Investment_Planning_FINAL.pdf

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2 Investment Planning Workbook

PREFACE

Having gained conceptual clarity through concept book and in-class experience, it is

important that you apply and strengthen your fundamentals; the exercises in the

workbook will offer you practice and challenge your ability and understanding.

The questions have been designed in such a way that each test covers all the concepts

discussed in the book.

The Tests will help you identify your conceptual gap; assess your strengths and

areas for improvement.

If you need any support in your preparation; Do write to us at [email protected]

In addition to these workbooks, you can also access more practice tests online. For

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3Investment PlanningWorkbook

1. The bid-asked spread is best described bywhich one of the following statements?

a) It is the broker's commission.b) It is the dealer's gross income from a

transaction.c) It is larger for illiquid securities than it is

for liquid securities.d) All of the above are true.e) None of the above.

2. How do T -bi lls pay interest to the irinvestors?

a) Coupon interest.b) Possible price appreciation above their

discounted price.c) T-bills pay no interest.d) Difference between discount price and

face value.

3. Which of the following are characteristicsof money market securities?

a) They are issued by the Government,municipalities and large corporationsthat have high-quality ratings.

b) All have terms to maturity that are 270days or less.

c) All tend to have large amounts ofpurchasing power risk.

d) Both (a) and (b)e) Both (b) and (c)

4. Which one of the following is a basis point?

a) One Rupee, Re.1b) One percentage point, 1 percentc) One paisa, Re.0.01d) One one-hundredth of one percentage

point, 0.01 of 1 percent,

5. Which one of the following statements bestdescribes a Government bond?

a) It has no voting privileges.b) It receives no cash dividends.

c) It may be resold at any time.d) All of the above.

6. Which of the following rights do equityshareholders have?

a) They can legally demand information froma corporation in which they are ashareholder and thus gain access to itsbooks.

b) They can vote for the commonshareholders' dividend.

c) They can vote for the preferenceshareholders' dividend.

d) All of the above.

7. Preference shareholders receive priorityover common stockholders with respect towhich of the following?

a) Dividends cannot be paid to commonstockholders unless the preferencestockholders receive their stated

dividend.b) In the event of bankruptcy and liquidation,

the preference shareholders are paidbefore the common shareholders.

c) Preference shareholders get to elect theChairman of the corporation's Board ofDirectors.

d) Both (a) and (b) are true, but (c) is false.e) All of the above are true.

8. Which one of the fol lowing equationscorrectly defines the dividend yield (y) froma share of common stock?

a) y = (purchase price) + (cash dividend, ifany) / purchase price

b) y = (price change) + (cash dividend, ifany) / purchase price

c) y = price change /purchase priced) y = cash dividend (if any) / purchase

price

9. A preference share ___________

a) pays fixed dividendb) is a marketable securityc) is a debt securityd) both (a) and (b)e) all of the above


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10. Which of the following statements bestdescribes the convertibility of preferenceshare?

a) Some issues of preference share maybe converted into common share at theoption of the investor any time and at a

conversion ratio that never changes.b) Some issues of preference share may

be converted into common share at theoption of the investor within a limitednumber of years after the preferred stockis issued.

c) Some issues of preference share maybe converted into common share at theoption of the investor only after aspecified number of years have elapsedsince the preference share was initiallyissued,

d) All of the above are true.e) Preference share is never a convertiblesecurity.

11. Which one of the following statements bestdescribes corporate bonds?

a) Bond investors are creditors of thecorporation.

b) All the bonds make coupon interestpayments once per annum.

c) Both (a) and (b) are true.d) None of the above are true.

12. The quality ratings of a corporation's bondissue are primarily determined by which ofthe following?

a) The level and trend of the issuer'sfinancial ratios

b) The level and structure of interest ratesc) The issuer's financial condition and the

indenture contract that governs theissuing firm

d) All the above

13. One bond with an AA-grade rating might pay

a higher yield-to-maturity than another AA-grade bond issued at a different time by thesame corporation because of which of thefollowing reasons?

a) Bonds with longer maturities normallypay higher rates of interest than similarbonds that have shorter maturities.

b) The bond market is sometimes irrationaland evaluates the riskiness of somebond issues erroneously.

c) One bond issue is a secured onewhereas the other issue is unsecured.

d) All of the above

14. Which of the following bond quality ratingsapplies to default-free bonds?

a) AAA.b) AA.c) Both b and a are default-free.d) None of the above is default-free.

15. A security will not earn the yield-to-maturitythat was promised when the security waspurchased if the following conditionsoccurs?

a) The issuer defaults on either the interestor principal payments.

b) The investor sells the security prior to

its maturity date.c) Cash flows from the security paid to theinvestor prior to its maturity date are heldin cash or spent on consumption goodsrather than reinvested.

d) All of the above are true.e) None of the above are true.

16. An investor that employed a naive buy-and-hold strategy would be employing a passiveinvestment management strategy.

a) Trueb) False

17. An index fund is best described by which ofthe following?

a) A mutual fund constructed to achieve aparticular investment goal.

b) A portfolio that attempts to match theperformance of some stock market indexby investing in the same stocks and inthe same proportions as those thatcomprise the selected market index.

c) Both of the above.d) An investment portfolio that appreciates

in value at least as rapidly as someinflation index (such as the ConsumerPrice Index, for instance).

e) Both (a) and (d).


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18. The weights used in constructing a value-weighted stock market index are bestdescribed by which of the followingstatements?

a) Equal weights are assigned to everysecurity in the index.

b) The weight assigned to each stock isproportionate to its price per share.

c) The share price of every stock in theindex is multiplied by the number ofshares outstanding to determine theweight of that issue based on its totalvalue stated as a proportion of theaggregate market value of all the stocksin the index.

d) The weight assigned to each stock in theindex is proportional to the number ofshares that issue has outstanding stated

as a proportion of the aggregate numberof shares outstanding for all issues thatcomprise the index.

e) Both (a) and (d) are true.

19. All s tock market indexes are mostaccurately characterized by which of thefollowing statements about the degree towhich they covary together?

a) They are perfectly positively correlated.b) They are highly positively correlated.c) They are uncorrelated.d) They are negatively correlated.

e) It is impossible to generalize, some arehighly positively correlated and some arenegatively correlated.

20. Depreciation must be entirely omitted froma firm's net profit in order to determine howmuch cash flow the firm generated.

a) Trueb) False

21. When a firm pays creditors the transactiondoes not affect the equity capital shown in

its balance sheet in any way.

a) Trueb) False

22. A primary issue of bonds or stock wouldincrease both sides of the issuingcompany's balance sheet by the sameamount.

a) Trueb) False

23. The retention rate equals 100 percent lessthe percent of the corporation's earningspaid out for cash dividends.

a) Trueb) False

24. If a corporation has preference shareoutstanding its book value per share equalsits total net worth divided by the number ofshares of common stock plus preferenceshares it has outstanding.

a) Trueb) False

25. Which of the following ratios will increaseas a firm uses more financial leverage?

a) The times-interest-earned ratiob) The debt-to-equity ratioc) The inventory turnoverd) Both (a) and (b)e) Both (a) and (c)

26. Which of the following factors tends to

increase the growth rate of a corporation?

a) External borrowingb) Increasing the retention ratec) Increasing the rate of return on equityd) Both (a) and (b)e) All of the above

27. A company has total assets of 2,000,000. Ithas 700,000 in long-term debt. Ifstockholders' equity is 900,000, what is itstotal debt to total asset ratio?

a) 45 percent

b) 47 percentc) 59 percentd) 52 percente) 55 percent


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28. A corporation had a total debt to total assetratio of .4, total debt of Rs.200,000, and netincome of Rs.30,000. Determine thecorporation's return on equity.

a) 8 percentb) 9 percent

c) 10 percentd) 12 percente) 14 percent

29. Assume the following information:Stockholders' Equity = Rs.2,000; SharesOutstanding = 40; Market Price to bookvalue = 2. Determine the market price forthe firm's common stock.

a) Rs.75b) Rs.100c) Rs.110

d) Rs.115e) Rs.117

30. Which of the following is a source of funds?

a) An increase in inventoryb) An increase in accounts receivablec) An increase in investmentsd) An increase in accounts payablee) None of the above

31. Assume the correlation coefficient r betweenthe rates of return from these two cementsector shares, say, A and G was +0.9. Ifyou took a long position in G and a shortposition in A (or vice versa) of exactly equalvalue you would be perfectly hedged.

a) Trueb) False

32. Imperfect hedges occur when either thequantities sold short and bought long areout of balance, or the purchase and shortsale prices differ.

a) True

b) False

33. Which of the following statements correctlydescribes a speculator's (short seller)profits?

a) The per share profit is limited to anamount equal to the price at which theshares were sold short.

b) The short seller earns Re.1 profit forevery Re.1 fall in price of the security.

c) Short selling can help arbitragers earnprofits.

d) All the above are true.

34. Selling securities short is useful in which ofthe following activities?

a) Speculatingb) Hedgingc) Arbitraged) All the above

35. Investors' motives are not correct lydescribed by which of the followingstatements?

a) Having long positions indicates that thebuyer is bullish.

b) Uncovered short sellers expect themarket to be bearish.

c) Hedgers are always bullish.d) Both (a) and (b) are falsee) All of the above are false

36. Why do share prices usually drop when

news about decline in a company's earningsper share is reported?

a) Because a reduction in a earningsmeans that the firm has less money withwhich to pay dividends and therefore themarket fears a reduction in thecompany's future dividends.

b) Because the share market anticipatesthat a decreased level of earning powermight be the indicator of default andperhaps even bankruptcy.

c) The statement is false. Share prices donot usually react to announcements

about current earnings.d) Both (a) and (b) are true.


