Sikkim Manipal University

Subject: Security Analysis and Portfolio Management

Subject code: MF0010
Book ID B1754
Question Paper Code:
Time: 2 hours
Part A (One mark questions)

Max.Marks:140
(50*1 = 50 marks)

1. Debt instruments, which have a maturity of _______ at the time of issue, are called money market
instruments.
A) More than two years
B) Less than two years
C) Less than one year
D) Less than two years

2. Which of the following markets are associated with the issuance and trading of short-term debt
obligations of large corporations and governments:
A) Capital
B) Money
C) OTC
D) Primary

3. ______________ is a market where already existing (pre-issued) securities are traded amongst
investors:
A) Secondary market
B) Primary market
C) Money market
D) Capital market

4. Type of the risk, where the firm will not be able to pay the dividends due its bad financial
performance:
A) Inflation risk
B) Interest rate risk
C) Market risk
D) Business risk

5. Which of the following is the part of an auction market?

A) Stock Exchange
B) OTC
C) Bankers acceptance
D) Call Money

6. ___________ type of investor does not consider risk and always prefers investments with higher
returns
A) Risk-averse
B) Risk-seeking
C) Risk-neutral
D) Risk-premium

7. Which of the following represent the end of a recession and the beginning of an expansion?
A) Troughs
B) Exit barriers
C) Peaks
D) Entry barriers

8. Which of the following is a valuable analytical tool that is used extensively by traders?
A) Sentiment indicator
B) Oscillator
C) Line chart
D) Bar chart

9. A _______ level is a level above which stock price is not expected to go as supply of security is
expected to increase and depress the prices.
A) Vertical
B) Resistance
C) Horizontal
D) Support

10. If the major trend is upward and there is a downward correction in price movement followed by a
continuation of the uptrend, the correction is considered to be _____ trend.
A) Sideways
B) Down
C) Up
D) Intermediate

11. January anomaly refers to the phenomenon where stock prices:

A) Decline in December
B) Decline in January
C) Rise in January
D) Decline in December and rise in January

12. Implication of Efficient Market Hypothesis is that in an efficient market the actual price of a
security will always be a good estimate of its ________ value.
A) Intrinsic
B) Past
C) Future
D) Present

13. Which of the following term is used to characterize a price series where all subsequent price
changes represent random deviations from previous prices?
A) Fundamental analysis
B) Weak form of efficiency
C) Random walk
D) Strong form of efficiency

14. People value gains and losses based on ___________ utility function.
A) T-shaped
B) P-shaped
C) S-shaped
D) Pyramid shaped

15. People are less inclined to take risk after incurring loss is referred to:
A) Mental accounting
B) Break even effect
C) House money effect
D) Snakebite effect

16. Behavioral finance presumes that the investors are ________.

A) Not rational
B) Realistic
C) Logical
D) Rational

17. The utility function is _______________ for losses than for gains.
A) Narrow
B) Concave
C) Steeper
D) Convex

18. When market rates increase:

A) Bond prices increase
B) Bond prices decrease
C) Prices of newly issued bonds are decreased
D) Interest rates of existing bonds are increased

19. The duration of a Zero coupon bond:

A) Is less than maturity
B) Is equal to maturity
C) Is greater than maturity
D) Is not possible to determine

20. The possibility of having the issuer defaulting on the payments of the bond is referred to:
A) Call risk
B) Liquidity risk
C) Reinvestment rate risk
D) Credit risk

21. Initial time during which the bonds are not callable is _______________.
A) Current protection
B) Call protection
C) Coupon protection
D) Nominal protection

22. Which of the following risk is the possibility that borrowers repay debt ahead of schedule:
A) Credit risk
B) Inflation risk
C) Liquidity risk
D) Pre-payment risk

23. The weighted average of the expected returns obtained from the individual securities held in the
portfolio is given by:
A) Expected return
B) Correlation coefficient
C) Alpha
D) Standard deviation

