Solved Paper - Investment Analysis & Portfolio Management

FIN630- Investment Analysis & Portfolio Management

(Session - 3)

Remember Me In Your Prayers

Best regard’s

Muhammad Rizwan

http://Facebook.com/muhammadrizwan06

Question No: 1 ( Marks: 1 ) - Please choose one

A self-regulatory body that licenses brokers and generally oversees the trading practices

of Over the counter(OTC) securities is known as __________ .

► Securities and Exchange Commission (SEC)

► National Association of Security Dealers (NASD)

► Initial Public Offering (IPO)

► Offered for Sale (OFS)

Question No: 2 ( Marks: 1 ) - Please choose one

The primary purpose of the liquidity ratios is to determine:

► The amount of earnings paid to shareholders

► The amount of working capital tied up in inventory

► The ability of a firm to pay off short-term obligations

Question No: 3 ( Marks: 1 ) - Please choose one

_________ provides an automatic execution of limit orders up to 1,099 shares at the best

bid or offer.

► SuperDOT

► NASDAQ

► Auction market

► NYSE direct

Question No: 4 ( Marks: 1 ) - Please choose one

Which of the following statement is FALSE about Elliot Wave Theory?

 ►It made extensive use of Fibonacci series        

 ►It is based on repeating 8 waves’ cycles       

 ►It identified three movements in security prices       

 ►It was proposed by R.N. Elliot

Question No: 5 ( Marks: 1 ) - Please choose one

Which of the following allows you to specify the most you are willing to pay when

buying or the least you are willing to accept when selling?

► Limit order

► Market order

► Stop order

► Good till cancelled order

Question No: 6 ( Marks: 1 ) - Please choose one

ABC Furnitures worth $51 million. What is another term for this?

Book value

Earning per share

Market value

Cost per share

Question No: 7 ( Marks: 1 ) - Please choose one

Mutual funds pool the funds of savers and can be used to buy

Shares in mutual savings banks only

A variety of financial instruments

Shares in the Federal Reserve System

None of the given options

Question No: 8 ( Marks: 1 ) - Please choose one

Stocks can be purchased for a combination of cash and borrowed funds in:

Margin account

Cash account

IRA account

Option account

Question No: 9 ( Marks: 1 ) - Please choose one

Mr. A purchased a stock at Rs. 50 today that is expected to grow in future up to Rs.100, he believes in.

►Growth investment

Handouts # 25 and 26

►Value investment

►Speculation

►None of the given options

Question No: 10 ( Marks: 1 ) - Please choose one

Which of the following is correct option

Assets = Liabilities + Owner's Equity

Owner's Equity = Assets + Liabilities

Liabilities = Owner's Equity + Assets

Question No: 11 ( Marks: 1 ) - Please choose one

Which of the following stage should be avoided by investors who are interested in capital

gains?

►Pioneering stage

►Expansion stage

►Decline stage

►Stabilization stage

Question No: 12 ( Marks: 1 ) - Please choose one

Leverage ratios are designed to.

►Measure a company's capital structure

►Measure the quality of a company's operations

►Measure a company's ability to cover its short-term obligations

►Measure the percentage of earnings paid to shareholders

Question No: 13 ( Marks: 1 ) - Please choose one.

When current assets exceeds current liabilities it is called:

►Gross capital

►Working capital

►Net capital

►Reserved capital

Question No: 14 ( Marks: 1 ) - Please choose one

Which function of capital market facilitates transfer of money from savers to borrowers?

► Economic function

► Fair pricing function

► Exchange function

► Continuous pricing function

Question No: 15 ( Marks: 1 ) - Please choose one

Current ratio is also known as:

► Working capital ratio

► Acid test ratio

► Debt coverage ratio

► Dividend yield ratio

Question No: 16 ( Marks: 1 ) - Please choose one

A ratio that indicates the extent to which a firm could pay its current liabilities without

relying on the sale of inventory is known as:

► Current ratio

► Quick ratio

► Inventory turnover ratio

► Debt coverage ratio

Question No: 17 ( Marks: 1 ) - Please choose one

Which of the following ratio depicts a firm’s ability to cover its short-term obligations?

► Dividend yield ratio

► Return on assets ratio

► Debt coverage ratio

► Current ratio

Question No: 18 ( Marks: 1 ) - Please choose one

If an investor wants to avoid transaction costs, which of the following strategy should he

select?

► Active strategy

► Defensive strategy

► Buy and hold strategy

► Sector rotation

The remaining MCQ are new

Question No: 31 ( Marks: 3 )

Why you as invester would prefer investing in money market mutual funds(3)

SOLUTION

• Money market mutual funds invest in portfolio of money market securities.

1. Taxable or tax-exempt.

2. Commercial paper important investment.

3. Average maturity limit: 90 days.

4. Investors pay a management fee but not a sales or redemption charge (load).

5. Not insured by the federal government

Question No: 32 ( Marks: 3)

RELATIONSHIP OF INTREST RATE WITH …

Question No: 32 ( Marks: 5 )

A company is paying $0.60 in dividends and the required rate of return is 6%.Company is

selling the stocks at $12. Assume 2% growth rate. Figure out the current value of the stock.

By keeping in view your answer. Explain whether the stock is overvalued or undervalued.

SOLUTION

Po=D1(1+g)/(k-g)

D1=0.6

P=12

G=2%

RRR(k)=6%

Po=?

=0.6(1+0.02)/(0.06-0.04)=15.3

P=12

While Po=15.3

It means stock is undervalued.

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