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37. Interest-rate risk is defined by which of thefollowing statements?

a) Fluctuations in the coupon interest ratesfrom one bond issue to the next

b) Fluctuations in the market prices ofbonds as their prices move inversely to

the prevailing market interest ratesc) The variability of returns as a result of

fluctuations in market interest ratesd) Both (a) and (b)e) All of the above

38. Assume that you are an investment adviserand one of your clients, on your advice,invested Rs.100,000 in Treasury bonds dueto mature in 2 years. If your client becomesworried that a general increase in the levelof interest rates will reduce the market valueof his bond portfolio, what should you sayto allay your client's fears?

a) You could assuage your client's fears byclaiming you foresee only stable interestrates ahead.

b) You could instruct your client to liquidatetheir portfolio of Treasury bonds andreinvest the proceeds in a bank.

c) Both (a) and (b) are true.d) You could tell your client not to worry

because the market prices of short-termbonds do not fluctuate very much.

39. Assume you are an financial advisor and

one of your clients reads something aboutinterest-rate risk and is worried that if marketinterest rates declined his coupon interestincome will likewise decline. His bondinvestments have maturities ranging from15 to 30 years. What advice is appropriatefor this client?

a) Tell the investor to liquidate her coupon-paying bonds and reinvest the money inzero coupon bonds.

b) Tell your client not to worry, her couponincome will not vary until her couponbonds mature in 15 to 30 years.

c) Both (a) and (b) are true.d) The client need not worry if market

interest rates are expected to risebecause coupon rates vary inverselywith market interest rates and thereforeher coupon interest could increase.

e) All the above are true.

40. Calculate the (1) expected rate of return,E(r), from the probability distribution ofreturns below for the ABC common share.

The expected rate of return for ABC is whichone of the following?

a) The E(r) is 5 percent.

b) The E(r) is 20 percent.c) The E(r) is 5 percent.d) The E(r) is 10 percent.e) The E(r) is 12 percent.

41. Which one of the following statementsdescribes the phrase 'risk'?

a) The phrase total risk is synonymous withthe variability of return from an asset.

b) Bond quality ratings essentially measurethe probability that an issue of bonds fallsinto default.

c) Although Treasury bonds are free fromdefault risk they nevertheless containsubstantial amounts of interest-rate risk.

d) Both (a) and (b) are true.e) All the above are true.

42. If ABS's price is Rs.40 per share and itscurrent dividend of Rs.3.85 per share, whichis growing at a 7 percent rate per year,determine its required return?

a) 16.2 percentb) 15.1 percentc) 16.6 percent

d) 17.3 percente) 18.2 percent


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43. If ABS's pays dividend of Rs.3.85 per sharewhich is growing at a 7 percent rate per yearand is expected to grow at the same rate infuture. Its required rate of return is 14.5%Determine its share value.

a) Rs. 52.48

b) Rs. 49.25c) Rs. 54.93d) Rs. 55.75e) Rs. 47.26

44. A company has current earnings per shareof Rs.6. Assume a dividend-payout ratio of55 percent. Earnings grow at a rate of 8.5percent per year. If the required rate ofreturn is 15 percent, what is its currentvalue?

a) Rs.51.33

b) Rs.55.08c) Rs.57.02d) Rs.52.05e) Rs.50.75

45. The value of an option tends to increase asthe volatility (or risks) of the underlying assetincreases.

a) Trueb) False

46. If you purchase a put option, you areexpecting the value of the underlying assetto increase.

a) Trueb) False

Directions for Questions 47 to 55: Use theinformation given in the table below to answer thequestions. Ignore taxes and transaction costs.

Each contract is equal to 100 shares. .

47. If you purchase one 3-month call contracton A, what profit or loss will you make onthe maturity date if the price of A at thattime is Rs.57?

a) Rs.200b) Rs.400

c) -Rs.460d) Rs.500e) Rs.560

48. If B's price is Rs.35 at the maturity of the 6-month option, determine the value ofpurchase of five 6-month put contracts attheir maturity date.

a) Rs.2,000b) Rs.5,700c) Rs.8,200d) Rs.4,000

e) Rs.3,600

49. If you had purchased five 3-month calloptions of C and the price of C's share isRs.32 at maturity. Determine your profit orloss on the investment.

a) Rs.1,000b) Rs.1,500c) -Rs.2,000d) -Rs.4,000e) -Rs.500

50. If you had purchased five 3-month puts onC, what would your profit "or loss positionhave been at maturity if the share's pricewas Rs.32?

a) -Rs.225b) -Rs.400c) -Rs.600d) Rs.400e) Rs.600

51. Your client wrote five 6-month call optionson B's share. What is his profit or loss onthe options at maturity if the price of B at

that time is Rs.43?

a) Rs.625b) -Rs.600c) Rs.400d) Rs.300e) Rs.200


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52. If your client had written five 6-month putoptions on B, what would his profit or losshave been at the maturity of the options ifthe share price was Rs.43 per share?

a) Rs.1,000b) Rs.2,000

c) Rs.1,800d) Rs.1,500e) -Rs.500

53. Which of the following options are in themoney?

a) A's 3-month callb) B's 6-month putc) C's 6-month putd) a and be) None of the above

54. If an investor is bearish on a share, buying aput is usually better than selling short because

a) The holder's losses can be no more thanthe put premium if the share price rises,but the short seller's losses could beunlimited in this situation.

b) The short sale will become worthlessafter a short period of time but the putwill not become worthless.

c) The short seller must pay any dividendspaid by the security the short sellerborrowed.

d) (a) and (b).e) None of the above

55. Call option-premiums for a given asset tendto increase when :

a) The price of the underlying assetdecreases.

b) The volatility of the underlying assetdecreases.

c) The time to maturity of the optionincreases.

d) Both (a) and (b).e) None of the above.

56. The Black Scholes model cannot be used todetermine the overall market value of a firm.

a) Trueb) False

57. When a firm's dividend payment is includedin the Black Scholes model, the value of aput decreases.

a) Trueb) False

58. Dividend payment on a firm's commonshare tends to lower the value of a calloption on the firm's equity.

a) Trueb) False

59. Option prices that are calculated with theBlack Scholes model are not very sensitiveto changes in the asset's standard deviationof returns.

a) Trueb) False

60. The option values calculated with thebinomial model will approach thosecalculated with the Black Scholes model fora given period of time as we divide the fixedtime period into smaller and smaller units.

a) Trueb) False

Directions for Questions 61 to 70: Using theinformation given below, answer the questions withthe Black Scholes option pricing model.

The options on the share of National Corporationhave the following values:

S = Rs.55 k = Rs.52 R = .10 u = .33 and T = .4

Assume that no dividends are currently being paid.

61. What is the value of a call on the NationalCorporation?

a) Rs.6.50b) Rs.6.80c) Rs.7.33d) Rs.8.05e) Rs.8.35


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62. If the call is undervalued, what approachshould an investor follow?

a) Buy 1,000 calls, sell short 733 shares ofNational share.

b) Buy 1,000 calls, sell short 600 shares ofNational share.

c) Buy 500 shares of National, sell 1,000calls.

d) Buy 714 shares of National, sell 1,000calls.

e) Buy 600 shares of National, sell 1,000calls.

63. Determine the value of a put on National'sshare.

a) Rs.1.75b) Rs.2.29c) Rs.2.65

d) Rs.2.95e) Rs.3.15

64. If the put on National's share is overpriced,what should an investor do?

a) Sell 1,000 puts for every 400 shares sold.b) Buy 1,000 puts for every 300 shares

purchased.c) Sell 1,000 puts for every 229 shares sold.d) Sell 1,000 puts for every 350 shares

purchased.e) Buy 1,000 puts for every 400 shares

sold.

65. Assume the National Corporation is payingdividends at the rate of 4 percent per year.Determine the price of a call.


66. Determine the price of a put on National'sshare with a 4 percent annual dividend.


67. If the price of a National call is Rs.6.41,determine the implied standard deviation ofreturns without dividends.

a) .37b) .40c) .25

d) .35e) .18

68. If R rises to .12, determine the price of acall on National's share if the other inputsdo not change. Assume no dividends.


69. If T = .5, determine the value of a put onNational's share if the other inputs do notchange. Assume no dividends.


70. If k = Rs.54, determine the value of a callon National's share if the other inputs donot change. Assume no dividends.


71. With two assets, as the corre la t ioncoefficient between the two assets isreduced, the portfolio's risk is reduced.

a) Trueb) False

72. A 50-asset portfolio has _______ unique

covariance terms.

a) 2499b) 1449c) 1225d) none of the above


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73. In the two-asset case, the portfolio risk-returnpossibilities are nonlinear when thecorrelation between the asset returns is lessthan + 1.

a) Trueb) False

Directions for questions 74 and 75: Refer to thedata below.

The post tax returns of 2 shares are:

74. Calculate the covariance of returns.

a) 220.32b) -420.11c) 145.22d) 270.36e) 162.08

75. Calculate the correlation coefficient from theabove information.

a) .540b) .869c) .923d) .758e) .697

Directions for questions 76 and 77:Refer to thedata below :

Two companies, M and N have the following riskand return statistics:

l Standard deviation (M) = 18%;

l Standard deviation (N) = 30%

l Expected Return (M) = 14%; ExpectedReturn (N) = 19%

l Correlation coefficient = 0.28

76. Determine the risk of a portfolio of 25percent M and 75 percent N.

a) 18.25 percentb) 30.15 percentc) 24.15 percentd) 21.75 percente) 27.13 percent

77. Determine risk of a portfolio of 50% M and50% N from the information given inproblem 81.

a) 19.5 percentb) 21.7 percentc) 17.8 percent

d) 23.0 percente) 25.4 percent

Directions for questions 78 to 80: Use theinformation in the table below to answer thequestions. Assume the risk less rate is the averageof the five annual T-bill returns.

