Security Analysis & Portfolio Management

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

(A) Under valued

(B) Over valued

(C) Both (A) and (B)

(D) None of the above

Ans C

2 It is a method used to evaluate the worth of security by studying the financial data of the
issues.

(a) Security Analysis

(b) Fundamental analysis

(c) Performance Analysis

(d) None of the Above

Ans. B

3 Which of the following is the quality of a smart investor required.

(a) Smart Investor Invest Consistency.

(b) Smart Investor Are Important

(c) Smart Investors Are Emotionally Tied To Their Investment Position.

(d) All of the Above.

Ans. A
4 It is the variability in a security’s returns resulting from fluctuations in the aggregate market.

(a) Market Risk

(b) Inflation risk

(c) Credit Risk

(d) Intend rate risk

Ans. A

5. The securing pattern of session & recovery is called the ___

(a) Expansion

(b) Contraction Cycle

(c) Business Cycle

(d) Economic Cycle

Ans. C

6. This indicators tend to follow (log) economic performance.

(a) Coincident

(b) Logging

(c) Leading

(d) None Of Above

Ans. B

7. This analysis is a method that is used to evaluate the worth of security by analyzing the
statistics that are generated by market activity, such as the past price of volume.

(a) Economic

(b) Financial
(c) Technical

(d) None Of Above

Ans. C

8. A ___ pattern is a distinct formation on a stock chart that creates a trading signal or a sign of
future price movements.

(a) Price Chart

(b) Chart

(c) Technical

(d) None Of Above

Ans. B

9. It is the annual rate of return that a fund holder will earn under the assumption that the bond is
held to maturity & the investment payments are invested.

(a) YTM

(b) NPV

(c) ARR

(d) CY

Ans. A

10. References shares are also called ___ securities on they share the characteristics of bonds and
common share.

(a) Hybrid

(b) Prior

(c) Primary

(d) Secondary

Ans. A

11. Po=D/R is the formula for the calculation of the present value of money in case of:
(a) Zero growth of dividend.

(b) Constant growth of dividend

(c) Valuable growth of dividend

(d) None of the Above.

Ans. A

12. which of the following theory analyzes how wealth can be optimally invested in portfolio’s
which are made up of assets whose expected returns and risks are different.

(a) G.D. Gordon’s approach

(b) Modigliani miller approach

(c) Markowitz Model

(d) Traditional Theory

Ans. C

13. Which model relates return to a single factor?

(a) Markowitz

(b) Single Index

(c) M.M. Approach

(d) Traditional

Ans. B

14. Which of the following is not a common risk factor?

(a) Market Risk

(b) Promotional Risk

(c) Interest Rate Risk

(d) Inflation Risk

15. It gives the no. of shares for which each bond maybe exchange.

(a) Market Conversion Value

(b) Conversion Ratio

(c) P/V Ratio

(d) B.E.P. Ratio

Ans. B

16. It is the excess of the bond over its conversion value.

(a) Market Conversion

(b) Conversion Premium

(c) Conversion Discount

(d) Conversion Ratio

Ans. B

17. It represents the tradeoff between risk & expected return faced by an investor when forming
this portfolio.

(a) Efficient Set

(b) Attainable Set

(c) Efficient Frontier

(d) Risk Diversification

Ans. C

18. The risks that a bondholder faces when investing in bonds are:

(a) Interest rate, default rate, liquidity risk

(b) Current yield, YTM risk

(c) Both a & b are correct

Ans. A

19. The value of the financial asset derives from and depends on ___.

(a) Fundamental asset

(b) Underlying real asset

(c) Risk

(d) Risk and return

Ans. B

20. This step involves determining periodically how the portfolio has performed over the review
period.

(a) Portfolio performance evaluation

(b) Portfolio revision

(c) Portfolio construction

(d) Performing security analysis

Ans. A

21. Financial leverage may increase a corporation’s risk because

(a) operating income may stabilize

(b) the firm has fixed obligations to meet

(c) more common stock is outstanding

(d) dividends must be paid

Ans B

22. If you were confident that the price of stock X would drop dramatically within two months,
which of the following investment transactions would yield the highest return on your
investment?

(a) Purchase stock X

(c) Purchase a call on stock X

(d) Purchase a put on stock X

Ans D

23. Which of the following is on the horizontal axis of the Security Market Line?

(a) Standard deviation

(b) Beta

(c) Expected return

(d) Required return

Ans B

24. What is the value of a call on the expiration date, if on that date the price of the stock is
Rs.25 and

the exercise price is Rs.26?

(a) Rs.-1

(b) Rs.0

(c) Rs.1

(d) Rs.25

Ans B

25. What is a call?

a. An option to sell stock at a specified price

b. An option to buy stock at a specified price

c. An option to sell stock on a specified date

d. An option to buy stock on a specified date

Ans B
26. You own a large orange grove and will be harvesting from November through April. To
hedge against price risks you should

(a) sell orange juice contracts with a November delivery

(b) buy orange juice contracts with a November delivery

(c) sell orange juice contracts with delivery dates between November and April

(d) buy orange juice contracts with delivery dates between November and April

Ans C

27. While bond prices fluctuate,

(a) yields are constant

(b) coupons are constant

(c) the spread between yields is constant

(d) short-term bond prices fluctuate even more

Ans B

28. The common stock of TESU Corporation has been trading in a narrow range around $50 per
share for months, and you believe it will stay in that range for the next 3 months. A 3-month put
option with an exercise price of Rs.50 sells for Rs.4. A call with the same expiration date and
exercise price sells for Rs.4.
What simple options strategy using a put and a call will take advantage of your belief about the
stock price’s future movement?