24. According to Markowitz, risk is measured by:

A) Beta
B) Standard deviation
C) Alpha
D) Relative return

25. Subset of attainable set of portfolios:

A) Capital Allocation Line
B) Separation line
C) Efficient frontier
D) Market portfolio

26. Y-axis of Efficient Frontier represents:

A) Expected return
B) Risk
C) Beta
D) Standard deviation

27. The person who added the idea of leverage to the Portfolio Theory:
A) Cameron
B) Michael
C) Tyler
D) Tobin

28. According to CAPM, the measure of risk is:

A) Variance of returns
B) Beta
C) Standard deviation
D) Unique risk

29. An extension of covariance is called:

A) Alpha coefficient
B) Return coefficient
C) Beta coefficient
D) Variance coefficient

30. All investors are assumed to follow ___________ approach.

A) Alpha-beta
B) Return-mean
C) Mean-standard deviation
D) Mean-variance

31. In single index model, the total risk of an individual stock is measured by:
A) Alpha
B) Covariance
C) Standard deviation
D) Variance

32. ______________theory starts with the assumption that security returns are related to an un-known
number to unknown factors:
A) Modern Portfolio Theory
B) Arbitrage Pricing Theory
C) Capital Asset Pricing Model
D) Markowitz Portfolio Theory

33. Which of the following is Idiosyncratic return component:

A) Standard deviation
B) Random error term
C) Covariance
D) Variance

34. A US depositary bank issues _____________ certificate representing shares held by the bank of
the foreign company.
A) GDR
B) EDR
C) ADR
D) IDR

35. To raise money in more than one market, some corporations use ______ to sell their stock on
markets in countries other than their home country.
A) GDRs
B) EDRs
C) ADRs
D) IDRs

36. Special segments of the French companies are represented by:

A) Standard & Poor's 500 index
B) CAC 40
C) Nikkei
D) DAX

37. APT is an equilibrium model developed by:

A) William Sharpe
B) Harry Markowitz
C) Stephen Ross
D) Richard Roll

38. A gilt fund is a special type of fund that invests ______.

A) In government securities only
B) In short term securities only
C) In instruments issued by the company
D) In very high quality equity only

39. Under which of the following schemes, an investor invests a lump sum in the liquid scheme:
A) Systematic investment plan
B) Growth option
C) Systematic transfer plan
D) Systematic withdrawal plan

40. ____________ investors are entitled to all the privileges of stock ownership including dividend
payments.
A) GDR
B) EDR
C) ADR
D) IDR

41. If market price < NAV, then the fund:

A) Is an ETF
B) Is selling at a premium
C) Is an index fund
D) Is selling at a discount

42. Which of the following measures the extra return earned on a scheme on a risk-adjusted beta?
A) Variance
B) Alpha
C) Covariance
D) Standard deviation

43. The market price of a ______ scheme tends to be lower than its NAV.
A) Repurchase
B) Close-ended
C) Reissue
D) Open-ended

44. The __________ has to obtain a license from SEBI for which it has to fulfill conditions like capital,
profits, track record, etc
A) Trustee company
B) Asset Management Company
C) Mutual fund Company
D) Sponsor
45. Which of the following is incorporated with limited liability under Companies Act 1956?
A)Trustee company
B) Asset Management Company
C) Mutual Fund Company
D) Sponsor

46. _____________ is an Exchange Traded Fund created by the Bank of New York.
A) Quadruple
B) Cube
C) Cuboid
D) Square

47. Third step that is followed in Investment process:

A) Constructing a portfolio
B) Evaluating the portfolio report
C) Performing security analysis
D) Setting investment policy
48. _________ is an investors ability and willingness to lose some or all of his original investment in
exchange for greater potential returns.
A) Diversification
B) Selectivity
C) Risk appetite
D) Asset allocation

49. Which of the following is a method used to evaluate the worth of a security by studying market
statistics?
A) Fundamental analysis forex
B) Technical analysis
C) Behavioral finance
D) Fundamental analysis

