CHAPTER 1 OVERVIEW 1. (a) (b) (c) (d) (e) 2. A market participant has a time horizon of one week.

He is typically: A trader An investor A speculator A gambler None of the above Which one of the following is not one among the broad categories in which shares are classified into? (a) (b) (c) (d) (e) 3. Speculative shares Advancing shares Cyclical shares Income shares None of the above

A preference share is a hybrid instrument. (a) True (b) False

4.

Resilience of a market means:

(a) (b)

(c) (d) (e) 5.

There are no frequent price changes in the market New orders emerge in response to price changes The market volume is resilient All the above None of the above

Traditionally the cut off between short-term and long-term financial claims has been: (a) (b) (c) (d) (e) Three years Five years Six months One year None of the above

6.

Which one of the following factors is not behind the globalisation of financial markets? (a) Deregulation

(b) (c) (d) (e) 7.

Institutionalisation Liberalisation. Cartelisation None of the above

The most important decision in portfolio management is the:

(a)

(b) (c) (d) (e) 8.

Choice of the market Choice of the instruments Choice of the asset mix Cost of the management None of the above

The true value of a security is its: (a) (b) (c) (d) (e) Market value Discounted value Value at which it was issued Long-term average value None of the above

9.

Investor performance in the long run may not depend on: (a) (b) (c) (d) (e) Maintaining composure Sticking to a pattern Patience Diligence None of the above

10.

The reflexivity principle is a special insight developed by (a) (b) (c) (d)
(e)

George Soros Warren Buffett J.M.Keynes Benjamin Graham None of the above

KEY 1 (a) 10 (a) 2 (b) 3 (a) 4 (b) 5 (d) 6 (d) 7 (c) 8 (e) 9 (b)

CHAPTER 2 INVESTMENT ALTERNATIVES 1. Deposits in scheduled banks are very safe because:
(a) (b) (c)

(d) (e) 2.

They are fully insured by the bank They are supervised by RBI They are guaranteed by RBI upto an extent Both b and c None of the above

A fixed deposit in a bank cannot be withdrawn before maturity. (a) True (b) False

3.

Fixed deposits mobilised by finance companies are regulated by: (a) (b) (c) (d) (e) RBI Company Law Board SEBI Registrar of Companies None of the above

4.

A non-banking finance company can issue deposits for a longer period than a manufacturing company: (a) True (b) False

5.

Which one of the following is the most liquid? (a) (b) (c) (d) (e) National Savings Certificate Kisan Vikas Patra Public Provident Fund Bank fixed deposit None of the above

6.

There is a ceiling in India on the interest paid on: (a) (b)

(c)

(d) (e)

Savings Bank deposit Fixed deposit in bank Debentures issued by private companies Taxable bonds issued by PSUs None of the above

7.

An asset play will typically be a: (a) (b) (c) (d) (e) Turnaround Stalwart Cyclical Fast grower None of the above

8.

A participating policy allows an investor to: (a) (b)

(c)

(d) (e) 9.

Receive dividend Receive bonus Allow inclusion of close dependents All the above None of the above

A paid-up policy can only be a:

(a)

(b) (c) (d) (e)

Participating Endowment Assurance Non commutable deferred annuity Term assurance policy Endowment benefit policy None of the above

KEY 1 (e) 2 (b) 3 (a) 4 (a) 5 (d) 6 (a) 7 (e) 8 (b) 9 (e)

CHAPTER 3 SECURITIES MARKET 1. Book building is used to help in better (a) (b) (c) (d) (e) 2. Price discovery Retail participation Institutional participation Investor communication None of the above

Sensex is an equal-weighted index. (a) True (b) False

3.

Nifty is a (a) (b) (c) (d) (e) Value weighted index Equal weighed index Price weighted index Hybrid index None of the above

4.

An example of a collateralised short term lending transaction is (a) (b) (c) (d) (e) Sterilization Repo Bank overdraft Commercial paper None of the above

5.

Commercial Papers form part of (a) (b) (c) (d) (e) Bills limit Working capital limit LC limit Guarantee limit None of the above

6. for:

In a Dutch auction successful bidders pay the actual price (yield) they bid
(a)

True

(b)

False

7. for:

In a French auction successful bidders pay the actual price (yield) they bid

(a) 8.

True

(b)

False

A merchant banker: (a) (b) (c) (d) (e) Underwrites an issue of securities Finances an issue of securities Manages an issue of securities Collects the subscriptions in an issue of securities. None of the above

9.

Allotment of shares in a public issue is decided in consultation with: (a)

(b)

(c)
(d)

(e) 10.

SEBI The stock exchange where the share will be listed Registrar and Transfer Agents Registrar of Companies in whose jurisdiction the Corporate office of the issuing firm falls None of the above

The purpose of IPO rating is to assess the:

(a)

(b)
(c) (d)

(e) 11.

Investment attractiveness of the issue Creditworthiness of the company Fundamental strength of the company Regulatory compliance of the company None of the above

Preferential allotment of shares in India is given mainly to: (a) (b) (c) (d) (e) Promoters or friendly investors Employees Preference share holders Reserved categories None of the above

12.

In a block deal, the price is: (a) (b)

(c)

(d) (e) 13.

Discovered by transparent bidding Negotiated in advance Arrived at as per a formula set by the exchange Average of the top ten bids None of the above

By holding shares in the physical form as against the demat form, an investor can retain his voting rights:

(a) 14.

True

(b)

False

Market impact cost will come down:

(a) (b) (c) (d)

(e) 15.

With the deepening of the market If the open cry system is reintroduced If there are large number of institutional investors If there are restrictions on the speculators None of the above

For non-delivery based trades (day trades and arbitrage trades) in equity the STT is less than that for delivery based trades: (a) True (b) False

16.

Liquidity in a market is supplied by: (a) (b) (c) (d)

(e)

Those placing active limit orders Market makers Jobbers All the above None of the above

17.

While matching orders for equity trading in NSE, which one of the following gets precedence over all the others? (a) (b) (c) (d) (e) Time of the order Price of the order Size of the order Both b and c None of the above

18.

Free float represents:

(a) (b) (c)

(d) (e) 19.

Promoters non-strategic shareholding Non-promoter non-strategic shareholding Shareholdings by non- FIs and non-FIIs Non-government shareholdings None of the above

EDIFAR is maintained by (a) (b) (c) (d) SEBI RBI NSE BSE

(e) 20.

