question bank

SAPM QUESTION BANK

1. Discuss in detail the role assigned to SEBI in the development and regulation of capital market in India and the problems facing it.

2. How would you measure Market Risk, Business Risk, Interest Rate Risk and Inflation Risk?

3. Using CAPM, how do you go about calculating risk premium for a given equity share. Elucidate.

4. What are. the basic assumptions of Arbitrage Pricing Theory? State its merits and demerits.

5. "In an efficient capital market, individual security prices fully reflect all available information". Discuss.

6. What do you mean by Company Analysis? What financial statements are helpful in understanding the company's prospects?

7. Explain EMH in its various forms and state its assumptions and uses.

8. Explain 'Dow Theory'. How can it be used to determine the direction of the stock market?

9. Explain the Security Market Line with the help of a diagram. How does it differ from the Capital Market Line?

10. What is Portfolio Theory? Explain the assumptions and principles underlying the portfolio theory.

11. As an investment consultant, what features would you suggest to be included in the investment bunch of a client? Explain these features briefly.

12. Why does diversification lead to a reduction in unique risk? Explain both intuitively and mathematically.

13. What is an income fund? Explain its objective and investment priorities.

14. Portfolios that buy new securities and sell old holdings frequently will outperform portfolios that are managed more passively. Do you agree with this statement?

15. What does the efficient market hypothesis imply with respect to technical market analysis, fundamental analysis, and portfolio policy of investors?

16. Based on the current theoretical and empirical development of APT, do you think that this approach offers a practical alternative to the CAPM for individual investors?

17.What factors should be considered while revising a portfolio?

18 Explain any four of the following:
(a). Discuss the essence of Technical Analysis.(b). Define the efficient market hypothesis.(c). What is meant by portfolio risk?(d). Discuss any two weakness of MARKOWITZ approach.
19. Explain:
(a). What is the significance of Beta in portfolio selection?(b). Mention any two assumptions used in capital Asset Pricing Model.(c). What do you meant by risk less arbitrage opportunity?(d). Mention two advantages of managed portfolios.(e). How do volume and breadth of market indicate the trend of the market?20. “Option and futures are zero-sum games”. What do you think is meant by this statement?
21. What factors are important in determining the investment appeal of warrant?
22. Discuss the various types of charts used by chartist to predict the prices and volumes for their analysis of individual stocks.
23. Does the Random Work Theory suggest that rice levels are random? Explain.
24. Define the Efficient Market Hypothesis in each of its three forms. What are its implications?
25. Explain how the efficient frontier is determined using Markowitz approach.
26. Under the CAPM, what is the efficient set called? If there is buying and selling of a risk-free Asset, what happens to the efficient set.
27. What are the advantages and disadvantages of the Arbitrage Pricing Theory over the Capital Asset Pricing Model?
28. Discuss the Main guidelines given by SEBI for mutual funds?
29. What is meant by mutual funds? Explain its types.30. Explain:a) Mention the two primary objectives of investment.b) Explain the process of investment undertaken by the investor.c) What do you mean by economic forecasting?d) How is the economic growth related to stock prices?e) Why is industry analysis important?f) What is SWOT analysis?

Q31. What are the basic assumptions and limitations of CAPM model?
Q32. List down any five differences between futures contract and forward contract.
Q33. Explain the modern approach in the construction of the portfolio.
Q34. Discuss the scope of index futures in Indian capital market.
Q35. How does technical analysis differ from the fundamental analysis?
Q36. How do volume and breadth of the market indicate the trend of the market?
Q37. What are point and figure chart, and how it is used?
Q38. Explain the strong form of market efficiency with empirical evidences.
Q39. Carry out SWOT analysis for any industry of your choice.
Q40. Explain the factors that have the most significant effect on the industry’searnings.
Q41. Outline the basic characteristics of an investment programme.
Q42. Investment and speculation are somewhat different and yet similar in certainrespect. Explain.
Q.43 Explain :

a) Mention the significance of ratio analysis.b) What do you mean by bar charting?c) Explain random walk hypothesis.d) Mention two objectives of Dow Theory.