78. Determine the Sharpe performance indexfor the ABC Fund for the 5-year period.

a) 0.63b) .68c) .91d) 1.05e) 1.10

79. Determine the Sharpe performance indexfor the XYZ Fund for the 5-year period.

a) .48b) 0.34c) .78d) .92e) 1.05

80. Determine the Jensen per formancemeasure (alpha) for the ABC Fund over the5-year period.

a) 4.27b) 2.69c) 1.76d) 2.01e) 3.76


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81. Duration for a zero coupon bond is less thanits term to maturity.

a) Trueb) False

82. Longer-term bonds are almost always more

volatile in terms of price than short-termbonds for a given change in interest rates.

a) Trueb) False

83. Bond price volatility is directly related to thebond's coupon.

a) Trueb) False

84. Duration for a coupon-paying bond is alwaysless than its term to maturity.

a) Trueb) False

85. For any given maturi ty, bond pricemovements that result from an equalabsolute decrease or increase in the yield-to-maturity are symmetrical.

a) Trueb) False

86. There is a direct relationship between abond's coupon and duration.

a) Trueb) False

87. As a bond's YTM increases, if other thingsare held constant, its duration decreases.

a) Trueb) False

88. When a bond is selling at a discount, its YTMexceeds the coupon rate.

a) True

b) False

89. When a bond's YTM equals its coupon rate,the bond's price is less than par value.

a) Trueb) False

90. 10 percent semiannual bond with a YTM of12 percent and 10 years to maturity has aprice equal to ____________.

a) Rs.1,051.65b) Rs.1,159.88c) Rs.885.30

d) Rs.888.89e) Rs.955.41

91. The price of the bond in above question after2 years, assuming everything else stays thesame, is (Hint:There will be 8 years untilmaturity.)

a) Rs.1,130.55b) Rs.935c) Rs.757d) Rs.868e) Rs.898.94

92. A bond's duration measures which one ofthe following?

a) The time structure of a bond's cash flowsb) The bond's interest-rate riskc) Both a and b aboved) The default risk of the bond issuee) None of the above

93. If the market rate of interest falls, a coupon-paying bond will _________.

a) Decrease in value

b) Experience a decrease in durationc) Experience an increase in durationd) None of the abovee) Both a and b above

94. A bond's reinvestment rate risk:

a) Refers to the problem of being able topurchase another bond with the sameor higher YTM when the existing bondmatures or is called.

b) Is the risk of not being able to reinvestthe coupons of a bond at the bond's

YTM.c) Is the same as marketability risk.d) Both (a) and (b).e) None of the above.


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95. If you expect a large decline in interest rates,which of the following investments shouldyou choose?

a) Money market fundb) Low-coupon short-term bondc) High-coupon short-term bond

d) Long-term zero coupon bonde) Short-term zero coupon bond

96. Bonds with higher coupons, other thingsbeing the same,

a) have more interest-rate risk than bondswith smaller coupons

b) have less interest-rate risk than bondswith smaller coupons

c) have higher duration than smaller-coupon bonds

d) have lower duration than smaller-coupon

bondse) Both (b) and (d)

97. A cl ient with a large, well-diversif iedcommon stock portfolio expresses concernabout a possible market decline. However,he/she does not want to incur the cost ofselling a part of their holdings nor the riskof mistiming the market. A possible strategyfor him/her would be

a) Buy an index call option.b) Sell an index call option.c) Buy an index put option.d) Sell an index put option.e) He cannot protect against the decline

with these options.

98. The Performance Fund had returns of 19%over the evaluation period and thebenchmark portfolio yielded a return of 17%over the same period. Over the evaluationperiod, the standard deviation of returnsfrom the fund was 23% and the standarddeviation of returns from the benchmarkportfolio was 21%. Assuming a risk-free rateof return of 8%, which one of the following

is the calculation of the Sharpe index ofperformance for the fund over the evaluationperiod?

a) .3913b) .4286c) .4783d) .5238e) .5870

99. The standard deviation of the returns of aportfolio of securities will be ____________the weighted average of the standarddeviation of returns of the individualcomponent securities.

a) Equal to.

b) Less than.c) Greater than.d) Less than or equal to (depending upon

the correlation between securities).e) Less than, equal to, or greater than

(depending upon the correlationbetween securities).

100. According to fundamental analysis, whichphrase best defines the intrinsic value of ashare of common stock?

a) The par value of the common stock.

b) The book value of the common stock.c) The liquidating value of the firm on a per

share basis.d) The stock's current price in an inefficient

market.e) The discounted value of all future

dividends.

101. A call option with a strike price of 110 isselling for 3 when the market price of theunderlying stock is 108. The intrinsic valueof the call is:

a) 0.

b) 1.c) 2.d) 3.e) (2).

102. In contrast to the Capital Asset PricingModel, the Arbitrage Pricing Theory (APT):

a) Is usually a multi-factor model.b) Is primarily using by arbitrageurs to profit

from imperfections in security markets.c) Assumes a market portfolio.d) Is a useful technical indicator.

103. With the same rupee investment, which ofthe following strategies can cause theinvestor to experience the greatest loss?

a) Selling a naked put option.b) Selling a naked call option.c) Writing a covered call.d) Buying a call option.e) Buying the underlying security.


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104. If the market risk premium were to increase,the value of common stock (everything elsebeing equal) would:

a) Not change because this does not affectstock values.

b) Increase in order to compensate the

investor for increased risk.c) Increase due to higher risk-free rates.d) Decrease in order to compensate the

investor for increased riske) Decrease due to lower risk-free rates.

105. The current annual dividend of ABCCorporation is Rs.2.00 per share. Fiveyears ago the dividend was Rs.1.36 pershare. The firm expects dividends to growin the future at the same compound annualrate as they grew during the past five years.The required rate of return on the firm's

common stock is 12%. The expected returnon the market portfolio is 14%. What is thevalue of a share of common stock of ABCCorporation using the constant dividendgrowth model? (Round to the nearest rupee)

a) Rs.11.b) Rs.17.c) Rs.25.d) Rs.36.e) Rs.54.

106. In computing portfolio performance, theSharpe index uses _____ while the Treynor

index uses _____ for the risk measure.

1 Standard deviation.2 Variance.3 Correlation coefficient.4 Coefficient of variation.5 Beta.

a) 5; 1.b) 1; 3.c) 1; 4.d) 1; 5.e) 2; 5.

107. A Rs.1,000 bond originally issued at parmaturing in exactly 10 years bears a couponrate of 8% compounded annually and amarket price of Rs.1147.20. The indentureagreement provides that the bond may becalled after five years at Rs. 1,050. Whichof the following statements is/are true?

1 The yield to maturity is 6%.2 The yield to call is 5.45%.

3 The bond is currently sell ing at apremium, indicating that market interestrates have fallen since the issue date.

4 The yield to maturity is less than the yieldto call.

a) 1, 2, and 3 only.b) 1 and 3 only.c) 2 and 3 only.d) 4 only.e) 1, 3, and 4 only.

108. Which of the following are non-diversifiablerisks?

1 Business risk.2 Management risk.3 Company or industry risk.4 Market risk.5 Interest rate risk.

6 Purchasing power risk.

a) 4, 5, and 6 only.b) 1, 2, and 3 only.c) 5, 6, and 2 only.d) 1, 3, and 4 only.e) 4, and 6 only.

109. American depository receipts (ADRs) areused to:

1 Finance foreign exports.2 Eliminate currency risk.3 Sell U.S. securities in overseas markets.4 Trade foreign securities in U.S. markets.

a) 1 and 3 only.b) 1 and 4 only.c) 2 and 4 only.d) 4 only.e) 1, 2, and 4 only.

110. Which combination of the fol lowingstatements about bond swaps is true?

1 A substitution swap is designed to takeadvantage of a perceived yield

differential between bonds that aresimilar with respect to coupons, ratings,maturities, and industry.

2 Rate anticipation swaps are based onforecasts of general interest ratechanges.

3 The yield pickup swap is designed tochange the cash flow of the portfolio byexchanging similar bonds that havedifferent coupon rates.


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4 The tax swap is made in order tosubstitute capital gains for current yield.

a) 1, 2, and 3 only.b) 1 and 3 only.c) 2 and 4 only.d) 4 only.

e) 1, 2, 3, and 4.

111. Modern "asset allocation" is based upon themodel developed by Harry Markowitz.Which of the following statements is/arecorrectly identified with this model?

1 The risk, return and covariance of assetsare important input variables in creatingportfolios.

2 Negatively correlated assets arenecessary to reduce the risk of portfolios.

3 In creating a portfolio, diversifying across

asset types (e.g., stocks and bonds) isless effective than diversifying within anasset type.

4 The eff icient f ront ier is relat ivelyinsensitive to the input variable.

a) 1 and 2 only.b) 1, 2, and 3 only.c) 1 only.d) 2 and 4 only.e) 1, 2, and 4 only.

112. Which one of the following products is

designed to provide both growth andincome?

a) Fixed premium annuity.b) Non-participating mortgage real estate

investment trust (REIT).c) Aggressive growth mutual fund.d) Convertible bond.

113. Jennifer is optimistic about the long-termgrowth of her Widget stock. However, thestock, currently priced at Rs.58, has madea sharp advance in the last week and shewants to lock in a minimum price in case

the shares drop. What might Jennifer do?

a) Buy Rs.55 call options.b) Sell Rs.55 call options.c) Buy Rs.55 put options.d) Sell Rs.55 put options.