None of the above

Which one of the following is not one of the factors that attract young technology companies to list on NASDAQ? (a)
(b)

(c) (d) (e) 21.

Relatively low listing costs Relatively low listing requirements Relatively low settlement time All the above None of the above

Spot the odd member in the following group: (a) (b) (c) (d) PDAI FIMMDA AMFI TRAI

22.

The largest holders of G-secs in India are: (a) (b) (c) (d) (e) Insurance companies FIIs Banks Provident funds None of the above

23.

Which one of the following facilities is provided by RBI? (a) (b) (c) (d) (e) SGL WDM BOLT STT None of the above.

24.

The most popular bond market index in India is provided by: (a) (b) (c) (d) (e) CRISIL NSE I-Sec CCIL None of the above.

25.

The bulk of corporate debt in India is issued through: (a) Preferential allotment

(b) (c) (d) (e) 26.

Private placement Dutch auction French auction. None of the above.

If you are doing a reverse repo, you: (a) (b) (c) (d) (e) Lend the securities Borrow the securities Pledge the securities Auction the securities None of the above

27.

All trades on NSE are guaranteed by: (a) (b) (c) (d) (e) SEBI NSDL NSCC CDSL None of the above.

28.

In respect of the sample shares, Sensex 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 fixed multiple Average capitalisation of the issued and paid up stocks Average aggregate market value of the subscribed stocks None of the above

KEY 1 (a) 10 (c) 19(a) 28(e) 2 (b) 11(a) 20(c) 3 (a) 12(b) 21(d) 4 (b) 13(b) 22(c) 5 (b) 14(a) 23(a) 6 (b) 15(a) 24(c) 7 (a) 16(d) 25(b) 8 (c) 17(b) 26(b) 9 (b) 18(b) 27(c)

CHAPTER 4 RISK AND RETURN 1. Variance will always be (a) (b) (c) (d) (e) Positive Negative Variable Very high None of the above

2. An investor for whom the certainty index is less than the expected value, is (a) (b) (c) (d) (e) Risk loving Risk averse Risk neutral Risk allergic None of the above

3. A normal distribution is completely characterised by

(a) (b) (c) (d) (e)

Expected return and standard deviation Required return and variance Expected return and range Standard return and expected variance None of the above

4. If 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) 95.4 percent 68.3 percent 99.7 percent 57.5 percent None of the above

5. If 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) 95.4 percent (b) 68.3 percent (c) 99.7 percent (d) 99.9 percent (e) None of the above

6. A return relative is (a) (b) (c) (d) (e) Total return +1 1- Total return 1/ Total return 1 + 1/ Total return None of the above

7. Bond horizon premium refers to the difference between the returns on (a) (b) (c) (d) (e) 8. Long term corporate bonds and treasury bills Long term government bonds and treasury bills Long term corporate bonds and long term government bonds Short term corporate bonds and treasury bonds None of the above

Which of the following is true?

(a) The geometric mean is always less than the arithmetic mean

(b) The geometric mean is always greater than the arithmetic mean (c) The geometric mean and the arithmetic mean are always the same (d) The geometric mean is always less than the arithmetic mean, except when all the return values being considered are equal (e) None of the above 9. Which one of the following cannot be negative? (a) Current return (b) Capital return (c) Total return (d) Both a and b (e) None of the above 10. Geometric measure is more accurate than arithmetic mean: (a) 11. True (b) False

Real returns are typically less than notional returns: (a) True (b) False

12.

In general, investors are: (a) Risk-neutral (b) Risk-loving (c) Risk-averse

(d) None of the above 13. Use of probability distribution in investment analysis makes it: (a) More rational (b) More objective (c) More subjective (d) Both a and b (e) None of the above 14. When the probability distribution of rate of return of a security is defined, the possible outcomes: (a)
(b)

(c) (d)
(e)

Should be mutually exclusive Should be collectively exhaustive Should not add to more than 1 All the above None of the above

15.

Preparing the probability distribution of rate of return of a security is:

(a) (b) (c)

(d) (e) 16.

An objective exercise based on the prevailing market conditions An objective exercise based on the past history of the securities performance An objective exercise based on the future prospects of the security A subjective exercise None of the above

While analysing the returns of a security based on a continuous probability distribution, probabilities are assigned to:
(a) (b) (c)

(d) (e)

Individual points on the curve Intervals between two points on the curve The gradient between any two referenced points on the curve Either b or c None of the above

KEY 1 (a) 10 (b) 2 (b) 11(a) 3 (a) 12(c) 4 (b) 13(e) 5 (c) 14(d) 6 (a) 15(d) 7 (b) 16(b) 8 (d) 9 (a)

CHAPTER 5 THE TIME VALUE OF MONEY 1. If you were scheduled to receive Rs. 100,000 five years hence, but you wish to sell your contract note for its present value, which type of compounding would you rather have the purchaser of your contract note to use to find the purchase price, 8 percent compounded: (a) (b) (c) (d) (e) 2. Continuously Quarterly Semi-annually Annually Monthly

According to the rule of 69, the doubling period is equal to (a) (b) (c) (d) (e) 0.25 + (69/ Interest rate) 0.35 + (69/ Interest rate) 0.69 + (0.35/ Interest rate) 0.69 + (0.25 / Interest rate) None of the above

3.

For a depositor, when the frequency of compounding is increased (a) (b) (c) (d) (e) Additional gains increase Additional gains dwindle Additional gains are unaffected There are no additional gains None of the above

4.

Present value interest factor of a perpetuity represents (a) (b) (c) (d) (e) Interest rate in percentage terms Reciprocal of interest rate in percentage terms Reciprocal of interest rate in decimal terms Interest rate in decimal terms None of the above

5.

The present value of a perpetuity of one rupee when the interest rate is r percent is : (a) (b) 1/r 1/ r2

(c) (d) (e) 6.

1/r0.5 2 r2 None of the above

The present value of an annuity due is equal to the present value of a regular annuity multiplied by: (a) (b) (c) (d) (e) 7. r (1 + r) 1/r r(1 + r) None of the above

Recurring deposit in a bank is a typical example of: (a) (b) (c) (d) (e) Deferred annuity Annuity due Regular annuity Compound annuity None of the above

8.

