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1. Indenture is: a) Debenture of a company redeemable before maturity. b) Debenture issued in house i.e.

to employees of a company c) Contract that states all the terms of the bond issue. d) None of the above

2. Mutual Funds are preferred investment vehicles because a) The Cost of Managing funds is low b) These funds are Professionally managed c) Investment risk is low d) All of the above

3. Which of the following is Systematic risk?

a) Change in interest rate policy


b) The government increases custom duty on the material used by the company c) The company loses a big contract bid d) The company workers declare strike

4. If Inflation index at beginning of 2001 was 100, compute its value at end of 2005 if the inflation rate had been 4%, 6%, 8%, 10%, 11% & 9% from 2000 2005
a) 190.08 b) 158.5 c) Insufficient Data d) None of the above 5. Rs.1 lac invested in a Mutual Fund Growth Scheme at NAV of Rs.20 grows to an NAV of Rs.28 in four years. The CAGR of the investment is: a) 2% b) 8% c) 8.77%

d) Cannot be computed as Dividend is not given

6. The weighted average return of stocks combined in the ratio of 50:50 and giving individual returns of 12% & 24% is : a) 36% b) 18% c) 15% d) None of the above

7. If beta of a stock is 1.5, a 10% increase in stock market will a) Lead to 15% fall in stock return b) Lead to 10% increase in stock return c) Lead to no change in stock return d) Lead to 15% rise in stock return. 8. A Preference Share is that which a) Pays fixed dividend b) Is a marketable security c) Is a secured debt issued by the Company d) Both a and b
9. A Bond of Rs 1000 with coupon of 13% is purchased by an investor from the market for Rs 900. Calculate the Current Yield?

a) 13.00% b) 14.44% c) 13.44% d) None of the above


10. Which of the following is/are not the part of the portfolio management process? a) Portfolio redemption b) Asset allocation and portfolio optimization

c) Portfolio construction and revision d) Monitoring investor related input factors

11. A security gives a return of 12% in normal times with 30% probability, () 15% in recessionary time with 25% probability & 25% in boom time with 45% probability. What is the Expected return on investing in such a security? a) 22% b) 7.33%. c) 11.1%. d) None of the above. 12. Index Fund is a widely used strategy: a) For active management b) For passive management c) For balanced return d) Both (a) and (b) 13. Exchange rate risk is one that a) Affects Exporters b) Affects Importers c) Affects only domestic investors d) Both (a) and (b) 14. The Zerobeta asset is one a) Which gives risk free rate of return b) Whose return has no correlation with the market returns c) Whose return is highly correlated with the market d) None of the above 15. Risk attached to an investment refers to: a) Uncertainty attached to the investment returns

b) Certainty attached with the investment returns c) Variability of the expected returns d) Both (a) and (c)
State whether the statements are true or false and write in very brief the reason for that.

16. The Probability of a certain event is 100. F 17. Capital Market Line is used to determine the Expected Return of an individual
Security.T 18. Knowing the risk and return of various Mutual Fund Schemes, a Financial Planner can devise a portfolio of Minimum Risk for his client and know whether the same will enable his client to meet his financial objectives. T

19. CAPM establishes a relationship between the return of a security and the
systematic risk of that security. T 20. Diversification eliminates the risk of investment completely. F
Fill in the Blanks

21. Treasury bills are issued at a _DICOUNT_ and are REDEEMED_ at par. 22. After adjusting inflation in nominal return on an investment we get, _____REAL RATE_. 23. Impossible outcome are assigned a probability of __________________. 24. __________ are securities issued by the state governments. 25. Low Dividend Yield and high P/E imply ____________ prospects.

26. The current market price of a share is Rs 65 and is expected to be Rs 90 after 1 year. Dividend expected after 1 year from now is Rs 2.90. Find out the expected rate of return on investment? a) 42.9% b) 41.9% c) 39.9% d) 40.9%

27. The risk-free rate, Irf is 4% and market risk premium is 8.6% and Beta of the security is 1.3. What is the expected return of the security under SML?

a) 16.00% b) 14.00% c) 15.18% d) 14.49%

28. Mr. Mukesh purchased a bond bearing a 12% coupon rate. He

purchased the bond at par (Rs 1,000). If interest rates fall to 9% what will be the new price of the bond? a) Rs 1900 b) Rs 1333 c) Rs 1100 d) None of the above
Page 5 of 7 P.T.O 29. Based on scenarios below, what is the expected return for a portfolio with the following return profile? BEAR NORMAL BULL Probability 0.4 0.1 0.5 Rate of Return -25% 10% 24%

a) 3 b) 4 c) 2 d) None of the above

30. Umesh Engineering Limited is expected to grow at the rate of 6% p.a. The dividend expected on Umeshs equity share a year hence is Rs. 2.00. This too will grow at 6 % p.a. What price will you put on it if your required rate of return from this share is 14%? a) 26.50 b) 26.00 c) 25.00

d) None of the above 31. A Rs 5,000 bond with a 10% coupon rate matures in 8 years and currently sells at 97% of its par value. If the Investors required rate of return is 11% if held to maturity, should he invest in the Bond? a) No, The Bond price is over valued b) Yes, The Bond price is fairly valued c) Yes, The Bond price is undervalued d) Cannot decide on the basis of data available

32. An investor has invested his funds equally in four securities A,B,C and D which have expected returns of 20% , 10% , 12%, 9%. Find out his expected rate of return on his portfolio: a) 12.75% b) 13.75% c) 12.50% d) 14.75%

33. ABC Co. Ltd is likely to give a dividend of Rs 6, the retention ratio of the firm is 40% and the Return on Equity is 30%. Find out the Price of the share if required rate of return is 15%? a) Rs 40 b) Rs 180 c) Rs 200 d) None of the above

34. A security has a standard deviation of 2.8% .The correlation coefficient of the security with market is 0.8 and the market standard deviation is 2.3% , The return from government securities is 12% and from the market portfolio is 18% . What is the required rate of return on the security? a) 13.34% b) 15.36% c) 15.72% d) 12.90%
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35. A Rs. 1000 par value bond carrying a coupon rate of 10% maturing after 10 years is being considered. The present market price of this bond is Rs 1140 and is callable in 6 years at Rs1,100. Calculate realised YTC and YTM? a) 8.29% , 7.92% b) 7.29% , 8.29% c) 11%, 10.00% d) None of the above
Section 3 15 Marks Answer the following questions. Each question carries five marks.

36. Consider the following information for two mutual funds, A and B and the market.
Mean Return % Standard D. % Beta

A 13 20 1.1 B 11.25 17.5 0.8 Market Index 12 25 0.2 The risk free rate is 4%. On the basis of sharpe measure, treynor measure and Jensen measure which is a better

performing fund?

37. You are constructing a Portfolio of Two securities A and B which are perfectly negatively correlated. Your client who has low risk taking capacity. Following information is given, based on which you feel that a minimum risk variance portfolio would serve your clients financial objectives as well as take care of his risk bearing capacity. SECURITY EXPECTED RETURN STANDARD DEVIATION A 12% 15% B 15% 20% From the portfolio so constructed determine the return and risk of the same.

38. What is the HPR and CAGR at end of 3 years of the portfolio constructed from the two MFs in Q.36 in the ratio of A:B :: 30:70 and the funds give the indicated return each year and you follow the Constant Mix Policy of Asset Allocation and Portfolio Management.

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