L2 Unit – 7 – Quiz

Investment is a risk free investment when

Which of the following statements regarding risk-averse investors is correct?

Responsibilities of portfolio manager include

Which of the following measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard deviation of returns?

What is the expected return of a zero-beta security?

_____________is a technique that reduces risk by allocating investments among various financial instruments, industries, and other categories

Which model predicts that all investors will hold the same portfolio in equilibrium?

A Portfolio manager can hedge a share portfolio by

Which of the following statements is correct according to the theory of arbitrage?

XYZ company has an expected ROE of 10%. The dividend growth rate will be __________ if the firm follows a policy of paying 20% of earnings in the form of dividends.

Capital gain is subtracted from return to stockholders to calculate

In general, the value of an option rises when expected interest rates volatility increases. Whch type of bond is an exception for this

The __________strategy is highly suitable for people who are experienced in the field and have a high-risk appetite.

According to the Treynor-Black model, the weight of a security in the active portfolio depends on the ratio of __________ to __________.

______________is a statistical measurement of dispersion around an average, which, for an investment, depicts how widely the returns varied over a certain period. It is the average distance from the mean of a sample. More specifically, it represents a dispersion of returns from the mean

This type of risk is not specific to a particular company or industry, and it cannot be eliminated or reduced through diversification; it is just a risk that investors must accept.

In regression of capital asset pricing model, an intercept of excess returns is classified as

The asset allocation which seeks to take advantage of short term movements and opportunities in investment markets is called

Historically, P/E ratios have tended to be

Growth in earnings per share is primarily resultant of growth in

Which of the following must be stated in terms of expected returns and risk. An investor’s tolerance for risk must be established before returns objectives can be stated?

Calculating effective duration consider a 20-year, semiannual-pay bond with an 8% coupon that is currently priced at Rs 908.00 to yield 9%. If the yield declines by 50 basis points (to 8.5%), the price will increase to Rs 952.30, and if the yield increases by 50 basis points (to 9.5%), the price will decline to Rs 866.80. Based on these prices and yield changes, calculate the effective duration of this bond.

Jatin purchased a stock for Rs 2,000. He paid a commission fee to his broker amounting to Rs 15. Therefore, the cost basis of John is Rs 2,015 (Rs 2,000 + Rs 15). Jatin sold the stock for Rs 3,000. Again he paid his broker a commission of Rs 15. Therefore, his net proceeds are Rs 2,985 (Rs 3,000 – Rs 15). He was also paid dividends amounting to Rs 100. Therefore, the simple return of the investment is:

Mr. Charan has a portfolio with 25 different equities. The portfolio beta is 1.2. By what percentage should the market move so that the expected return from his portfolio is 18% using the Capital Asset Pricing Model Approach(CAPM)? Risk free rate is 5.5%

Mr. Sharma wants to achieve the goal of education of his son after 5 years. The funds required would be Rs.15,00,000 in today’s terms. He wants to invest monthly for the goal. You suggest an asset allocation strategy where he should invest monthly in equity and debt in ratio 60:40. What approximate amount per month is required to be allocated to equity and debt schemes?(Assume inflation rate 6%, Equity returns 12% and Debt returns 8%).