Deposits in a sinking fund is an example of: (a) (b) (c) (d) (e) Deferred annuity Annuity due Regular annuity Either a or c None of the above

9.

In a loan amortization schedule, as the number of years increases:

(a) (b) (c)

(d) (e)

The interest amount increases The principal repayment amount increases The annual instalment amount decreases Both a and c None of the above

KEY 1 (d) 2 (b) 3 (b) 4 (c) 5 (a) 6 (b) 7 (b) 8 (d) 9 (a)

CHAPTER 6 FINANCIAL STATEMENT ANALYSIS 1. An example of an intangible asset is (a) (b) (c) (d) (e) Provisions Copyrights Prepaid expenses Depreciation None of the above

2. Which of the following is not a source of cash (a) (b) (c) (d) (e) 3. Increase in liabilities Increase in assets Increase in owners equity All the above None of the above

Revaluation reserve is a: (a) (b) (c) (d)

(e)

Capital reserve Revenue reserve Capital redemption reserve General reserve None of the above

4.

Which one of the following is not a secured loan? (a) (b) (c)
(d)

(e) 5.

Loan against hypothecation Loan against pledge Loan against commercial paper Loan against certificate of deposit None of the above

Allocation of cost to various accounting periods is done in respect of: (a) (b) (c) (d) (e) Inventory Building Patent Investment None of the above

6.

Which one of the following is not a current asset as per the Companies Act classification?

(a)

(b) (c) (d) (e) 7.

Short-term holding of units of mutual fund schemes Prepaid expenses Advances to suppliers Interest accrued on investments None of the above

Discount allowed on the issue of securities is classified under: (a) (b) (c) (d) (e) Current liability Investment Current asset Miscellaneous expenses and losses None of the above

8.

Which one of the following is a leverage ratio (a) (b) (c) (d) (e) Acid-test ratio Interest coverage ratio Price earning ratio Earning power None of the above

9.

Other things being equal, you will prefer to invest in a company that has
(a)

Current ratio more than 1 and debt equity ratio less than 1 Debt equity ratio more than 1 and current ratio less than 1 Both current ratio and debt equity ratio more than 1 Both current ratio and debt equity ratio less than 1 None of the above

(b) (c) (d) (e) 10.

A companys current ratio is 2.0. If the company uses cash to pay a trade creditor, would this transaction increase or decrease the current ratio and asset turnover ratio? Current ratio (a) (b) (c) (d) (e) Asset turnover ratio Increase Decrease Increase Decrease

Increase Increase Decrease Decrease None of the above

11.

All other things being equal, what effect will the payment of a cash dividend have on the following ratios? Times Interest Earned Ratio No effect Increase No effect Decrease None of the above Debt/Equity No effect Increase Increase Decrease

(a) (b) (c) (d) (e) 12.

Which 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 Price-earning ratio Fixed charges coverage ratio Acid-test ratio None of the above

13.

In debt service coverage ratio interest on term debt appears in (a) (b) (c) (d) (e) Numerator Denominator Nowhere Both a and b None of the above

14.

Tobin q ratio is the ratio of (a) (b) (c) (d) (e) Book value to market value Book value to replacement cost Market price to replacement cost Market price to liquidation value None of the above

15.

Other ratios being equal, better short- term solvency is indicated by (a) (b) (c)
(d)

(e) 16.

Higher current ratio Lower debt-asset ratio Lower debt-equity ratio Higher fixed charges coverage ratio None of the above

Which one of the following is the most stringent measure of liquidity?

(a) (b) (c) (d) (e) 17.

Acid-test ratio. Quick ratio Cash ratio Current ratio None of the above

If sales are steady and no capital expenditure is to be incurred, fixed assets turnover ratio of a firm over the years will: (a) (b) (c) (d) (e) Increase Decrease Remains steady Either b or c None of the above

18.

Gross profit margin ratio measures the efficiency of:

(a)

(b) (c) (d) (e) 19.

Production Pricing Collection Both a and b None of the above

Net working capital is equal to (a) (b) (c) (d) (e) Excess of current assets over current liabilities Excess of long term assets over long term liabilities Excess of long term liabilities over current assets Excess of current assets over long term liabilities None of the above

KEY 1 (b) 10 (a) 19(a) 2 (b) 11(a) 3 (a) 12(c) 4 (c) 13(d) 5 (c) 14(c) 6 (a) 15(a) 7 (d) 16(c) 8 (b) 17(a) 9 (a) 18(b)

CHAPTER 7 PORTFOLIO THEORY

1.

Diversification eliminates risk if returns are:

(a) (b) (c) (d) (e) Not perfectly positively correlated. Perfectly positively correlated. Perfectly negatively correlated. All the above. None of the above.

2.

If the return on a security is negatively correlated with the market return, its beta is: (a)
(b)

(c)
(d)

(e) 3.

Less than zero Less than one but more than zero More than one Independent of the market return None of the above

Perfect co-movement between two securities is indicated when the coefficient of correlation between them is: (a) (b) (c) (d) (e) 1 -1 Zero. Either a or b None of the above

4.

In respect of an efficient portfolio:

(a) (b) (c)

(d) (e) 5.

There is no alternative with the same expected return and a lower risk There is no alternative with the same risk and a higher expected return There is no alternative with a higher expected return and a lower risk All the above None of the above

You have developed the following data on three stocks: Stock Standard deviation Beta P 15 percent 0.79

Q R

25 percent 20 percent

0.61 1.29

If you are a risk minimiser, you should choose stock if it is to be held in isolation and stock if it is to be held as part of a well-diversified portfolio. (a) (b) (c) (d) (e) 6. R;Q P;Q R;P Q;P None of the above

Expected return is always (a) (b) (c) (d) (e) Higher than the fair return Higher than the average return Equal to the required return Less than the required return None of the above

7.

In 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) There is perfect positive correlation There is perfect negative correlation When there is no correlation When the beta of one of the stocks is one None of the above

8.

If the returns of two firms are negatively correlated, then one of them must have a negative beta. (a) True (b) False

9.

What is the expected return of a zero-beta security? (a) (b) (c) (d) (e) Market return Risk-free rate of return Market return- Risk- free return Market return + Risk-free return None of the above

10.