114. Company ABC is currently trading at Rs.35and pays a dividend of Rs.2.30. Analystsproject a dividend growth rate of 4%. Yourclient Tom requires a rate of 9% to meet hisstated goal. Tom wants to know if he shouldpurchase stock in Company ABC.

a) Yes, the stock is undervalued.b) No, the stock is overvalued.c) No, the required rate is higher than the

projected growth rate.d) Yes, the required rate is higher than the

expected rate.e) No, the required rate is lower than the

expected rate.

115. If the client needs to accumulate wealth butis risk-averse, which of the following is themost crucial action the planner needs to taketo have the client achieve the goal of wealth

accumulation? Advise investing the client'scurrent assets.

a) In the products which will bring the highestreturn to the client regardless of risk.

b) In products that produce high income forthe client because fixed income productsare generally safe.

c) In diversified mutual funds because ofthe protection which diversity provides.

d) After determining the client's risk tolerance.e) In 100% cash equivalents in the portfolio

because most software programs

recommend this safe approach.

116. Which of the following would result in thelargest increase in the price of a diversifiedcommon stock mutual fund?

a) Unexpected inflation.b) Expected dividend increases.c) Unexpected corporate earnings growth.d) Expected increase in the prime interest

rate.

117. In analyzing the position of a portfolio in termsof risk/return on the capital market line (CML),

superior performance exists if the fund'sposition is the CML, inferior performanceexists if the fund's position is the CML, andequilibrium position exists if it is the CML.

a) Above; on; below.b) Above; below; on.c) Below; on; above.d) Below; above; on.e) On; above; below.


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118. Which one of the following best describesa debenture?

a) A long-term corporate promissory note.b) An investment in the debt of another

corporate party.c) A long-term corporate debt obligation

with a claim against securities ratherthan against physical assets.

d) A corporate debt obligation that allowsthe holder to repurchase the security atspecified dates before maturity.

e) Unsecured corporate debt.

119. A client has a cash need at the end of sevenyears. Which of the following investmentsmight initially immunize the portfolio?

1 A 9-year maturity coupon bond.2 A 7-year maturity coupon Treasury note.

3 A series of Treasury bills.

a) 1, 2, and 3.b) 1 only.c) 2 and 3.d) 2 only.e) 1 and 2.

120. Which combination of the followingstatements about investment risk is correct?

1 Beta is a measure of systematic, non-diversifiable risk.

2 Rational investors will form portfolios andeliminate systematic risk.

3 Rational investors will form portfolios andeliminate unsystematic risk.

4 Systematic risk is the relevant risk for awell-diversified portfolio.

5 Beta captures all the risk inherent in anindividual security.

a) 1, 2, and 5.b) 1, 3, and 4.c) 2 and 5.d) 2, 3, and 4.e) 2 and 5.

121. Which combination of the fol lowingstatements is true regarding the investmentstrategy known as "Rupee-cost averaging"?

1 Invests the same Rupee amount eachmonth over a period of time.

2 Purchases the same number of shareseach month over a period of time.

3 Lowers average cost per share over aperiod of time (assuming share pricefluctuations).

4 Invests the same rupee amount eachmonth to protect the investment fromloss of capital.

a) 1 and 2.b) 1 and 3.c) 2 and 3.d) 2 and 4.e) 1, 2, 3, and 4.

Directions for questions 122 and 123:Refer tothe caselet below and answer the questions

Smith invests in a limited partnership that requiresan outlay of Rs.9,200 today. At the end of years 1through 5, he will receive the after-tax cash flowsshown below. The partnership will be liquidated

at the end of the fifth year. Smith is in the 28% taxbracket.

122. The after-tax IRR of this investment is:

a) 17.41%.b) 19.20%.c) 24.18%.d) 28.00%.e) 33.58%.

123. Which of the following statements is/arecorrect?

1 The IRR is the discount rate, whichequates the present value of aninvestment's expected costs to thepresent value of the expected cashinflows.

2 The IRR is 24.18% and the present valueof the investment's expected cash flowsis Rs.9,200.

3 The IRR is 24.18%. For Smith to actuallyrealize this rate of return, theinvestment's cash flows will have to bereinvested at the IRR.


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4 If the cost of capital for this investmentis 9%, the investment should be rejectedbecause its net present value will benegative.

a) 2 and 4.b) 2 and 3.

c) 1 only.d) 1, 2, and 3.e) 1 and 4.

Directions for questions 124: Refer to thecaselet below and answer the question.

The tax bracket and holdings of your client are asfollows:

l Corporate tax bracket = 33%

*There have been no capital gains distributions.

124. During the 12 months from June 30th, last

year, through June 30th, this year, theportfolio earned, in annual yield and before-tax appreciation, respectively:

a) 5.5% and 17.5%.b) 5.5% and 21.3%.c) 6.6% and 17.5%.d) 6.6% and 21.3%.

125. Assuming that the duration of Bond A is 1.94years, which of the following statementsabout the effect of a 1% decline in interestrates is true?

a) Bond C, having a longer duration thanBond A, would have a larger percentincrease in price than Bond A.

b) The percent change in price of a bond isindependent of the duration of a bond.

c) It is not possible to determine the percentchange in price of Bond A versus BondC because the duration of Bond C is notgiven.

d) Bond A would have a greater percentchange in price than Bond C because ithas a shorter duration.

e) The percent change in the price of BondsA and C is equal since it is not affectedby duration.

126. The following set of newly issued debtinstruments was purchased for a portfolio:Treasury bond, Zero-coupon bond,Corporate bond, Municipal bond.

The respective maturities of theseinvestments are approximately equivalent.Which one of the investments in thepreceeding set would be subject to the leastamount of price volatility if interest rates wereto change quickly?

a) Treasury bond.b) Zero-coupon bond.

c) Corporate bond.d) Municipal bond.

127. Which of the following best describes theinvestment characteristics of a high-qualitylong-term municipal bond?

a) High inflation risk; low default risk.b) Low inflation risk; high market risk.c) Low inflation risk; low default risk.d) High inflation risk; high market risk.

128. Jasmine has a large paper profit in herAmalgamated Corporation shares, currently

at Rs.46. She is happy with the stock butrealizes that a good thing cannot go onforever. If she is willing to sell at 50, whatstrategy could you recommend to her?

a) Buy Rs.50 call options.b) Sell Rs.50 call options.c) Buy Rs.50 put options.d) Sell Rs.50 put options.

129. "Stock prices adjust rapidly to the releaseof all new public informat ion." Thisstatement is an expression of which one ofthe following ideas?

a) Random walk hypothesis.b) Arbitrage pricing theory.c) Semi-strong form of the efficient market

hypothesis.d) Technical analysis.


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130. Assuming that the current market yield forsimilar risk bonds is 8%, determine thediscounted present value of a Rs.1,000 bondwith a 7.5% coupon rate, which pays interestsemiannually and matures in 17.5 years.

a) Rs.504.68.

b) Rs.539.78.c) Rs.953.34.d) Rs.968.96.e) Rs.1,653.26.

131. Given the following diversified mutual fundperformance data, which fund had the bestrisk-adjusted performance if the risk-freerate of return is 5.7%?

a) Fund B because the annual return ishighest.

b) Fund A because the standard deviationis lowest.

c) Fund C because the Sharpe ratio islowest.

d) Fund D because the Treynor ratio ishighest.e) Fund A because the Treynor ratio is

lowest.

132. To immunize a bond portfolio over a specificinvestment horizon, an investor would dowhich of the following?

a) Match the maturity of each bond to theinvestment horizon.

b) Match the duration of each bond to theinvestment horizon.

c) Match the average weighted maturity of

the portfolio to the investment horizon.d) Match the average weighted duration of

the bond portfolio to the investmenthorizon.

133. Mortgage-backed securities may containwhich of the following risks?

1 Purchasing power risk.2 Interest rate risk.3 Prepayment risk.

a) 2 only.b) 1 and 2 only.c) 1 and 3 only.d) 1, 2, and 3.

134. You receive a phone call from an individualyou have not spoken with previously. Thecaller is excited, just having heard that anew mutual fund is positioned to deliverlarge gains in the coming year. The callerwishes to purchase shares of the fundthrough you. Keeping in mind stages ofthe overall personal financial planning

process, which of the following questionsthat addresses the first two stages of thefinancial planning process should you askthe caller?

1 What are your goals for this investment?2 What other investments do you have?3 What is your date of birth?4 Do you want your dividends reinvested?

a) 1 and 3 only.b) 2 and 4 only.c) 1, 2, and 3 only.d) 1, 2, and 4 only.

135. The duration of a bond is a function of its:

1 Current price.2 Time to maturity.3 Yield to maturity.4 Coupon rate.

a) 1 and 3 only.b) 2 and 3 only.c) 2 and 4 only.d) 1, 2, and 3 only.e) 1, 2, 3, and 4.


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136. Investment A costs Rs.10,000,000 andoffers a single cash inflow of Rs.13,000,000after 1 year. Investment B costsRs.1,000,000 and will be worthRs.2,000,000 at the end of the year. Theappropriate discount rate or required rate

of return is 10% compounded annually.Match the investment(s) listed below withthe corresponding financial informationprovided.

a) Investment A.b) Investment B.c) None of them.d) Either A or B.

137. The Zeta Corporation's current dividend isRs.3.85. If future dividends are expected togrow at 4% forever, which of the followingamounts should Zeta stock sell for if the

required rate of return on the stock is 14%?

a) Rs.28.57.b) Rs.38.50.c) Rs.40.04.d) Rs.41.60.

138. A client has a growth objective but requiresa large percentage of the return to be taxefficient. Which of the following productswould be most appropriate for this client?

a) Nonleveraged equipment leasing.b) Balanced mutual fund.c) Preferred stock mutual fund.d) Stock index fund.