44. "No Investment Decisions are made wiihout calculating risk." Do you agree ? As an Investment Manager of a firm, discuss the various steps involved in the investment decision making process.45. What are the various methods of floating the new issue ? Discuss the roles played by the Underwriter and the Bankers to the issue.46. Vamsi is considering the purchase of a bond currently selling at Rs. 878.50. The bond has four years to maturity, face value of Rs. 1,000 and 8% coupon rate. The next annual interest payment is due after one year from today. The required rate of return is 10%.(i) Calculate the intrinsic value (prerent value) of the bond. Should Vamsi buy the bond ?(ii) Calculate the yield to maturing of the bond.47. Explain fully the role played by the SEBI in the securities market as a regulator and as a developer of the capital market.48. What are the major criticisms of the technical analysis ? Do the technical analysis and the fundamental analysis give complementary information about securities for making informal decisions ? Explain.
49. Explain
a) Explain briefly capital Market line.
b) Explain the process of calculating the portfolio return.
c) What is meant by security market line?
d) Distinguish between put and call options.
e) What are the basic features of futures
50. Discuss the Markowitz Theory of Portfolio Selection. How does Markowitz Theory help in planning an investor's portfolio ?51 An aggressive Mutul Fund promises an expected rate of retum of 18% with a standard deviation of 22%. On the other hand, a conservative mutual fund promises an expected rate of return of 16% and fluctuations of 13%.(i) In which of the funds would you like to invest ?(ii) Would you like io invest in both the funds ?(iii) If you can borrow money from you provident fund at an opportunity cost of 15%, in which fund would you invest your money ?52. Explain the concept of 'Mutual Fund'. What factors should be considered before selecting a Mutual Fund ? Discuss the present state of the Muiual Funds in India and outline the risks involved in investing in Mutual Funds.53. What is Technical Analysis ? Explain it's limitations.

54. Distinguish between Bond and Debenture. 55 What are the various types of risk in portfolio management ? Also discuss relationship between them.
56 What is importance of diversification in portfolio management
57.(a) Define efficient market hypothesis in each of its its three forms.(b) Explain in detail Random Walk Theory. 58. Explain connectivity between primary market and secondary market.
59. Distinguish between capital market line and security market line.60 (a) Explain in brief various intermediaries of financial market and in detail explain "Broker" and different types of broker.(b) Role of underwriters. 61 A bond has a remaining maturity of 5 years. It pays a coupon of 8% annually for first two years and 10% for next three years and is currently trading at Rs. 140. If Mr. X expected yield is 10%, calculate price of the bond of maturity if it redeemed at a premium of Rs. 2. Should Mr. X buy these bonds at Rs. 94 ?
62. What is the value of zero-coupon bond that has 10 years remaining to maturity and has yield to maturity of 10% and when we know that half of the face is redeemed after 5 years.
63. List out various investment options ? Explain any five of them in detail.

Q.64 Explain: (a) Dow theory(b) Odd lot trading(c) Point and Figure charts(d) Serial bond(e) Superfluous Diversification(f) Market Risk65.(a) What are the two major types of information necessary for security analysis(b) What are the features of preference shares.
(c) . What do you mean by underwriting.
66(a). What do you understand by fundamental approach to security analysis (b) . Explain the three types of trends in stock prices(c). What do you infer from the moving average theory of technical analysis