The single index model requires: (a) (b)

(c)

(d) (e) 11.

n(n+1) estimates n(n-1) estimates 3n+2 estimates 3n-2 estimates None of the above

The Markowitz model requires (a) (b) (c) (d) (e) 3 n + 2 estimates n (n + 1) /2 estimates n (n 1) /2 estimates n (n + 3) /2 estimates None of the above

12.

The distribution of rates of return for securities X and Y are given below: State of the Economy Boom Normal Recession Probability of Occurrence 0.20 0.60 0.20 X 10% 5% 0% Y 10% 5% 50%

We can conclude from the above information that security X will reduce the riskiness of a well-diversified portfolio more than security Y (a) True (b) False

KEY 1 (c) 10 (c) 2 (a) 11(d) 3 (d) 12(b) 4 (d) 5 (b) 6 (e) 7 (b) 8 (b) 9 (b)

CHAPTER 8 CAPITAL ASSET PRICING AND ARBITRAGE PRICING THEORY 1. A defensive stock is characterised by (a) (b)
(c)

(d) (e) 2.

Negative beta Positive beta less than one Positive beta amore than one Beta equal to one None of the above

Underpriced securities plot: (a) (b)

(c)

(d) (e) 3.

Above the Security Market Line Below the Security Market Line Randomly above or below the Security Market Line Any of the above None of the above

Which one of the following is an assumption on which Arbitrage Pricing Theory is based?
(a) (b) (c)

(d) (e) 4.

The utility functions of investors are quadratic Security returns are normally distributed The market portfolio is mean variance efficient All the above None of the above

A portfolio consists of a stock and a treasury bill. Its covariance will be (a) (b) (c) (d) (e) More than 1 Less than 1 1 Zero None of the above

5.

An efficient portfolio is one in which there is no alternative with (a) (b) (c) (d) (e) The same expected return at a lower risk Higher expected return at higher risk Lower expected return at lower risk The same expected return at a higher risk None of the above

6.

As an investor relying on CAPM, you will buy a stock if its return plots (a) (b) (c) (d) (e) Above the SML On the SML Below the SML Below the CML None of the above

7.

The law of one price guides the following (a) (b) (c) (d) (e) Capital asset pricing model Single index model Arbitrage pricing theory (b) and (c) None of the above

8.

Which of the following is not an assumption of CAPM (a) (b) (c) (d) (e) Individuals are risk averse Individuals have homogeneous expectations The quantity of risk assets in the market is unlimited The market is perfect None of the above

9.

Which of the following is true (a) (b) (c) (d) (e) 10. The SML is a special case of CML The CML is a special case of the SML The CML is more reliable than the SML The SML represents only efficient portfolios None of the above

The security market line depicts

(a) (b) (c) (d)

(e)

The market portfolio as the optimal portfolio of risky securities How the returns of a security are linked to the return on an index How the expected return of a security is linked to its systematic risk A combination of the market portfolio and the risk-free return None of the above

11.

The arbitrage pricing theory (APT) differs from the single-factor capital asset pricing model (CAPM) because the APT: (a) (b) (c) (d) (e) Recognises multiple systematic risk factors Does not recognise multiple systematic risk factors Does not treat risk as diversifiable Both b and c None of the above

12.

In contrast to the capital asset pricing model, the arbitrage pricing theory:
(a) (b)

(c)
(d) (e)

Requires that the markets be in equilibrium Uses risk premium based on macro variables Defines the number and identifies specific factors that determine expected returns Does not require the restrictive assumptions concerning the market portfolio None of the above

KEY 1 (b) 10 (c) 2 (a) 11(a) 3 (e) 12(d) 4 (d) 5 (a) 6 (a) 7 (c) 8 (c) 9 (b)

CHAPTER 9 EFFICIENT MARKET HYPOTHESIS 1. Efficient market hypothesis says that (a) (b) (c) (d) (e) The market prices are exaggerated Price movements are irrational Market prices impound all available information Only efficient investors can beat the market None of the above

2. According to Weak -form efficiency, market prices impound available (a) (b) (c) (d) (e) Past information Private information Public information Future information None of the above

3. Strong form efficiency supports technical analysis (a) 4. True (b) False

According to the semi-strong form of the efficient market hypothesis, stock prices (a) (b) (c) (d) (e) Fully reflect all historical price information Fully reflect all information, public as well as private May be predictable Fully reflect all publicly available information None of the above

5.

Which of the following would provide evidence against the semi-strong form of the efficient market theory? (a) (b) (c) (d) (e) Low P/E stocks tend to provide positive abnormal returns over the long run About 50 percent of mutual funds underperform the market in any year All investors have learnt to exploit signals about future performance Trend analysis is worthless in determining stock prices None of the above

6.

Market efficiency implies that:

(a) (b) (c) (d)

(e) 7.

Errors in the market prices are biased Market price equals intrinsic value Price deviations cannot be predicted It is not possible to identify over and under-valued stocks None of the above

Market efficiency exists because;

(a) (b) (c)

(d) (e) 8.

Portfolio managers are doing their job well There is keen competition among market participants New information cannot be predicted in advance All the above None of the above

Which of the following is a calendar anomaly? (a) (b) (c) (d) (e) Week end effect January effect Budget effect Both a and b None of the above

9.

Serial correlation tests, run tests and filter rules tests have been commonly employed to verify:
(a) (b) (c)

(d) (e) 10.

Strong form of efficient market hypothesis Semi- strong form of efficient market hypothesis Weak form of efficient market hypothesis Both a and b None of the above

In an efficient market, 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 expectations The expected value of a normal distribution None of the above

KEY 1 (c) 10 (b) 2 (a) 3 (b) 4 (d) 5 (a) 6 (e) 7 (d) 8 (d) 9 (c)

CHAPTER 10 BEHAVIOURAL FINANCE 1. Under mental accounting, investors have a tendency (a) (b) (c) (d) (e) To prolong the sale of winners Not to realise losses Not to dip into the capital All the above None of the above

2. Narrow framing leads to (a) (b) (c) (d) (e) Mental accounting Myopic risk aversion House-money effect Endowment effect None of the above

3. Information cascade is regarding (a) (b) (c) (d) (e) 4. A deluge of new information Beginning of large fads Cascading effect of inside information Access to restricted information None of the above

Horizon of arbitrage is limited for a portfolio manager because of (a) (b) (c) (d) (e) Lack of mandate from investors Evaluation once every few months Regulatory restrictions Inadequacy of skills None of the above

5.