50. The trading symbol of Cube is:

A) QQ
B) QQQ
C) QQQQ
D) QQQQQ

Part B (Two marks questions)

(25*2 = 50 marks)

51. _______and _________ require money and require you to calculate the odds on a given bet.
1. Risk
2. Investing
3. Gambling
4. Rate of return
A) Both 1 and 2
B) Both 2 and 3
C) Both 2 and 4
D) Both 1 and 3
52. Which of the following are security forms of investment?
1. Money market instruments
2. Recurring deposit
3. National pension scheme
4. Mutual funds
A) Both 1 and 3
B) Both 2 and 4
C) Both 1 and 4
D) Both 2 and 3

53. Types of derivative securities, mostly appealing to investors are:

1. Options
2. Commodities
3. Futures
A) Both 2 and 3
B) Both 1 and 3
C) Both 1 and 2
D) All of the above
54. De-mutualized exchanges are:
1. OTC
2. BSE
3. NSE
4. FTSE
A) Both 2 and 3
B) Both 1 and 3
C) Both 1 and 2
D) Both 1 and 4
55. Poor performance of a firm could effect:
1. Quality
2. Tax
3. Equity
4. Debt holder
A) Both 3 and 4
B) Both 2 and 3
C) Both 1 and 2
D) Both 1 and 4

56. Holding Period Return can be:

1. >1
2. -2
3.

4. -1
A) Both 3 and 4
B) Both 2 and 3
C) Both 1 and 3
D) Both 1 and 4
57. Major tools for financial statement:
1. Efficiency
2. Ratio analysis
3.

Solvency

4. Growth rates
A) Both 1 and 4
B) Both 3 and 4
C) Both 1 and 3
D) Both 2 and 4

58. Major indicators of liquidity

1. Current ratio
2. Quick ratio
3.

Leading

4. Lagging
A) Both 1 and 3
B) Both 3 and 4
C) Both 1 and 2
D) Both 1 and 4

59. Candlestick analysis shows the interaction between:

1. Bars
2. Buyers
3. Lines
4. Sellers
A) Both 2 and 3
B) Both 1 and 4
C) Both 1 and 2
D) Both 2 and 4
60. Types of Head and Shoulders pattern:
1. Head and shoulders left
2. Head and shoulders top
3. Head and shoulders right
4. Head and shoulders bottom
A) Both 3 and 4
B) Both 2 and 4
C) Both 1 and 3
D) Both 1 and 4

61. Tests used to treat weak-form of efficiency:

1. Auto correlation test
2. Stock split
3. Filter rule
4. Tests of the speed of adjustment of stock prices to company announcements
A) Both 1 and 3
B) Both 2 and 4
C) Both 2 and 3
D) Both 3 and 4

62. According to Random Walk Theory, news by definition is:

1. Continuous
2. Random
3. Predictable
4. Unpredictable
A) Both 2 and 3
B) Both 2 and 4
C) Both 1 and 4
D) Only 2

63. Prospect Theory was proposed by:

1. Tversky
2. Hersh Shefrin
3. Kahneman
4. Meir Statman
A) Both 3 and 4
B) Both 2 and 3
C) Both 1 and 2
D) Both 1 and 3

64. Efficient Market Hypothesis assumes that investors are:

1. Not rational
2. Orderly
3. Rational
4. Illogical
A) Both 2 and 3
B) Both 1 and 4
C) Both 2 and 4
D) Both 1 and 2

65. Amount of interest that different bonds pay varies depending on:
1. Inflation
2. Deflation
3. Purchase capacity
4. Interest rates
A) Both 2 and 4
B) Both 1 and 3
C) Both 1 and 4
D) Both 2 and 3