67. (a) . What is an index fund.(b) What is the difference between SML AND CML.(c). What is demutualization of stock exchanges
68. As an investment advisor what features would you suggest to be included in the investment bunch of a client explain the features briefly.69. security analysis requires as first step the sources of information on the basis of which analysis is made. What are different types of information used for security analysis70. Who are the key players involved in the new issues market.
71. What are the objectives and functions of SEBI72. Industry life cycle exhibits the status of the industry and gives the clue to entry and exit for investors. Elucidate.73. How does ratio analysis reflect the financial health of a company.74. How would you use ROC to predict the stock price movement . kindly elucidate with example.75.Chart patterns are helpful in predicting the stock price movement comment.76. What are the basic assumptions of CAPM. What are the advantages of adopting CAPM model in the portfolio management.77. What factors might an individual take into account in determining his or her investment policy? Distinguish between technical and fundamental Security Analysis.
78. Discuss why the concepts of covariance and diversification are closely related.
79. Assume the two securities, A and B, constitute the market portfolio. Their proportions and variances are .39, 160, and .61, 340, respectively.The covariance of the two securities is 190. Calculate the betas of the two securities.
80. How would you expect yield spreads to respond to the following macroeconomic events: recession, high inflation, Tax cuts, Stock Market decline, improved trade balance? Explain the reasoning behind each of your answers.

81. How would an increase in the perceived riskiness of a common stock’s future cash flows affect its price-earnings ratio? Explain intuitively and Mathematically.
82. Give an example of an industry you feel has positive competitive conditions for your selection as an industry to invest in. Why have you selected this industry?
83. A ratio spread amounts to buying a call option and selling two call options. The exercise price of the option purchased is loss than that of the two options sold. How does this strategy differ from a more regular bull or bear spread?
84. Analysis of mutual fund performance has been extensive. What does the evidence indicate about the ability of mutual fund managers, as a group, to produce positive abnormal returns consistently?
85. Explain any FOUR of the following: (a) Zero Coupon Bonds.(b) Yield-to-maturity.(c) Underwriters(d) Technical Analysis(e) Sweat Equity.(f) Return on equity
86. What is meant by fundamental analysis? How does fundamental analysis differ from technical analysis?87. Explain the Sharper Index Model? How does it differ from Markowitz model?88. Explain CAPM theory and its validity in the stock market.89. What are the statistical tools used to measure the risk of securities return? Explain.90. Discuss the relationship between fundamental analysis and efficient market hypothesis.91. The Company ABC’s next year dividend per share is expected to be Rs.3.50. The dividend in subsequent years is expected to grow at a rate of 10% per year. If the required rate of return is 15% per year, what should be its price? The prevailing market price is Rs.75.92. The following information is available.Stock A Stock BExpected return 16% 12%Standard deviation 15% 8%Coefficient of correlation 0.60.(a) What is the covariance between stocks A and B?(b) What is the expected return and risk of a portfolio in which A and B have weights of 0.6 and 0.4?
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93. Define Risk. What are different types of risks ? Explain the methods of risks handling.
94. Explain briefly the functions of the Stock Market in India. Critically evaluate the role of SEBI as stock market developer and regulator.

95.Define Industry Analysis and bring out its relevance for selecting equity snlares for investment.

96. Why should an investor include non-security forms of investment in his portfolio ? Outline the various investment avenues in the Indian Money Market.

97. What is the risk of a Portfolio ? Under what conditions can the portfolio risk be minimized ?

98.What is efficient frontier ? Explain about the capital market line and choice of an optimal portfolio, if borrowing rate is allowed to exceed the lending rate.
(b) A security pays a dividend of Rs. 385 and currently sells at Rs. 83. The security is expected to sell at Rs. 90 at the end of the year. The security has a beta of 1.15. The risk free rate is 5 per cent and the expected return on market index is 12 per cent.
Assess whether the security is correctly priced.

99. What are benchmark portfolios ? How are they used to evaluate the performance of a portfolio manag er ? Discuss with suitable examples.

100 . Write short notes on any FOUR of the following :
(a) Agency Cost
(b) Dow Theory
(c) E.l.C. Approach
(d) Filter Test
(e) Market Breadth Index(f) Technical Analysis