Under self-attribution bias an investor is prone to attribute a loss to: (a) (b) (c) (d)
(e)

Inadequacy of data Bad luck Self-made mistakes All the above None of the above

6.

Anchoring in behavioural finance refers to: (a) (b) (c) (d) (e) Aversion to ambiguity Conservatism Representativeness Holding centre stage None of the above

7.

According to behavioural finance, familiarity breeds: (a) (b) (c) (d) (e) Aversion Contempt Investment Illusion None of the above

8.

An event representing the normal experience is referred to as: (a) (b) (c) (d) (e) The base rate The case rate The par rate Either b or c None of the above

9.

Modigliani-Miller approach to corporate finance is: (a) (b) (c) (d) (e) Case- dependent Base- independent Frame dependent. Frame-independent None of the above

10.

According to Prospect Theory, people value gains/losses according to a utility function which is: (a) (b) (c) (d) (e) S-shaped V-shaped Parabolic Normally distributed None of the above.

11.

Narrow framing can lead people to:

(a) (b) (c) (d) (e) 12.

Reduce risk Overestimate risk Underestimate risk Become risk averse None of the above

Myopic risk aversion means: (a) (b) (c) (d) (e) Mental accounting Frame dependence Aversion to ambiguity Cognitive dissonance None of the above

13.

A lottery winner is more likely to donate to a charity than a non-winner because of: (a) (b) (c) (d) (e) Cognitive dissonance Over-money effect House money effect Guilt effect None of the above

14.

According to psychologist Lola Lopes, hope finally converts into: (a) (b) (c) (d) (e) Anticipation Pride. Anxiety Regret None of the above

15.

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

16.

Summers Model is consistent with (a) (b) (c) (d) (e) Overreactions Fads Speculative bubbles All the above None of the above

KEY 1 (d) 10 (a) 2 (b) 11(b) 3 (b) 12(e) 4 (b) 13(c) 5 (b) 14(b) 6 (b) 15(a) 7 (c) 16(d) 8 (a) 9 (d)

CHAPTER 11 BOND PRICES AND YIELDS 1. The annual interest on a bond in relation to its prevailing market price is called its: (a) (b) (c) (d) (e) 2. Coupon rate Promised yield Current yield Yield to maturity None of the above

Market price of a coupon bond is independent of : (a) (b) (c) (d) (e) Maturity period Coupon rate Required rate of return Inflation rate None of the above bond issuer,

3.

When inflation is expected to rise in the coming decade, as a you will prefer to issue (a) (b) (c) (d) (e) Fixed rate bonds Floating rate bonds Callable bonds Puttable bonds None of the above

4.

Reinvestment 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) None of the above

5.

Internal rate of return on a bond investment is its (a) (b) (c) Current yield Yield to maturity Holding period return

(d) (e) 6.

Realised yield None of the above

Which 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 None of the above

7.

Bond equivalent yield is (a) (b)

(c) (d)

(e) 8.

The effective annual yield Annualised yield based on simple interest Annualised yield based on compound interest Annualised yield with half-yearly rests None of the above

Changes in real interest rate is not caused by (a) (b)

(c)

(d) (e) 9.

Change in competition for funds Change in supply of funds Change in expected inflation rate Change in government policies None of the above

Which one of the following can affect real interest rate:

(a)

(b)
(c)

(d) (e)

Expected higher inflation Tax law changes Heightened competition for funds Both b and c None of the above

KEY 1 (c) 2 (e) 3 (a) 4 (a) 5 (b) 6 (d) 7 (b) 8 (c) 9 (d)

CHAPTER 12 BOND PORTFOLIO MANAGEMENT 1. Which of the following features of a yield curve is attractive to a bond investor? (a) (b) (c) (d) (e) 2. Concavity Convexity Complexity Linearity None of the above

Immunisation attempts to balance (a) (b) (c) (d) (e) 3. Price risk and default risk Price risk and reinvestment risk Recall risk and reinvestment risk Inflation risk and price risk None of the above

For a zero coupon bond (a) (b) (c) (d) (e) Duration is zero Duration is one-half the term to maturity Duration is undefined Duration is the same as the term to maturity None of the above

4. Which bond has the longest duration? (a) (b) (c) (d) (e) 12-year maturity, 5 % coupon 12-year maturity, 7% coupon 8-year maturity , 7% coupon 8-year maturity , 5 % coupon None of the above

5. An increase in yield causes a proportionately smaller price change than a decrease in yield of the same magnitude (a) True (b) False

6. An ascending yield curve means that : (a) (b) (c) Long- term rates are expected to rise in future Short-term rates are expected to rise in future Investors may be willing to hold long term bonds

(d) (e) 7.

Both a and d None of the above

YTMs for valuing available-for-sale bonds is announced by: (a) (b) (c) (d) (e) RBI AMFI Fimmda SEBI None of the above

8.

Immunisation by way of cash flow matching involves buying: (a) (b) (c) (d) (e) High convexity bond Zero coupon bond Sterilised bond Any one of the above None of the above

9.

Riding the yield curve is a particular version of horizontal analysis (a) True (b) False terms of

10.

In a substitution swap, the bonds involved are very similar in (a) (b) (c) (d) (e) Credit rating Coupon payments Maturity All the above None of the above

11.

In a tax swap, the bond seller: (a) (b) (c) (d)

(e)

Makes a capital gain Incurs a capital loss Incurs a current loss Either a or c None of the above

KEY 1 (b) 10 (d) 2 (b) 11(b) 3 (d) 4 (a) 5 (a) 6 (b) 7 (c) 8 (b) 9 (a)

CHAPTER 13 EQUITY VALUATION 1. The constant-growth dividend discount model will not produce a finite value if the dividend growth rate is: (a) (b) (c) (d) (e)
2.

Above its historical average Below its historical average Above the market capitalisation rate Below the market capitalisation rate None of the above.

For any given stock, which of the following must be true?

(a) (b) (c) (d)

(e) 3.

Market value > book value > par value Book value > market value > par value Par value > market value > book value Par value = book value < market value None of the above must be true

Limited growth prospects are indicated by (a) (b) (c) (d) (e) High dividend High P/E ratio Low dividend High dividend and low P/E ratio None of the above

4.