(a) Sell a call

(b) Sell a straddle

(c) Buy a put

(d) Buy a straddle

Ans B

29. What do activity ratios measure?

(a) How rapidly assets flow through the firm

(b) How frequently the firm’s stock is traded

(d) The profitableness of accounts receivable

Ans A

30. Increase in odd lot selling as compared to odd lot buying , is a …..indicator

(a) bullish

(b) bearish

(c) both a & b

(d) neutral

Answer: A

31. Market price breaking through the moving average from below is a ……indicator

(a) Bullish

(b) bearish

(c) Flat

(d) none of the above

Answer:A

32. Although derivatives can be used as speculative instruments, businesses most often use them
to:

(a)Hedge.

(b)Offset debt

(c)Appease stockholders

(d)Attract customers

Ans A

33. Skewness is a measure of ____________.

(a) the dividend yield of the distribution

(c) the normality of a distribution

(d)A and C

Ans C

34. Portfolio theory as described by Markowitz is most concerned with

(a)The elimination of systematic risk

(b)The identification of unsystematic risk

(c)The effect of diversification on portfolio risk.

(d)Active portfolio management to enhance returns.

.Ans C

35. What is the relevant measure of risk according to the context of the Capital Asset Pricing
Model (CAPM)?

(a)Unique risk.

(b)Beta.

(c)Standard deviation of returns.

(d)Variance of returns.

Ans B

36. Security is fairly priced and has an expected rate of return of 0.13. The market expected rate
of return is 0.13 and the risk-free rate is 0.04. What will be the beta of the stock?

(a)1.25

(b)1.7

(c)1.0

(d)0.95

Ans C
37. Name the pricing model that provides no guidance concerning the determination of the risk
premium on factor portfolios.

(a)The multifactor APT.

(b)The CAPM.

(c)Both the CAPM and the multifactor APT.

(d)Neither the CAPM nor the multifactor APT.

Ans A

38. A zero-investment portfolio with a positive expected return arises when

(a)An investor has downside risk only.

(b)The opportunity set is not tangent to the capital allocation line.

(c)A risk-free arbitrage opportunity exists.

(d)The law of prices is not violated.

Ans C

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

(A) Correlation coefficient

(B) Time

(C) Difference

(D) None of the above

Ans A

40. What is a load fund?

(A) Fund charging a fee for entry

(B) Fund charging a fee for exit

(C) Fund charging a fee for entry and exit

Ans C

41. Under futures market ________ process provides for collection of losses that have already
occurred.

(A) The monthly settlement

(B) The weekly settlement

(C) The daily settlement

(D) None of the above

Ans C

42. The APT differs from the CAPM because the APT...

(a)Places more emphasis on market risk.

(b)Recognizes multiple systematic risk factors.

(c)Recognizes multiple unsystematic risk factors.

(d)Minimizes the importance of diversification.

Ans B

43. Consider a well-diversified portfolio, A, in a two-factor economy. The risk-free rate is 6%,
the risk premium on the first-factor portfolio is 4% and the risk premium on the second-factor
portfolio is 3%. If portfolio A has a beta of 1.2 on the first factor and.8 on the second factor,
what is its expected return?

(a)7.0%

(b)8.0%

(c)9.2%

(d)13.2%

Ans D

44. Name the analyst process that focuses more on past price movements of a firm's stock than
on the underlying determinants of future profitability.
(a)Credit analysts

(b)Fundamental analysts

(c)Systems analysts

(d)Technical analysts

Ans D

45. He was the grandfather of technical analysis.

(a)Harry Markowitz

(b)William Sharpe

(c)Charles Dow

(d)Benjamin Graham

Ans D

46. A long-term movement of prices, lasting from several months to years is called _________.

(a) A minor trend

(b)A primary trend

(c)An intermediate trend

(d)Trend analysis

Ans B

47. What's the relation between ceteris paribus, the price, and yield on a bond?

(a)Negatively related.

(b)Positively related.

(c)Sometimes positively and sometimes negatively related.

(d)Not related

Ans A
48. The most widely used monetary tool is:

(a)Open market operations.

(b)Altering the reserve requirements

(c)Altering the discount rate.

(d)Altering marginal tax rates.

Ans A

49. If interest rates decrease, business investment expenditures will ______ and consumer
durable expenditures will _________.

(a)Increase, increase

(b)Increase, decrease

(c)Decrease, increase

(d)Decrease, decrease

Ans A

50. The goal of fundamental analysts is to find securities:

(a)With high market capitalization rates.

(b)Whose intrinsic value exceeds market price.

(c)All of the above

(d)None of the above

Ans B