66. Components of interest rate risk:

1. Call risk
2. Reinvestment risk
3. Liquidity risk
4. Credit risk
A) Both 2 and 4
B) Both 1 and 3
C) Both 1 and 4
D) Both 2 and 3
67. Bond duration is a measure of bond price volatility, which captures:
1. Call risk
2. Reinvestment risk
3. Price
4. Default risk
A) Both 2 and 3
B) Both 1 and 3
C) Both 1 and 4
D) Both 3 and 4

68. According to Portfolio Theory, things that matter are:

1. Mean return
2. Beta
3. Standard deviation
4. Alpha
A) Both 2 and 3
B) Both 1 and 3
C) Both 2 and 4
D) Both 3 and 4
69. In order to calculate the variance of a portfolio, _______ and ________ should be known.
1. Mean return
2. Correlation
3. Standard deviation
4. Beta
A) Both 1 and 3
B) Both 1 and 4
C) Both 2 and 3
D) Both 2 and 4

70. Measurement of risk emphasizes the extent of:

1. Variability
2. Static
3. Volatility
4. Stability
A) Both 1 and 3
B) Both 2 and 3
C) Both 1 and 4
D) Both 1 and 2

71. According to Markowitz Portfolio Theory, investors are __________ and markets are
_____________.
1. Stable
2. Inefficient
3. Rational
4. Efficient
A) Both 1 and 4
B) Both 1 and 2
C) Both 2 and 4
D) Both 3 and 4
72. Individual assets contain:
1. Credit risk
2. Diversifiable risk
3. Default risk
4. Non-diversifiable risk
A) Both 2 and 3
B) Both 2 and 4
C) Both 1 and 3
D) Both 1 and 4
73. Capital Market Line is the line that passes through:
1. Risky rate
2. Tangent to Efficient Frontier
3. Risk-free rate
4. Individual assets
A) Both 2 and 4
B) Both 2 and 3
C) Both 1 and 3
D) Both 3 and 4

74. Returns on security are related to which of the components:

1. Factor
2. Variance
3. Random error term
4. Standard deviation
A) Both 1 and 4
B) Both 1 and 2
C) Both 2 and 4
D) Both 1 and 3

75. Funds which include _____ and ________ shares of companies are known as global funds.
1. Public sector
2. Domestic
3. Foreign
4. Other company
A) Both 2 and 3
B) Both 1 and 4
C) Both 2 and 4
D) Both 1 and 3

Part C
Answer all the following questions. (Descriptive questions to be answered in not more than 200
words)
10Marks x 2 = 20Marks
Sl. No.
76

Questions

Marks

a) Explain Industry life cycle and its stages.(Refer unit 4)

b) What are the assumptions of Arbitrage Portfolio Theory? (Refer unit 13)

(10 Marks)

77

Mr. Rajesh is a Wealth Manager working for a well-known Investment

banker in India. One of his client wishes to purchase 2 stocks, one related to
technology (Asset T) and another banking stock (Asset B). The following is
the forecast of returns on both the stocks during 4 phases of economy High
Growth, Low Growth, Stagnation and Recession.
State of nature

Probability

Return on asset
T

Return on asset
B

High growth

0.10

5%

0%

Low growth

0.30

10%

8%

Stagnation

0.50

15%

18%

Recession

0.10

20%

26%

(10 Marks)

a) What is the standard deviation of the return on asset T and asset B?

b) What is the covariance between the return on asset T and asset B?

Read the following case study thoroughly and answer the following questions:
Akash is an Investment consultant with rich experience in equity research and portfolio management.
He was requested by a client to give a presentation on equity valuation. You as an executive assistant
prepare for him the following:

78

a) How is Dividend Discount and Constant Growth Model valued?

b) Explain different types of Equity Valuation Models. (5 marks)

(10 marks)

79

c) Assume that the firm is a constant growth company which paid a

dividend of Rs5.00 last year and the dividend is expected to grow at
the rate of 10% forever. What is the expected value of the stock a
year from now? (5 marks)

(10 marks)

d) If the stock is currently selling for Rs110.00, what is the expected rate
of return on the stock? (5 marks)