Riskier stocks have (a) (b) (c) (d) (e) Higher P/E multiple Lower P/E multiple Higher variance (b) and (c) None of the above

5.

Which of the following is true? (a) (b) (c) (d) Prima facie if the PEG ratio exceeds 1, the stock is deemed undervalued. Prima facie if the PEG ratio equals 1, the stock is deemed overvalued. Prima facie if the PEG ratio is less than 1, the stock is deemed overvalued. Prima facie if the PEG ratio exceeds 1, the stock is deemed overvalued.

(e) 6.

None of the above.

Which of the following is not true

(a) (b) (c) (d)

(e) 7.

Earnings-price ratio is equal to r when PVGO is zero Earnings-price ratio is less than r when PVGO is positive Earnings-price ratio is less than r when PVGO is negative Earnings-price ratio is more than r when PVGO is negative None of the above

Which one of the following represents an objective measure of value? (a) (b) (c) (d) (e) Market price Liquidation value Book value Earnings capitalisation value None of the above

8.

In equity valuation, the dominant explanatory variable is called: (a) (b) (c) (d) (e) Main variable Companion variable Sister variable Core variable None of the above

9.

The companion variable in Price to Sales ratio is : (a) (b) (c) (d) (e) g ROE NPM PBT None of the above

10.

In SOTP valuation a suitable earnings multiple is applied in: (a) (b) (c) (d) (e) Core business valuation Unlisted subsidiary valuation Listed subsidiary valuation All the above None of the above

11.

If you believe that the market is efficient, in managing an equity portfolio, you will adopt a:

(a) (b) (c) (d) (e) 12.

Indexing strategy Market timing strategy Stock rotation strategy Security selection strategy None of the above

An increase in the market value of a company indicates: (a) (b) (c) (d)
(e)

Increase in profitability Increase in revenues Increase in future prospects All the above None of the above

13.

Intrinsic value of a security is its: (a) (b) (c) (d) (e) DCF value Book value Real value Market capitalization value None of the above

14.

Which one of the following is not a major driver of growth? (a) (b) (c)
(d)

(e) 15.

Sales growth ratio Ploughback ratio Return on equity All the above None of the above.

In the case of stocks with lower P/E multiples: (a) (b) (c) (d) (e) Liquidity is low Required return is high Risk is high All the above None of the above

KEY 1 (c) 10 (b) 2 (e) 11(a) 3 (d) 12(e) 4 (d) 13(a) 5 (d) 14(a) 6 (c) 15(d) 7 (e) 8 (b) 9 (c)

CHAPTER 14 MACROECONOMIC AND INDUSTRY ANALYSIS 1. A current account deficit is indicative of (a) (b) (c) (d) (e) 2. Excess of savings over investments Excess of investments over savings Slowdown of foreign investments (a) and (c) None of the above

To check inflationary expectations a central bank may (a) (b) (c) (d) (e) Increase the income tax Increase the bank rate Decrease the CRR rate All the above None of the above

3. A nation with a growing economy should necessarily have (a) (b) (c) (d) (e) 4. A deficit budget A surplus budget A balanced budget A current account deficit None of the above

In the recent past, growth rate in Japan has exceeded the growth rate in emerging countries. (a) True (b) False

5.

Which of the following countries has been registering the highest average growth rate : (a) (b) (c) (d) (e) India USA UK China None of the above

6.

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

(c) (d) (e) 7.

Increased competitiveness of the US corporates Low demand for imports None of the above

The now famous BRIC report is the handiwork of: (a) (b) (c)
(d) (e)

Morgan Stanley Merryl Lynch Goldman Sachs J.P. Morgan None of the above

8.

A large budgetary surplus typically: (a) (b) (c) (d) (e) Dampens the economy Stimulates the economy Has no significant impact on the economy Either b or c None of the above

9.

Direct impact on interest rate is through: (a) (b) (c) (d) (e) Fiscal policy Monetary policy Exchange rate policy All the above None of the above

10.

Monetary tightening is signaled by (a) (b) (c) (d) (e) Increase in CRR Decrease in SLR Decrease in Bank Rate All the above None of the above

11.

The bulk of the household financial savings in India are invested or parked in: (a) (b) (c) (d) (e) Small savings schemes Provident and pension funds Insurance funds Bank deposits None of the above

12.

When we talk of money supply, we usually refer to: (a) (b) (c) (d) (e) M3 M2 M1 Either b or c None of the above

13.

Foreign direct investment is more desirable than foreign portfolio investment: (a) True (b) False

14.

The sensitivity of a firms earnings to the business cycle is determined by: (a) (b) (c) (d) (e) The sensitivity of the firms sales to business conditions The operating leverage The financial leverage All the above None of the above

15.

A firm with higher operating leverage performs better: (a) (b) (c) (d) (e) During an upturn. During a downturn When the economy is stable During recession None of the above

16.

Which one of the following does not find place in the Porter Model on the profit potential of industries. (a) (b) (c) (d)
(e)

Rivalry among new entrants Pressure from substitute products Bargaining power of buyers Bargaining power of sellers None of the above

KEY 1 (b) 10 (a) 2 (b) 11(d) 3 (e) 12(a) 4 (b) 13(a) 5 (d) 14(d) 6 (a) 15(a) 7 (c) 16(a) 8 (a) 9 (b)

CHAPTER 15 COMPANY ANALYSIS 1. Sustainable growth ratio is a function of (a) (b) (c) (d) (e) 2. Current ratio Return on equity Book value (a) and (c) None of the above

The key elements of Dell computer Corporations strategy of cost leadership does not include (a) (b) (c) (d) (e) Low-cost service Direct selling Negative working capital Built-to-order manufacturing None of the above

3.

Decentralisation almost invariably: (a) (b)

(c)

(d) (e) 4.

Enhances goal congruence Diminishes goal congruence Facilitates economies of scale All the above None of the above

Which among the following is the most popular method of equity valuation? (a) (b) (c) (d)
(e)

Dividend discount method Horizon bond value method Net present value method Earnings multiplier method None of the above

5.

Which one of the following is a measure of risk? (a) (b) (c) (d) Beta Range of return Volatility of return All the above

(e) 6.

None of the above

A good finance manager should take great efforts to manage: (a) (b) (c)
(d)

(e) 7.

