Time : 1 hour Marks: 40

Q. Multiple choice questions:1. Which of the following is a legitimate reason why firm value maximization is preferred to profit

maximization as the ideal goal for the firm? Value takes account of both profit and cash flow. Value or discounted cash flow is less ambiguous than profit. Value takes account of depreciation. Profit is too concerned with the longer term.

2. What is the stakeholder view of the firm? Shareholders should eventually be returned their stake in the firm. The firm must honors its wider social obligations as well as making money. The only obligation on the firm is to maximize profit. The firm exists to maximize return.

3. A great deal of financial theory is based on the concept of free markets and in particular the theory of:

Perfect competition. Monopolistic competition. Monopoly. Oligopoly.

4. Using the NPV criteria, a project should be selected when: Its NPV is positive or zero. Its NPV is equal to zero. Its NPV is negative. Its outflows are greater than its inflows.

5. Why is it sometimes possible to obtain inconsistent results between Internal Rate of Return (IRR) and Net Present Value (NPV) for the purposes of comparison between two or more projects?

Because they are measured in different units. Because IRR does not take account of the time value of money. Because NPV does not take account of the time value of money. Because the NPVs 'cross over' as the discount rate is increased.

6. Which of the following is not true with respect to the Accounting Rate of Return (ARR)? It is based on accounting concepts such as accounting profit and depreciation. It takes account of the time value of money. The hurdle rate is arbitrary. The definition of both profit and capital can be somewhat arbitrary and variable.

7. The fundamental principle of the application of Discounted Cash Flow (DCF) techniques to investment appraisal is:

To incorporate all incremental cash flow. To incorporate all sunk cost. To incorporate all relevant depreciation. To absorb all company overheads.

AASM’s INSTITUTE OF INTERNATIONAL BUSINESS & RESEARCH

EXTERNAL EXAMINATION MAY 2014SUB: SECURITY ANALYSIS

PGDM– II SEM

Roll No_____________ Roll No in Words________________________________________

8. Volatility risk of a single asset is usually measured by which of the following? Standard deviation. Variance. Correlation. Covariance.

9. What is the Head and Shoulders pattern? A frequent pattern in the academic publication process. A synonym for a Random Walk process. A pattern from the technical analysis of stock prices predicting a sharp price downturn,

which does however not prove to be a powerful, short-run opportunity. It is the pattern that is the core of the most profitable stock market investment strategy,

which has consistently outperformed every other investment strategy during the past 50 years.

10. Which of these is an appropriate measure of individual share risk (i.e. the risk of a single share held as part of a portfolio)?

Variance. Beta. Standard deviation. Correlation.

11. The sum of squared deviations from the mean, multiplied by probability, describes which of the following?

Standard deviation. Variance. Correlation. Covariance

12. The standard deviation is calculated as the square root of variance because the variance calculation results in which of the following?

Too many decimal places. Sample bias Two roots. Squared units

13. The calculation of covariance most closely resembles which other statistical measure? Variance. Beta. Standard deviation Correlation.

14. If an asset has zero beta, then it can be described in which of the following ways? It is very risky. It is risk free. It is riskier than the market portfolio. It has the same risk as the market portfolio.

15. If an asset has a beta of one, then it can be described in which of the following ways? It is very risky. It is risk free. It is riskier than the market portfolio. It has the same risk as the market portfolio.

16. What is the Head and Shoulders pattern? A frequent pattern in the academic publication process.

A synonym for a Random Walk process. A pattern from the technical analysis of stock prices predicting a sharp price downturn,

which does however not prove to be a powerful, short-run opportunity. It is the pattern that is the core of the most profitable stock market investment strategy,

which has consistently outperformed every other investment strategy during the past 50 years.

17. Who was the first person to use the Efficient Markets Hypothesis term? Harry Roberts Eugene Fama Karl Pearson Charles Conant

18. The ultimate reason for holding a stock, in theory, is that: The stock price may go up in the future The company is promising A stock may pay out a dividend in the future None of the above

19. Share repurchase is sometimes motivated by: Corporate governance structure Taxation considerations Cash flow management None of the above

20. Which of the following statements about preferred shares is correct? The preferred shares’ dividends often varies overtime The preferred shares get payment before corporate bondholders If the company goes bankrupt, the preferred shareholders cannot get their money back The preferred shares always pay out dividends higher than the common stock

Q. Fill in the blanks with appropriate option:

1. The ---------may be defined as a commitment of funds made in the expectation of some positive rate of return.( investment/ capital appreciation)

2. In -------------sense, investment means the net additions to the economy’s capital stock which consists of goods and services that are used in the production of other goods and services. (economic/ environmental)

3. Unsystematic risk associated with security of particular company can be reduced by combining it with another security having opposite characters known as…………..( diversification of investment/ investment multiplicity)

4. The systematic risk of security can be measured by a statistical measure called……...( beta/alpha)

5. An investor who would like to be rational and scientific in his investment activity has to evaluate a lot of information about pat performance and expected future performance of companies, industries and economy as whole before taking investment decision. Such evaluation or analysis is called as------------------. (fundamental analysis/ technical analysis)

6. Each share is assumed to have an economic worth based on its present and future earning capacity is known as --------------------------of the share. (intrinsic value/ face value)

7. The -----------------------------occurs when the cost of production increases and this increase in cost is passed on to the consumers by the producers through higher prices of goods. (demand pull inflation/ cost push inflation)

8. The dividend or interest received from investment is known as----------.( price appreciation/yield)

9. The ----------maturity period, the larger is the risk.( shorter/longer)

10. The --------of an investment implies the certainty of return of capital without loss of money or time.( safety/risk)

11. An investment which is easily saleable or marketable without loss of money and time is said to possess-----------.( liquidity/tradability)

12. The impact of economic, political and social changes is system wide and that portion of total variability in security returns caused by such system wide factors is referred to as-----------------. (Systematic Risk/ unsystematic risk)

13. -------------is a type of systematic risk that particularly affects debt securities like bonds and debentures.( Interest rate risk/ purchase power risk)

14. A bond is normally issued with ----------which is equal to the interest rate prevailing in the market at the time of issue.( coupon rate/ intrinsic value)

15. A general rise in share price is referred as---------.( bullish trend/ bearish trend)

16. The --------refers to the variation in investor return caused by inflation. (purchasing power risk/ market risk)

17. When the demand increasing but supply cannot be increased, price of the goods and services increases thereby forcing out some excess demand and brining the demand and supply into equilibrium. This phenomenon is known as------------. (demand pull inflation/ cost push inflation)

18. When variability of returns occurs because of firm specific factors; it is known as------------. (Systematic Risk/ unsystematic risk)

19. The widely used procedure for assessing the risk is known as……………….( mean variance approach/ correlation regression)

20. The value of ---------denotes estimated return of the security when the market is stationary. (beta/alpha)