February 2009

Vol. 09 Issue 01

INVESTMENT PLANNING

WORKBOOK

ISBF
Published by Indian School of Business & Finance Centre for Financial Planning

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Investment Planning Workbook

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CONTENTS
Page No.

Section 1. Section 2. Section 3. Section 4. Section 5. Section 6. Section 7. Section 8. Section 9.

Introduction to Investment Planning Measuring Risk Managing Risk Returns Portfolio Theory, CAPM & APT Equity Valuation Derivatives Bonds Mutual Funds

1 11 21 27 39 51 65 81 93 103 109 117 125 137 145 151 167

Section 10. Real Estate Section 11. Small Savings & Other Investment Avenues Section 12. Financial Statement Analysis Section 13. Portfolio Management Strategies Section 14. Regulatory Functions and Code of Conduct Section 15. Matching Investment Vehicles to Client Needs Section 16. Time Value of Money FPSB India - Sample paper

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Section 1 INTRODUCTION TO INVESTMENT PLANNING

Q.1. The cost of debt can be described as: A. B. C. D. Q.2. The interest rate at which the company obtained the debt it has on its books. The interest rate at which the company can borrow today. The interest the company pays annually to its debenture holders. All of the above (1)

A Financial Planner can use the following as a primary basis for making recommendation: a) b) c) d) A. B. C. D. Know your client Know relevant rules and regulations Enhance your commissions Know your products (a & b) (a & c) (a & d) (b & c)

(1)

Q.3.

At what stage of life, the saying the major liability would be debts can be applied? (1) A. B. C. D. Young family Young adult Forty Plus Empty Nesters (1)

Q.4.

Which one of the following is a basis point? A. B. C. D. One Rupee, Re. 1 One percentage point, 1 percent One paisa, Re.0.01 One one-hundredth of one percentage point, 0.01 of 1 percent
1

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Q.5.

For Govt. securities the minimum subscription amount in case of primary market is: (1) A. B. C. D. Rs. 1, 00,000 Rs. 10, 000 Rs. 1, 000 None of the above

Q.6.

The following are long-term credit ratings given by CRISIL. Which is the lowest investment grade category? (1) A. B. C. D. AAA A BBB B (1)

Q.7.

Which of the following best describes a debenture? A. B. C. D. A long term corporate Promissory Note An investment in debt of another corporate party A corporate debt obligation that allows the holder to repurchase the security. Unsecured corporate debts

Q.8.

An investment policy should not incorporate: A. B. C. D. The acceptable risk tolerance level The acceptable amount of gains from different asset classes An approximation of asset allocation among acceptable asset classes The investment strategy that is acceptable to the client

(1)

Q.9.

Which of the following costs best describes the cost of foregone income that results from making an economic decision to use funds to purchase a piece of equipment? (1) A. B. C. D. Cost of Capital Fixed Cost Marginal Cost Opportunity Cost

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Q.10. Which of the following assumptions support the use of technical analysis? A. B. C. D.

(1)

Future performance should be reflective of past performance The values of market indices and stock prices are determined based on supply and demand Stock prices move in trends that would persist over long periods All of the above

Q.11. A period when an economy is experiencing substantial growth and a declining jobless rate is called _____________. (1) A. B. C. D. Boom Deflation Depression Stagflation (1)

Q.12. A reversionary bonus is: A. B. C. D.

Any profit distributed to holders of life policies who surrender those policies Generally profit that will be distributed on the basis of the sum assured of a with-profits life assurance policy A distribution of income to shareholders Profit distributed to holders of unit-linked policies

Q.13. Chintan reads a newspaper article that reported that ABC Growth Fund was up 20% over the last six months. Based only on that strong performance, Chintan decides to make some investment in that fund. What possible investment mistake is Chintan making? (1) A. B. C. D. Overconfidence Mental accounting Rationalization Recency (1)

Q.14. When using a ladder strategy, an investor would: A. B. C. D.

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Follow a rupee- cost averaging approach Invest in short term bonds Stagger bond maturities All of the above
3 Section 1