139. Rani invested Rs.10,000 in a fixed deposit.If the interest is compounded monthly at anannual rate of 4%, what would be theamount that Rani would receive in five yearstime? (use 2 decimal places)

a) Rs.12,158.65b) Rs.12,209.97c) Rs.12,188.65d) Rs.12.187.65

140. Rekha has borrowed Rs.2,500 at 2%annual interest rate compounded quarterly.What is the amount she has to repay afterfive years?

a) Rs.2,762.24b) Rs.2,763.24c) Rs.2,769.24d) Rs.2,768.28

141. Avni wants to accumulate Rs.15,000 inthree years time for a one-month USA tripupon her graduation. Assuming she can get6% annual return compounded semi-annually from her investment, how muchmust she invest today to achieve her goal?

a) Rs.12561.26b) Rs.12562.11c) Rs.12562.26d) Rs.12564.26

142. Chetan borrowed Rs.5,000 five years ago.Assuming that he has to repay Rs.6,500 now,how much interest rate was he charged?

a) 5.28b) 5.39c) 5.93d) 5.82

143. A bond of face value of Rs. 1000 has acoupon of 7.5% and is compoundedquarterly duration 4 yrs. similar bond inmarket yield 8% what is PV of the bond?

a) Rs.982.03b) Rs.983.03c) Rs.984.03d) Rs.985.03

144. Mona invests Rs. 21000 for 3 yrs @ 6 %p.a.compounded annually for first 1 yr andquarterly for next 2 years. What would beher maturity benefit?

a) Rs.25076.35b) Rs.25075.72c) Rs.18951.71d) Rs.20277.68

145. A bond of face value of Rs. 1000 has acoupon of 7.5% and is compounded semiannually duration 4.5 yrs. similar bond inmarket yield 8% what is PV of the bond?

a) Rs.981.41

b) Rs.982.42c) Rs.983.25d) Rs.980.25


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146. Mahesh invests Rs. 18000 for 4 yrs @ 8 %p.a. compounded quarterly for first 2 yrs andannually for next 2 years. What would behis maturity benefit?

a) Rs.24599.22b) Rs.24566.33

c) Rs.25501.33d) Rs.26502.23

147. A bond of face value of Rs. 1000 has acoupon of 8.5% and is compoundedannually, duration 12 yrs., similar bond inmarket yield 9% what is PV of the bond?

a) Rs.963.20b) Rs.964.20c) Rs.964.80d) Rs.965.80

148. Mary invests Rs. 15000 for 3 yrs @ 8 %p.a. compounded annually for first 1 yr andhalf yearly for next 2 years. What would beher maturity benefit?

a) Rs.18524.21b) Rs.18951.71c) Rs.19850.71d) Rs.19849.21

149. Mr. Singh buys 200 convertible debenturesof TISCO at Rs. 200 each. 50% of the valueof these debentures is converted into oneshare of Rs. 80 each after 4 years. Mr. Singh

exercises his options after 4 yrs andreceives 100 shares. Compute cost ofacquisition of each share.

a) Rs.200b) Rs.250c) Rs.275d) Rs.300

150. Meena invests Rs. 16000 for 4 yrs @ 6 %p.a. compounded annually for first 1 yr andquarterly for next 3 years. What would beher maturity benefit?

a) Rs.20277.68b) Rs.20278.22c) Rs.22285.25d) Rs.20275.78

151. Mr. Satish buys 300 convertible debenturesof ABB at Rs. 300 each. 50% of the valueof these debentures is converted into oneshare of Rs.80 each after 5 years. Mr. Singhexercises his options after 5 yrs andreceives 120 shares. Compute cost of

acquisition of each share.a) Rs.350b) Rs.360c) Rs.375d) Rs.380

152. A bond of face value of Rs. 1000 has acoupon of 7.5% and is compounded semiannually, duration 17.5 yrs., similar bond inmarket yield 8% what is PV of the bond?

a) Rs.956.34b) Rs.953.34

c) Rs.1074.43d) Rs.987.60

153. Miss Savi buys 250 convertible debenturesof Reliance Ind. at Rs. 300 each. 60% ofthe value of these debentures is convertedinto one share of Rs. 80 each after 7 years.Miss. Savi exercises his options after 7 yrsand receives 100 shares. Compute cost ofacquisition of each share.

a) Rs.400b) Rs.420

c) Rs.425d) Rs.450

154. A bond of face value of Rs. 1000 has acoupon of 6.5% and is compounded semiannually, duration 13.5 yrs. similar bond inmarket yield 7% what is PV of the bond?

a) Rs.957.79b) Rs.985.79c) Rs.956.79d) Rs.958.79


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155. Miss Seema buys 250 convertibledebentures of Asian hotels at Rs. 300 each.60% of the value of these debentures isconverted into one share of Rs. 100 eachafter 7 years. Miss. Seema exercises hisoptions after 7 yrs and receives 150 shares.

Compute cost of acquisition of each share.a) Rs.225b) Rs.250c) Rs.275d) Rs.300

156. A bond yield 10% annually with interest paidsemi- annually. Duration is 3 years. Theyield on bond is 12%. Find current price.

a) Rs.1000.83b) Rs.1050.43c) Rs.986.36

d) Rs.950.83

157. Mrs. Shikha buys 250 convertibledebentures of ACC. at Rs. 300 each. 60%of the value of these debentures isconverted into one share of Rs. 50 eachafter 8 years. Mrs. Shikha exercises hisoptions after 8 yrs and receives 200 shares.Compute cost of acquisition of each share.

a) Rs.200b) Rs.225c) Rs.250

d) Rs.275

158. A bond of face value of Rs.1000 has acoupon of 7.5% and is compoundedquarterly, duration 16 yrs, similar bond inmarket yield 8.5% what is PV of the bond?

a) Rs.912.98b) Rs.912.38c) Rs.913.28d) Rs.914.88

159. Ravi invests Rs.15000 @12% compoundedmonthly .What will be the value of his

investment after 6 years?

a) Rs.31706.49b) Rs.30706.49c) Rs.30705.29d) Rs.30704.29

160. Mr. Sushil buys 300 convertible debenturesof Telco at Rs. 250 each. 40% of the valueof these debentures is converted into oneshare of Rs. 50 each after 6 years. Mr. Sushilexercises his options after 6 yrs and receives80 shares. Compute cost of acquisition ofeach share.

a) Rs.375b) Rs.380c) Rs.385d) Rs.390

161. A bond of face value of Rs. 1000 has acoupon of 7.5% and is compounded semiannually duration 5 yrs, similar bond inmarket yield 8% what is PV of the bond?

a) Rs.978.62b) Rs.978.42c) Rs.978.52d) Rs.979.72

162. Reshma invests Rs. 5000 @8%compounded monthly .What will be thevalue of his investment after 4 years?

a) Rs.6877.33b) Rs.6876.33c) Rs.6878.33d) Rs.6876.88

163. The best method of valuing a share is:

a) Book value based on net tangible assets.b) Liquidation value based on the proceeds

of liquidation of the company.c) Present value of all the dividends to be

received from holding that share.d) Apply the P / E ratio to expected earnings

per share.

164. If a bond is selling at a premium _______.

a) It is an attractive investmentb) Its realised compound yield will be less

than the yield to maturityc) Its coupon rate is below market rate

d) Its current yield is lower than the coupon rate165. Which of the fol lowing is NOT a

characteristic of a balance fund?

a) It provides both growth and incomeobjectives

b) It is less risky than growth fundsc) It is more risky than income fundsd) It must invest in both equity and bonds

in equal amount


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166. Purohit has just bought a house forRs.8,00,000. He wants to sell it in 20 yearstime for Rs. 20,00,000. His friend who is areal estate agent estimates that the housewill appreciate in value by 6% for the first 8years, 5% for the next 8 years and 4.50%for the last four years. What will be the valueof the house after 20 years and will Purohitbe able to realise his desired value?

a) Rs.21,85,489, Yesb) Rs.22,46,552, Yesc) Rs.19,54,413, Nod) Rs.17,45,387, No

167. Disclosure statements to prospective clientsinclude all of the following except:

a) Performance record of other clients.b) The method of remuneration, fees and

commissions.c) Access to internal and external complainthandling mechanism.

d) Disclosure of any conflict of interest.

168. Which of the following costs best describesthe cost of foregone income that results frommaking an economic decision to use fundsto purchase a piece of equipment?

a) Cost of Capitalb) Fixed Costc) Marginal Costd) Opportunity Cost

169. A mutual fund that invests in Indian Equities,foreign equities, Indian Corporate Bonds,Indian Government Gilts is subject to thefollowing risks?

1. Business Risk,2. Default Risk,3. Systematic Risk,4. Interest Rate Risk.

a) 1 & 3 onlyb) 1,3 & 4 only

c) 3 & 4 onlyd) 1,2,3 & 4

170. Which of the fol lowing statementsconcerning technical stock market indicatorsis/are correct?

1. The stock market is considered strongwhen the volume of the market isincreasing in a rising market.

2. The market's direction will change whenthe percent of odd-lot short salessignificantly increases or decreases.

3. Prices crossing the moving average linewould be an indication of the change inthe market.

a) 1 onlyb) 1 & 2 onlyc) 2 & 3 onlyd) 1,2 & 3

171. If a new issue was offered to the public at15 times earnings but the market waspricing similar shares at 19 times, this wouldbe ____________.

a) Appalling proposition to the investorb) The investor cannot take a positionc) An example of low gearing

d) Bargain not to be missed

172. Mr. X buys 50 TISCO October Rs. 350 calloptions for Rs. 15. The current share priceis Rs. 345. The break-even share price,ignoring transaction costs is Rs.________.

a) 350b) 360c) 365d) None of the above

173. Which of the following investor complaintsrelating to the following Capital Market

issues will not be entertained by SEBI?

a) A company declaring no dividend onequity for the fourth consecutive year.

b) A company has declared dividend butnot paid the same after six months ofdeclaration.

c) A company not paying the redemptionproceeds on debentures issued by thecompany, one year after maturity date.

d) None of the above cases.