The top line The middle line The bottom line Both a and c None of the above

The ratio of expected future growth to recent growth is called: (a) (b) (c) (d) (e) Velocity ratio Futures ratio Acceleration ratio Expectation ratio None of the above

KEY 1 (b) 2 (e) 3 (b) 4 (d) 5 (d) 6 (e) 7 (c)

CHAPTER 16 TECHNICAL ANALYSIS 1. Extensive analysis of various factors in involved in: (a) (b) (c) (d) (e) 2. Technical analysis Fundamental analysis DCF analysis EVA analysis None of the above

Inverse Head and Shoulders Top Pattern is believed to indicate: (a)

(b)

(c) (d) (e) 3.

Bullish development Bearish development Sideways movement Consolidation None of the above

In technical analysis, a pattern of uncertainty is indicated by: (a) (b) (c) (d)
(e)

Flags and Pennants Heads and Shoulders Triangles Double bottom None of the above

4.

A technical analyst believes that a high short interest ratio indicates: (a) (b)
(c)

(d) (e) 5.

Bullish development Bearish development Sideways movement Consolidation None of the above

Fundamental analysis is superior to technical analysis. (a) True (b) False

6.

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

(c) (d) (e) 7.

A bearish trend A reversal None of the above

For timing the market investors often use (a) (b) (c) (d) (e) Technical analysis Fundamental analysis Company analysis Viability analysis None of the above

8.

Low mutual fund liquidity is supposed to forecast (a) (b) (c) (d) (e) A bullish trend A bearish trend Stable market Volatile market None of the above

9.

Which of the following is considered a bullish signal by a technical analyst? (a) (b) (c) (d) (e) Double top formation A rise in the put/call ratio A high short-interest ratio A trin ratio of more than 1 None of the above

KEY 1 (b) 2 (a) 3 (a) 4 (a) 5 (b) 6 (b) 7 (a) 8 (b) 9 (c)

CHAPTER 17 OPTIONS 1. Change in option value with respect to time to expiration is denoted by: (a) (b) (c) (d) (e) 2. Delta Vega Theta Gamma None of the above

Change in option value with respect to the change in the volatility of the underlying price is denoted by: (a) (b) (c) (d) (e) Delta Vega Theta Gamma None of the above

3.

In which of the following there is an unlimited downside risk? (a) (b) (c) (d) (e) Buying a call option Writing a call option Buying a put option Writing a put option None of the above

4.

In the case of a put option, the intrinsic value is always

(a) (b) (c)

(d) 5.

Greater than or equal to the market value Greater than or equal to the time value Less than or equal to the time value None of the above

Which one of the following is not an assumption underlying the BlackScholes model:
(a) (b) (c)

(d) (e)

The call option is the American option The stock pays no dividend The risk- free interest rate is constant There are no transaction costs and taxes None of the above

6.

Value of a call option increases when (a) (b) (c) (d) (e) Stock price is high Volatility is high Time to expiration is long All the above None of the above

7.

An out-of-the-money call option means that: (a) (b) (c) (d) (e) Market price is more than the exercise price Exercise price is more than the market price The time to expiration is over The call option can not be exercised None of the above

8.

Intrinsic value of an in- the money option:

(a) (b) (c) (d) (e)

Is more than the time value of the option Is less than the time value of the option Is equal to the market value of the option Is the option value if it were to expire immediately None of the above

9.

If the value of a call option on a stock is equal to the value of a put option on the same stock:
(a) (b) (c)

(d) (e) 10.

Maximum loss on the call option would be greater than the maximum loss on the put option Maximum loss on the call option would be less than the maximum loss on the put option. Maximum loss on the call option would be equal to the maximum loss on the put option Either a or b None of the above

As per the Black and Scholes model, the value of a call option is affected by the:
(a)

(b) (c) (d)

Risk aversion of the investor Risk appetite of the investor Expected return on the stock Expected return on the market

(e)

None of the above.

KEY 1 (c) 10 (e) 2 (b) 3 (b) 4 (d) 5 (a) 6 (d) 7 (b) 8 (d) 9 (c)

CHAPTER 18 FUTURES 1. Open interest in a futures market is the (a) (b) (c) (d) (e) 2. Number of long contracts outstanding No. of pending orders Sum of all contracts, long and short (a) + (b) None of the above

Which of the following is incorrect? (a) (b) (c) (d) (e) 3. A futures contract is a forward contract A forward contract is a futures contract Futures are standardised contracts Futures are exchange traded None of the above

A normal backwardation implies that: (a) (b) (c) (d) (e) Investors are risk neutral Sellers provide service to buyers Buyers provide service to sellers There will be no trade, whatsoever None of the above

4.

Which one of the following is not an investment: (a) (b) (c) (d) (e) Forwards Futures Options All the above None of the above

5.

Maximum trading cycle for S & P CNX Nifty futures is: (a) (b) (c) (d) (e) 1 month 2 months 3 months 6 months None of the above

6.

In India, a commodity exchange has to necessarily allow an option to the seller of the futures to give physical delivery at the end of the contract period, if he so wishes: (a) True (b) False

7.

The regulatory authority for futures trading in commodities in India is: (a) (b) (c) (d) (e) Forward Markets Commission Futures Markets Commission Securities Markets Commission Commodities Trading Commission None of the above

8.

Tendering time in a commodity exchange refers to the period during which a purchaser of a futures contract should state his intention of : (a)
(b) (c) (d)

(e) 9.

Settling the contract by paying cash Settling the contract by taking physical delivery Modifying the sales tax documents tendered earlier Modifying the strike price None of the above

The difference between the futures price and the spot price is called the: (a) (b) (c) (d) (e) Basis Spread Contango Backwardation None of the above

10.

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

11.

Derivatives are devices for: (a) (b) (c) (d) (e) Eliminating risk Analysing risk Managing risk Understanding risk None of the above

12.

