one of the above

15.

"hich of the following measures reflects the e/cess return earned on a portfolio per unit of its total risk# (a) (b) (c) (d) (e) (reynor<s measure $harpe<s measure ?ensen<s measure (otal measure one of the above

KEY 1 (a) 1: (b) ! (a) 11(b) ' (c) 1!(a) * (c) 1'(b) - (b) 1*(c) 1 (a) 1-(a) 4 (a) 11(c) 5 (a) 14(d) 8 (b) 15(b)