174. In ranking portfolio performance, which

measure of risk does the Treynor Indexuse?

a) standard deviationb) variancec) betad) alpha


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175. A portfolio manager can hedge a shareportfolio by_______.

a) Buying call optionsb) Selling call optionsc) Buying index optionsd) Selling put options

176. The trust deed lays down the terms andconditions under which the unit holders moneyis to be invested. It specifically details:

a) The unit trust schemeb) The types of authorized investmentsc) All fees and chargesd) All of the above

177. Beta is a measure of _________

a) Geometric average returnb) Holding period return

c) Systematic riskd) Unsystematic risk

178. If the current share price is S and the setexercise price is X, the intrinsic value of thecall option is_______.

a) Max (O, S-X)b) Max (O, X-S)c) Min (O, S-X)d) Min (O, X-S)

179. The CAPM is a model that:

a) Determines the geometric return of asecurity.

b) Determines time-weighted returnc) Explain return in terms of risk.d) Explains systematic risk

180. GE is an AAA rated issuer of CorporateBonds in the International Debt markets.The issue price of a typical GE corporatebond is affected by all the following EXCEPTthe _________.

a) Face value, coupon rate, and maturityof the bond.

b) Firms required return on debt.c) Percentage of debt in the firm's capital

structure.d) Required return on the firm's competitors'

bonds.

181. Public Issue through the book buildingprocess is better than I.P.O at fixed pricebecause_______.

a) High fixed price will result in undersubscription leading to loss to the investor.

b) It helps the issuer to ascertain the exact

price at which the investor is willing tosubscribe.

c) Low fixed price will result in oversubscription leading to loss to the issuer.

d) All of the above

182. A client purchased a mutual fund with aRs.10, 000 lump-sum amount four yearsago. During the four years, Rs.4, 000 ofdividends was reinvested. Today theshares are valued at Rs.20,000 (includingany shares purchased with dividends). Ifthe client sells shares equal to Rs.13,000,which statement (s) is/are correct?

1. The taxable gain can be based on anaverage cost per share.

2. The client can choose which shares tosell, thereby controlling the taxable gain.

3. To minimize the taxable gain today; theclient would sell shares with the highercost basis.

4. The client will not have a gain as long ashe/she sells less than what he/sheinvested.

a) 1, 2, and 3 only.b) 1 and 3 only.c) 2 and 4 only.d) only.

183. Which combination of the fol lowingstatements about investment risk is correct?

1. Beta is a measure of systematic, non-diversifiable risk.

2. Rational investors will form portfolios andeliminate systematic risk.

3. Rational investors will form portfolios andeliminate unsystematic risk.

4. Systematic risk is the relevant risk for a

well-diversified portfolio.5. Beta captures all the risk inherent in an

individual security.

a) 1, 2, and 5.b) 1, 3, and 4.c) 2 and 5.d) 2, 3, and 4.e) 2 and 5.


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184. Which of the following asset allocationswould you recommend to a 60 year oldretiree who depends on his investments formonthly income?

a) Fixed Deposits: 60% Properties: 30%Equities: 10%

b) Fixed Deposits: 40% Properties: 30%Equities: 30%

c) Fixed Deposits: 20% Properties: 40%Equities: 40%

d) Fixed Deposits: 10% Properties: 40%Equities: 50%

185. Rank the following funds in the order ofincreasing risk:

I Growth Fund,II Balanced Fund,III Bond Fund,

IV Small Cap Fund

a) III, IV, II, Ib) III, II, IV, Ic) III, II, I, IVd) III, IV, I, II

186. The Fund Manager for a particular schemeis an employee of the _______

a) Sponsorb) AMCc) Trusteed) Custodian

187. Capital allocation forms a critical part of___________

a) Cash Flow Planningb) Investment Planningc) Will Planningd) Insurance planning

188. Implied volatility is a term commonly usedin the __________

a) Derivatives marketb) Real Estate market

c) Fixed Income Marketd) Stockmarket

189. Studies show that the Indian middle classhas an excess of ______ as investments.

a) Fixed Depositsb) Mutual Fundsc) Equity Sharesd) Real Estate

190. Only those equity transactions where______ is paid are eligible for zero long termcapital gains tax

a) Service taxb) Securities Transaction Taxc) Brokerage

d) Depository Participant Charges

191. _________ funds have the highest expenseratio

a) Customisedb) Novatedc) Standardisedd) Without counterparty risk

192. Purchasing a Futures Contract __________

a) Confers a right but no obligation on thebuyer

b) Confers an obligation but no right to thebuyer

c) Enables an investor to take a leveragedposition

d) Protects the buyer against downside risk

193. __________ equity funds are appropriatefor an Indian investor with a flair for globaldiversification

a) Diversifiedb) Sectorc) Internationald) Global

194. Your liquid fund investment is treated as a____________ asset

a) Intangibleb) Investmentc) Near-Cashd) None of the above

195. Which of the following factors will result in anincrease in the duration of corporate bond.

I. an increase in the number of years tomaturity.

II. a decrease in the coupon rateIII. change from annual to semiannual

coupon payment.IV. change from annual coupon to zero

coupon bond

a) I, II & III onlyb) I, II and IV onlyc) I, III & IV onlyd) II, III & IV only


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196. A lump sum investment option in a mutualfund will be most warding in _________

a) A secular uptrendb) A secular downtrendc) Volatile marketsd) A sideways market

197. Tata Power is raising funds through a bondissuance to fund a new power plant atNoida, UP. They are issuing Two Yearmaturity, Zero-coupon bond with face valueof Rs 1000 and yield of 4%. What pricewould you pay for this Tata Power Zero-coupon bond today?

a) Rs. 920.00.b) Rs. 924.56.c) Rs. 925.95.d) Rs. 960.00.

198. Equal amount of investment is made inportfolio consisting of securities X and Y.Standard deviation of X is 12.43%.;Standard deviation of Y is 16.54%.;Correlation coefficient is 0.82.; Theinteractive risk of the portfolio, measured bycovariance is __________

a) 145.64b) 156.22c) 168.59d) 172.56

199. The risk free return of Security A is 8%. In

addition to it, you expect that the return onmarket would be 14%. The expected returnof Security A with beta of 0.70 is ________.

a) 12.2%.b) 15.4%.c) 17.8%.d) 18.2%.

200. The debt - asset ratio is a useful tool toprimarily measure ______________

a) Liquidityb) Solvency

c) Savings potentiald) Debt servicing capacity

201. Portfolio A had a return of 12% in theprevious year, while the market had anaverage return of 10%. The standarddeviation of the portfolio was calculated tobe 20%, while the standard deviation of themarket was 15% over the same time period.If the correlation between the portfolio andthe market is 0.8, what is the Beta of theportfolio A?

a) 0.94b) 1.07c) 1.31d) 1.91

202. The fol lowing are statements madeconcerning contracts of insurance. Identifythe statement/s that is/are correct.

I. For li fe insurance contracts,

misstatement of the insured's ageconstitutes avoidable misrepresentation.II. An innocent misrepresentation by an

applicant for insurance constitutes fraud.

a) I onlyb) II onlyc) I and IId) Neither I nor II

203. Which of the fol lowing statementsconcerning the movement in foreignexchange rates are true, assuming that allother factors remain unchanged?

I. The exchange rate will appreciate withan increase in domestic interest rates

II. Increasing international reserves leadsto a stronger exchange rate

III. Strengthening the exchange rate leadsto a temporary increase in thecompetitiveness of exports

IV. Lower domestic inflation leads to aweakened exchange rate

a) I & II onlyb) II & III only

c) III & IV onlyd) I & IV only


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204. A corporation proposes to issue a 7-yearbond with a coupon rate of 8.0%. Theprevailing yield to maturity of bonds withsimilar risk and term is 10.0%.The bond willsell at ____________ to its face value.

a) a premium

b) a discountc) pard) a predetermined price

205. Calculate the net price earnings ratio (PER)of the stock of Company A, with the followinginformation:

Price = Rs.5.00Profit before tax = Rs.75.0 millionProfit after tax = Rs.54.0 milllionPaid up Capital = Rs.100 million at par valueof Rs.0.50 per share

a) 6.7b) 9.3c) 13.3d) 18.5

206. Mr A's stock market portfolio consistentlyoutperformed the BSE Sensex based on tipshe received from a friend working in acorporate finance department. Which of thefollowing is his success a violation of?

a) weak form of market efficiencyb) semi-strong form of market efficiency

c) strong form of market efficiencyd) total market efficiency

207. Which of the following have a negativeimpact on stock prices?

I. increase in risk premiumsII. increase in dividend growth rateIII. increase in the discount rateIV. increase in interest rates

a) I II & III onlyb) I II & IV onlyc) I, III & IV only

d) II, III & IV only

208. What is the expected return of aninvestment with the following distribution ofpossible outcomes?

a) 25.00b) 11.00c) 9.75d) 9.50

209. Stock A and stock B are positively correlatedwith a correlation coefficient of 0.75. Whenstock A moves up by 12%, how will stock Bperform?

a) Stock B will move up by 12%b) Stock B will move down by 12%c) Stock B will move up by 9%d) Stock B will move down by 9.0%

210. Which of the following statements regardinginvestment risk are true?

I. Beta captures all the inherent risks in anindividual security

II. Unsystematic risk is reduced in aportfolio because securities are notperfectly correlated

III. As Beta increases, the expected returnalso increases

IV. Rational investors will form portfolios toeliminate systematic risk

a) I & II onlyb) II & III onlyc) III & IV onlyd) I & IV only

211. Which of the following are among theadvantages of money market funds?

I. Provides current income

II. Provides safety of principalIII. Notice is required for withdrawalIV. Provides capital gains

a) I onlyb) I & II onlyc) I, II and III onlyd) All of the above


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212. Mr A is 30 years of age and intends to retirewhen he has Rs.400,000. He believes thathe can save Rs.10,000 at the end of eachyear. Being risk adverse, he places hisfunds in fixed deposits earning only 5.0%pa. His savings at this point is Rs.20,000.