For commodities the following relationship is expected to hold: Futures price (a) (1+rf)
t

Spot price

Futures price (b) (1+rf) Futures price (c) (1+rf) Futures price (d) (1+rf)t (e) None of the above = Spot price Present value of storage costs + Present value of convenience yield
t t

Spot price+Present value of storage costs + Present value of convenience yield

Spot price + Present value of storage costs - Present value of convenience yield

KEY 1 (a) 10 (a) 2 (b) 11(c) 3 (c) 12(c) 4 (d) 5 (c) 6 (a) 7 (a) 8 (b) 9 (a)

CHAPTER 19 MUTUAL FUNDS 1. An Asset Management Company to run a mutual fund is appointed by: (a) (b) (c) (d) (e) 2. Sponsor Trustees Custodian SEBI None of the above

An Exchange Traded Fund is a variety of (a) (b) (c) (d) (e) Fund of Fund Sectoral Fund Index Fund Debt Fund None of the above

3.

An Exchange Traded Fund has the properties of (a) (b) (c) (d) (e) A close-ended index fund An open-ended index fund. An equity fund Both a and b None of the above

4. Equity Linked Savings Schemes are (a) (b) (c) (d) (e) 5. Hybrid schemes Debt schemes Tax planning schemes Bank schemes None of the above

Who is the Investment Manager for a Mutual Fund? (a) (b) (c) (d) (e) The Custodian The Sponsor The Trustees The Asset Management Company None of the above

6.

Recurring expenses are the lowest for: (a) (b) (c) (d) (e) Index fund ELSS Floating rate debt fund Arbitrage fund None of the above

7.

A fixed maturity plan (FMP) is debt scheme that is; (a) (b) (c) (d) (e) Open ended With guaranteed returns With indicative returns Both a and b None of the above

8.

A fund of fund scheme, invests in: (a) (b) (c) (d)

(e)

Stocks Bonds Derivative schemes Mutual fund schemes None of the above

9.

Which one of the following is a disadvantage of a fund-of-fund scheme as compared to a mutual fund? (a) (b) (c) (d) (e) The cost of investment is more It increases the risk It is less tax efficient All the above None of the above

10.

In 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 None of the above

11.

An open-ended mutual fund scheme is listed in the secondary market: (a) True (b) False

12.

Hedge funds are typically not open to: (a) (b) (c) (d)
(e)

Retail investors Institutional investors Wealthy individuals Both b and c None of the above

13.

A market-neutral position involves: (a) (b) (c) (d) (e) Taking high risk Taking low risk Being risk neutral Being risk-averse None of the above

14.

Which among the following is not an option offered by a mutual fund? (a) (b) (c) (d) (e) Dividend payout option Dividend reinvestment option Growth option Call option None of the above

15.

If you have fairly strong speculative instincts, you should invest mostly in: (a) (b) (c) (d) (e) Mutual funds Primary equity market Secondary equity market Secondary bond market None of the above

KEY 1 (b) 10 (d) 2 (c) 11(b) 3 (d) 12(a) 4 (c) 13(e) 5 (d) 14(d) 6 (a) 15(c) 7 (c) 8 (d) 9 (a)

CHAPTER 21 PORTFOLIO MANAGEMENT FRAMEWORK 1. Regression of returns to the mean over time is a tendency found in: (a) (b) (c) (d) (e) 2. Equities Bonds Derivatives All the above None of the above

Sharpe measure reflects the excess return earned on a portfolio per unit of its total risk: (a) True (b) False

3.

Which one of the following is not a commonly stated investment goal? (a) (b) (c) (d) (e) Growth Stability Liquidity Income. None of the above

4.

Empirical studies have shown that nearly 90 percent of the variance of the portfolio return is explained by its: (a) (b) (c) (d) (e) Investment horizon Unique circumstances Asset-mix Liquidity position None of the above

5.

The 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 convexity An uptrend without convexity None of the above

6.

The actual risk of bonds declines more slowly than the theoretical risk, as the holding period increases: (a) True (b) False

7.

Which of the following is not a principal vector of an active portfolio strategy? (a) (b) (c) (d) (e) Market management Sector rotation Security selection Use of a specialized concept None of the above

8.

Growth stocks typically have high: (a) (b) (c) (d)

(e)

Price-earnings ratios Low price-to-book value ratios High dividend yields All the above None of the above

9.

An investor who extensively analyses publicly available information is a (a) (b) (c) (d) (e) Liquidity based transactor Value based transactor Information based transactor Pseudo-information based transactor None of the above

10.

The appropriate measure of risk used in Treynor measure is (a) (b) (c) (d) (e) Variance Beta Standard deviation range None of the above

11.

Jensen measure of a portfolio reflects (a) (b) (c) Excess return over market portfolio Excess return over fair return as per CAPM Excess return over fair return as per APT

(d) (e) 12.

Excess return over risk free return None of the above

Insured asset allocation calls for (a) (b) (c) (d) (e) Shifting the asset mix mechanistically in response to changing market conditions Shifting the asset mix as per a predetermined stock-bond mix Following a buy and hold policy Annual rebalancing of the portfolio None of the above

13.

For good downside protection and riding a bull market you will adopt a (a) (b) (c) (d) (e) Drifting asset allocation policy CPPI policy Balanced asset allocation policy Speculative policy None of the above

14.

A drifting asset allocation policy (a) (b) (c) (d) (e) Gives rise to a convex pay off curve Gives rise to a concave pay off curve Gives rise to a straight line pay off Gives rise to an elliptical pay off curve None of the above

15.

A constant proportion portfolio insurance (CPPI) policy calls for: (a)

(b)

(c) (d) (e) 16.

(a) (b)

Selling stocks as they fall and buying stocks as they rise Buying stocks as they fall and selling stocks as they rise Buying a constant number of shares of a stock every month Selling a constant number of shares of a stock every month None of the above

If a portfolio manager has a good ability to select undervalued securities but a poor ability to forecast overall market, the following makes sense for him:

Concentrate 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

(c) (d)

(e)

Concentrate 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 None of the above 17. If a portfolio manager has a good ability to forecast overall market but a poor ability to select undervalued securities, the following makes sense for him.

(a) (b) (c) (d)

(e)

Concentrate 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 Concentrate 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 None of the above 18. Which of the following measures reflects the excess return earned on a portfolio per unit of its total risk? (a) (b) (c) (d) (e) Treynors measure Sharpes measure Jensens measure Total measure None of the above

KEY 1 (a) 10 (b) 2 (a) 11(b) 3 (c) 12(a) 4 (c) 13(b) 5 (b) 14(c) 6 (a) 15(a) 7 (a) 16(c) 8 (a) 17(d) 9 (b) 18(b)