At what age will he be able to retire?a) 53 yearsb) 51 yearsc) 68 yearsd) 70 years

213. What is the net present value (NPV) of aRs.8.0 million investment with the followingcash flows:

Assume a discount rate of 10% pa for allyears.

a) Rs.2.23 millionb) Rs.3.8 millionc) Rs.5.0 milliond) Rs.10.5 million

214. Mr A places his fixed deposit for one yearwith interest compounded annually atmaturity. Mr B places his f ixed deposit withanother bank with interest compounded

quarterly. Assuming that the deposit amountis Rs.100,000, and using the same annualrate of 6%, what is the difference in futurevalue after one year?

a) Rs.130.43b) Rs.132.54c) Rs.134.22d) Rs.136.36

215. Which of the following assumptions supportthe use of technical analysis?

a) Future performance should be reflective

of past performanceb) The values of market indices and stockprices are determined based on supplyand demand

c) Stock prices move in trends that wouldpersist over long periods

d) All the above

216. Of the four pairs of portfolios, which pairprovides the highest level of diversification?

a) Portfolio 1 & 2: with a correlationcoefficient of + 0.92

b) Portfolio 3 & 4: with a correlationcoefficient of + 0.37

c) Portfolio 5 & 6: with a correlationcoefficient of 0

d) Portfolio 7 & 8: with a correlationcoefficient of -0.78

217. The profit earned by a Mutual Fund will bedirectly proportional to __________

a) the level of the BSE Sensexb) the assets under managementc) its operating expensesd) the sponsor's net worth

218. Anil Kumar has two Mortgage Loan options

before him. The interest rate, and otherconditions are the same for both, except thatone has a repayment term of 15 years andthe other has a repayment term of 30 years.Anil wants to evaluate the EMIs for bothterms. All other conditions being the same,repaying a loan in 15 years instead of 30would require EMIs that are________.

a) Half the size of the 30-year loanpayments.

b) Less than twice as large as the 30 yearloan payments.

c) More than twice as large as the 30 year

loan payments.d) Twice as large as the 30 year loan

payments.

219. You are running a Dividend Yield Fund for aleading Mutual Fund House. The most recentdividend of All Is Fine Business Servicescommon stock was Rs 2.35. The dividendsare expected to grow at 4 percent indefinitely.If you are looking at a 12 percent return, howmuch will you be willing to pay for one shareof All Is Fine Business Services?

a) Rs. 24.79.b) Rs. 29.38.c) Rs. 30.55.d) Rs. 32.45.


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220. You are an owner of an apartment complex with300 units, each of which can fetch Rs. 1000p.m. as rentals. The apartment complex has anaverage occupancy rate of 75%. The expensesfor maintaining, up keeping the apartmentcomes to around Rs. 10 Lakh p.a. Based onthe concept of capitalized earning approach andassuming that you require a capitalization rateof 10%, how much is the complex worth now?

a) Rs. 1.50 croreb) Rs. 1.70 crorec) Rs. 2.00 crored) None of the above.

221. Which of the following are true aboutSecurities A and B?

Given the following information aboutsecurities A and B:

Historical Returns for Securities:

1) A is more risky because it has a higherstandard deviation.

2) B is less risky because it has a lowerstandard deviation.

3) A has a lower risk-adjusted return.4) B has a higher risk-adjusted return.

a) 1 and 3b) 1 and 4c) 2 and 3d) 2 and 4

222. Given the capitalization rate of the followinglink houses in the BKC area, how much shouldyour client pay for the link house in BKC 4?

a) Rs. 306,657b) Rs. 303,121c) Rs. 299,041d) Rs. 293,786

223. Calculate the yield to maturity of a bond withthe following parameters:

Face Value : Rs.1000.00Market Price : Rs.1040.00Coupon Rate (paid annually) : 7.0%Remaining Term to Maturity : 5 years

a) 8.10%b) 7.69%c) 7.00%d) 6.05%

224. Using the Growth Dividend Model, calculatethe price of the stock of Company A, withthe following information:

EPS = Rs.10 per shareCurrent Dividend = Rs.8 per shareDividend growth rate = 5.0%Risk free rate = 6.0%Company A risk premium = 7.0%

a) Rs.114b) Rs.105c) Rs.100d) Rs. 62

225. An investor invested Rs.4000 in each ofFunds A & B with details as provided below.Both funds subsequently appreciated by18% based on their NAV.Which of thefollowing statements is/are true?

I. The investor obtained 3,921.57 units inFund A.

II. The investor obtained 6,896.55 units inFund B.

III. The investor would have achieved a higherreturn by investing in Fund A alone

IV. The investor would have achieved a higherreturn by investing in Fund B Alone

a) I & II only

b) I, II & III onlyc) I, II & IV onlyd) III only


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226. What is the duration of a zero coupon bondwith yield to maturity of 6% maturing in 6years time?

a) 4.35b) 5.34c) 6.00d) 6.35

227. Calculate the return of an investor whobought units of Fund A on 31/12/06 and soldthe units on 31/12/07 with the informationprovided below:

a) 0.9%b) 4.4%c) 11.3%d) 17.0%

228. The most appropriate investment for ahighly risk averse investor aged 57 is _____

a) an index fund based on the Nifty.b) a diversified equity fund.c) a Maharashtra State Government Bond.d) a SBI Fixed Deposit.

229. In industry life cycle, revenue, margin and profitare expected to peak in the following order:

a) Revenue, margin, profit

b) Margin, profit, revenuec) Margin, revenue, profitd) Profit, margin, revenue

230. The broadest measure of inflation is:

a) Consumer Price Indexb) Wholesale Price Indexc) Both (a) and (b)

231. NPV is calculated in the case of a series of_________ cash flows.

a) Zerob) Single

c) Unevend) Even

232. The Present Value of a sum of money asthe Discounting Rate ____________.

a) Remains same, Increasesb) Decreases, Decreasesc) Increases, Increasesd) Increases, Decreasese) Data Insufficient

233. Classifying an investment as a long terminvestment depends primarily on:

a) the length of time the investor expectsto hold the investment.

b) the amount of the investment.c) whether a liquid market exists for selling

the investment.

234. A period when an economy is experiencingsubstantial growth and a declining joblessrate is called _____________.

a) Stagflationb) Deflationc) Depressiond) Boom

235. In India Futures contracts in _______ maybe settled by delivery.

a) Commoditiesb) Stocksc) Stock Index

236. Money has time value. It derives this value dueto existence of several conditions. Which oneof the following is not one of the conditionscontributing to the existence of this value?

a) Possibility of increase in tax rates overtime.

b) Ability to buy/ rent assets generatingrevenue

c) Cost of foregoing present consumptionsd) None of the above.

237. You have term deposits of Rs. 4,00,000 witha bank. In order to meet suddenrequirements for liquidity and short-termcredit, you are applying for an overdraftfacility with the bank. What is the rate ofinterest you will pay on this facility?

a) The bank will apply a flat rate of intereston the amount of overdraft allowed toactually utilize.

b) The bank will apply a flat rate of intereston the amount of overdraft allowed to you.c) The bank will apply rate of interest linked

to the term deposit rate, on the amountof overdraft utilized.

d) The bank will apply rate of interest linkedto the term deposit rate, on the averageamount of overdraft remaining


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238. The Nifty has doubled since the last timeyou advised your client to reduce his equityexposure. The client is annoyed. What mightbe the most appropriate action to takeimmediately?

a) Apologize for wrongly forecasting the

marketb) Change his asset al location by

increasing his equity exposurec) Help the client understand the logic of

his asset allocationd) Rebalance his asset allocation by

reducing equity investments

239. A professional indemnity policy protects theinsured from risk arising out of ________.

a) Intentional misconductb) Misrepresentation of professional

competencec) Negligenced) Undisclosed conflict of interest

240. Protector International is a financial servicesfirm that specializes in investment advisoryservices. In its brochure for FinancialPlanning services, it may state ________.

a) It can offer superior investment returnson customer portfolios and talk of thearrangements to offer advice in otherareas

b) It has the competence to take care of allFinancial advisory requirements of thecustomer

c) Its competence in investment advisoryservices and the arrangements to offeradvice in other areas

d) Its Financial Planning services are thebest available in the market in light of itsinvestment advisory capabilities andarrangements to offer advice in otherareas

241. Which of the following is a concurrent

indicator of the phase of the business cycle?

a) Wholesale price Indexb) Index of Industrial productionc) Labor costs and capacity utilizationd) Order levels in the manufacturing sector

242. The effective interest rate earned per rupee_________ as the periods of compoundingincrease.

a) Increasesb) Decreasesc) Remains same

d) Decreases for some time and thenincreases

e) Data insufficient

243. What is the main difference between thepersonal Financial Planning needs of theemployed and the self-employed?

a) Attitude to risk/risk appetiteb) Need to fund children's educationc) Need to fund retirementd) The extent of any employer-provided

pension benefits

244. Immunization protects bondholders fromwhich of the following risk/s:

1) Interest rate risk2) Reinvestment rate risk3) Maturity risk

a) 1 only

b) 2 onlyc) 1 & 2 onlyd) 1, 2 & 3

245. The economy is going through a phase of

expansion and growth. Industrial productionand profitability are high. Your client has aportfolio that is heavily invested in bonds.Which of the following fears of the client iswell founded?

a) Higher rates of growth will increasedemand for funds and interest rates willfirm up, leading to fall in bond prices.

b) Higher rates of growth will require higherimports and expenses. The governmentdeficits will go up.

c) The central bank will try to reduce rates

to make funding of business cheaper andreduce costs.

d) The currency will become convertibleand interest rates wil l r ise as aconsequence.


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246. Ram is a Financial Planner in a large firm.His wife has some large investments in theshares of a few companies. Ram is requiredto offer views on almost all of these holdingsto clients. Under the Code of Ethics andRules of Professional Conduct _______

a) Ram must disclose the fact to hisclient(s) so as to make them aware ofany potential conflict of interest

b) Ram has to disclose these holdings onlyto his employers, if required by the firm'sinternal compliance rules

c) Ram need not follow any code of ethicsand rules of professional conduct.

d) Ram will not violate the Code and theRules if he does not disclose his wife'sholdings

247. How are financing costs included in NPVand IRR calculations?

a) By including them in the interestpayments.

b) By considering the interest rate in thesetting of the discount rate

c) As a tax deductiond) By including them in the earnings

248. The term "Efficient Frontier" is containedin________.

a) Technical Analysis

b) Modern Portfolio Theoryc) Value Investing Theory

249. A major difference between load and no-load funds is :

a) Marketability: no-load funds can betraded more readily.

b) Acquisition cost: load funds cost morethan their NAVs.

c) Performance: load funds do better.

250. The Reliance fund trades on the NSE. Itsrecent price is Rs.10, but its NAV is Rs.12.

We know then :

a) The fund is closed-end, selling at adiscount.

b) The fund is open-end, selling at apremium.

c) The fund is closed-end, selling at apremium.

251. If your investment goal is simply to matchthe market, you should buy a(n)

a) Growth Fundb) Money Market Fund.c) Index Fund.

252. You are evaluating a fund. What activity wouldyou typically not undertake in this effort?

a) Calculate or find the fund's rate of return.b) Calculate the fund's NAV.c) Find the fund's turnover ratio and

administrative expenses-to-assets ratio.

253. The Cholamandalam Fund's rate of returnwas 9%, while the market return was 15%.Cholamandalam's beta was 0.5.

a) Cholamandalam's management out-performed the market on a risk-adjustedbasis.

b) Cholamandalam's RAROR was 11.5%.c) Cholamandalam's management under

performed the market on a risk-adjustedbasis.

254. You are considering taking a passenger withyou when you go home over Christmasbreak. She lives 100 kms out of your way,and the total trip is 500 kms. She has offeredRs.500 for the service. You estimate thetotal cost of the trip at Rs.3000. You should

a) Reject the offer since 20% (1000/5000)of Rs.3000 is greater than Rs.500.

b) Accept the offer if the opportunity costsof the trip is greater than Rs.2500.

c) Accept the offers if marginal costsassociated with 100 kms are less thanRs.500.

255. Liquidity ratio of 2.0 tells us that the familyhas :

a) Rs.2 in liquid assets for each Rs.1 in totalliabilities.

b) Rs.2 in liquid assets for each Rs.1 in

current liabilities.c) Rs.2 in liquid assets for each Rs.1 of totalexpenses.

256. In India, Preference shares may be issuedfor a maximum number of ____ years.

a) 12b) 15c) 10d) 20


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257. Determination of Residential status for thetax purpose is applicable on:

i. Individualii. Firmiii. Companyiv. HUF

a) i,ii,b) i,ii, iiic) i onlyd) i, ii, iii, iv

258. A growth-oriented non-divided payingshare is bought for Rs. 250 and sold forRs. 450 after 5 years, the compoundannual growth rate is:

a) 14.86%b) 12.47 %c) 11.50%d) 10.71%

259. The call option strike price on a shareis Rs. 500 and the current share priceis Rs. 550. The call option premium isRs. 60. The time value of the option is:

a) 60b) 10c) 30d) 15

260. Mr. A deposits Rs. 10,000 in his own PPFaccount and same amount in his wifesaccount. How much maximum amount can

he deposit in his nephews name?

a) Rs. 20,000b) Nilc) Rs. 70,000d) Rs. 60,000

261. A Rs.100 par value bond having 10 %coupon rate will mature after 7 years. Findthe value of the bond if the discount rate is8 %.

a) Rs.109.85

b) Rs.111.41c) Rs.108.75d) Rs.110.41

262. Consider a portfolio of two investments viz.A & B. The sum total of volatility of Aand B respective ly, represented bystandard deviation of the twoinvestments, will be equal to the volatilityof the portfolio as a whole if _________.

a) A and B have a correlation of Zerob) A and B have a correlation of 1c) The portfolio is equally divided between

A and Bd) The return on the portfolio is equal to the

sum of returns of A and B

263. Which of the fol lowing is a correctinterpretation of the Rules of Conductpertaining to the Ethic of Confidentiality?

a) A Member must when requested by theclient, provide to a person authorized by

the client, all original documentsprepared or received by the Member inundertaking the advisory task

b) A Member owes to the Member'spartners or co-owners a responsibility toact in good faith (expectations ofconfidentiality) only while in businesstogether, not thereafter

c) The Member shall maintain the samestandards of confidentiality to employersas to clients

d) Under no circumstance, will any Memberdivulge any information or knowledge

regarding the FPSB India or its membersthat they may know or be exposed to

264. Mr. Rajan's investment portfolio comprisesRs.2 lakh in equity, Rs.5 lakh in debtand Rs.1 lakh in his bank current account.Over one year the returns on equity anddebt are 5% and 12%. At the end of theyear to maintain his current asset allocation,he needs to _____________.

a) do nothing.b) to move Rs, 10000/- from equity and Rs.

60000/- from debt to cash.c) to move Rs.7500/- to equity from debtand Rs. 8750/-to cash from debt

d) to invest Rs. 70000/- in debt and equity.


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265. A 10 year 8.0% bond (Face Value-Rs.1000, interest payable semi-annually)maturing 6 years from today is availableat a yield to maturity of 6.0%. It is likely tobe priced at ____________.

a) Rs. 1100

b) Rs. 1149c) Rs. 1168d) Rs. 1498

266. In India, Mutual Funds have recently movedto the concept of _______ AUM calculation.

a) Monthly averageb) Month endc) Fortnightly average

267. Raykar is an accomplished Financial Plannerand is also an expert on derivatives and highyielding bonds. He understands client

requirements well and is able to come up withappropriate portfolio restructuring ideas forclients. He believes in quickly moving clientsfrom one investment to another through a dynamicprocess of research and recommendations. Whataccording to the Rules relating to the Codeof Ethics is the most applicable in this case?

a) He does not violate the Rules if heexplains to the client the reasons and isable to show that the moves areappropriate to the client

b) He does not violate the Rules since he

conducts and has access to researchand advises on products relevant toclients based on an understanding oftheir requirements

c) He does not violate the Rules since heis an acknowledged expert and knowswhat is best for his clients

d) He violates the Rules as it amounts toactive churning of client portfolios

268. Mrs. & Mr. Arora are aged 55 and 58 yearsrespectively. Both expect to work till they turn65. Their only goal is to fund their retirement.Which of the following is likely to be an

appropriate asset allocation strategy for them?

a) 10% sectoral equity, 20% diversifiedequity, 30% long-term debt, and 40%medium term debt

b) 20% sectoral equity, 60% diversifiedequity, 20% long-term debt

c) 30% sectoral equity, 30% diversifiedequity, 40% cash/ liquid investments.

d) 80% long-term debt, 20% medium termdebt

269. ABC Ltd. is wil ling to prepay yourCumulative Fixed Deposit with them,without any penalty and with all theaccumulated interest (compounded halfyearly). You had invested Rs. 4000 withthem 3.5 years back. If they are giving youback Rs. 4985, what is the annualized rate

of interest you have earned?

a) 6.40%b) 3.2%.c) 6.5%.d) 7.2%.

270. Which of the fol lowing is a tort ofnegligence?

a) Mr. Joy was playing golf. He swings anew golf club on the fairway and thehead of the club flies off, and hit anothergolfer who was standing 20 feet away.

b) Mr. Vishal takes medication that heknows makes him drowsy and thenproceeds to drive. He gets into anaccident injuring the passengers inanother car.

c) Mrs. Jaya locks Ms. Rani in a room toprevent her from leaving the building

d) Mrs. Priti experienced a sudden surgeof chest pain while driving, which causesher to lose control of her car and hitanother car.

271. Any possible occurrence which may havea negative financial implication, can beplotted on a graph with X axis measuring

the frequency (low-high) and Y axismeasuring the financial impact (low-high).You can view the classification in fourquadrants.

Quadrant I - Low frequency, Low ImpactQuadrant II - Low frequency, High ImpactQuadrant III - High frequency, High ImpactQuadrant IV - High frequency, Low ImpactIt would not be practical to purchaseinsurance for events falling in _________.

a) Quadrant I & IVb) Quadrant I, II & IV

c) Quadrant I, III & IVd) Quadrant III


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272. Bond A has a 6% annual coupon and isdue in 2 years. Its value in today's marketis Rs. 900. Bond B has a 10% annualcoupon and is due in 4 years. It is pricedto yield 12%. Bond C is a 9% zero-couponbond priced to yield 11% in 8 years. Theyield to maturity of Bond A is closest to:

a) 9.90%.b) 10.40%.c) 10.90%.d) 11.90%.

273. Bond A has a 6% annual coupon and is duein 2 years. Its value in today's market isRs.900. Bond B has a 10% annual couponand is due in 4 years. It is priced to yield 12%.

Bond C is a 9% zero-coupon bond pricedto yield 11% in 8 years. Assuming that theduration of Bond A is 1.94 years, which ofthe following statements about the effect of

a 1% d

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