Notes on Security Analysis and Portfolio Management Pdf MCQs, Investment analysis questions and answers pdf, SAPM question paper for the students of Banking and finance stream of various Regular and Distance Institutes.
Content of Security Analysis and Portfolio Management
- Investment Environment
- Risk and Return
- Fundamental Analysis
- Technical Analysis
- Efficient Market Hypothesis
- Behavioural Finance
- Valuation of Bonds and Shares
- Portfolio Management
- Capital Asset Pricing Model (CAPM)
- International Portfolio Investments
- Mutual Fund Operations
Security Analysis and Portfolio Management MCQ
1. ___ do not directly contribute to the productive capacity of the economy.
Ans. Financial assets
2. The value of the financial asset derives from and depends on the value of the ___of the firm.
Ans. Underlying real asset
3. State true or false: The real asset is created and destroyed in the ordinary course of business.
4. The factors that determine investment decisions are ___ and ___.
Ans. Risk and return
5. The return on the portfolio is the ___ of return of individual stocks.
Ans. Weighted average
6. ___ are the combination of assets held by the investors.
7. A Portfolio is a combination of financial securities with different ___.
Ans. Risk return characteristics
8. ___ represent long-term debt instruments.
9. Fixed deposits mobilized by manufacturing companies are regulated by ___
Ans. Company Law Board
10. The investment period of the PPF scheme is ___.
Ans. 15 years
11. How quickly the instrument can be transacted relates to ___ feature of investment.
12. ___ refers to relief from taxation when an investment is realized on maturity or when it is sold.
Ans. Terminal tax benefit
13. ___ is the likelihood that your investment will either earn money or lose money.
14. ___ occurs when an asset is purchased with the hope that price will rise rapidly, leading to quick profit.
15. ___ is putting money at risk by betting on an uncertain outcome, with the hope that you might win money
16. ___ is a method used to evaluate the worth of security by studying the financial data of the issuer.
Ans. Fundamental analysis
17. ___ refers to security analysis and focuses on price movements of individual securities
18. ___step involves determining periodically how the portfolio has performed over some time period (returns earned vs. risks incurred).
Ans. Portfolio Performance Evaluation
19. New sales of Treasury bills, or stock, or bonds all take place in the ___ markets.
20. Bombay stock exchange is the example of ___ markets.
21. Capital market is the market for ___.
Ans. Long term securities
22. ___ is characterized by low default risk and large denomination of instruments.
Ans. Money market
23. The securities traded in the money market are short-term with ___and ___.
Ans. High liquid, low risk
24. The maturity period of money market instruments is ___.
Ans. Less than one year
25. ___ is a market where already existing (pre-issued) securities are traded amongst investors.
Ans. Secondary market
26. An ___ market is one in which investors (usually represented by a broker) trade directly with each other.
27. A ___ market is one where dealers post bid rates (buy rates) and offer rates (sale rates) at which public investors can trade.
28. The primary market is the ___ market.
Ans. First sale
29. The two main stock exchanges are ___ and ___.
Ans. BSE and NSE
30. The stock exchanges are regulated by ___.
Ans. Securities Exchange Board of India‟
31. OCTEI exchange deals with trading of ___.
Ans. Small and Medium-Sized companies
32. The base year of SENSEX is ___.
33. S&P CNX Nifty caters ___ sectors of the economy.
34. The base value of NIFTY was set at ___.
35. ___ are short-term funds transferred between financial institutions usually for no more than one day.
Ans. Call money
36. ___ is an agreement, which involves a sale of a security with an undertaking to buy-back the same security at a pre-determined price and at a future date.
Ans. Repurchase Agreement
37. ___ are time drafts payable to a seller of goods, with payment guaranteed by a bank.
Ans. Bankers‟ Acceptance
38. The potential growth of the shares is obtained through ___ of a share of stock.
Ans. Changes in the price
39. Bonds do not offer protection from ___
40. A put option gives the option holder the right to ___.
41. The higher the risk, the higher is the ___.
Ans. Potential reward
42. Risk is commonly measured using ___, ___ and ___
Ans. Variance, standard deviation, beta
43. Standard deviation is the square root of ___.
44. ___ is the chance that the purchasing power of the invested rupees will decline.
Ans. Inflation risk
45. ___ is the variability in a security’s returns resulting from fluctuations in the aggregate market
Ans. Market risk
46. Return represents the ___for undertaking an investment.
47. The return on investment consists of 2 elements ___ and ___.
Ans. The capital return and the current return
48. Holding Period return if it is evaluated in percentage terms on an annual basis it is termed as ___.
Ans. Holding period yield
49. A ___ does not consider risk and he would always prefer investments with higher returns.
Ans. Risk-neutral investor
50. ___ of the area lies within + 1.96 standard deviations of the expected value.
Ans. 95 per cent
51. The curve reaches its maximum at the ___ of the distribution and one-half of the area lies on either side of the mean.
Ans. Expected value (mean)
52. Investors can eliminate ___ when they invest their wealth in a well-diversified market portfolio.
Ans. Unsystematic risk
53. Beta is a ratio of the ___of security, j, and the ___, m, to the variance of the return of the market portfolio.
Ans. The covariance of return, the market portfolio
54. The capital allocation decision is the choice of the ___ of the overall portfolio.
55. Capital Allocation decision deals with the specific individual choice of the best risk-return combination from the set of ___.
Ans. Feasible combination
56. Options and futures contract provides ___ opportunities.
67. ___ are short-term unsecured promissory notes issued by a company to raise short-term cash.
Ans. Commercial paper
58. A ___ is a contract that gives the owner the right, but no obligation to buy the underlying asset by a specified date at a specified price while a ___ is a contract that gives the owner the right, but not obligation to sell the underlying asset by a specified date at a specified price.
Ans. Call option put option
59. In a two-factor model, the two factors are GDP growth rate and inflation. The factor sensitivities of security to GDP and inflation are 2.5 and -1.5 respectively. If GDP grows by 4.5 %, and inflation is 3.5%, and ai = 6 %, what is the security’s expected return?
Ans) The security’s expected return is equal to 6% + 2.5 x 4.5 % + (-1.5 x 3.5%) =12%.
60. A Mutual fund is a financial ___.
61. Investors may be too quick to detect patterns in data that are in the fact random. This refers to ___.
62. ___ stems partly from the illusion of knowledge and partly from the illusion of control.
63. ___ refers to forming an opinion and taking the decision based on it even though new information is relevant.
64. State true or false:
People estimate the likelihood of an event on the basis of how vivid the past examples are and not on the basis of how frequently the event has actually occurred
65. Frame dependence stems from a mix of ___ and ___ factors.
Ans. cognitive and emotional
66. Investors often have an irrational preference for stocks paying high dividends because they don’t mind spending the dividend income, but are not inclined to sell a few shares and ___.
Ans. “dip into the capital”
67. Losers, however, do not always shun risk. People often jump at the chance to recover their losses. ___effect may be stronger than the snakebite effect.
Ans. Trying to break even
68. Emotions have a bearing on risk tolerance and risk tolerance influences ___.
Ans. Portfolio selection
69. ___ induces investors to look at the downside of things, whereas ___ causes them to look at the upside.
Ans. Fear, hope
70. ___ tendency is accentuated in the case of decisions involving high uncertainty.
Ans. Herd Instinct
71. ___ try to extrapolate past time series and hence chase trends.
Ans. Noise traders
72. Share price in India tends to be considerably influenced by short term technical considerations and___.
73. The fear of buying an undervalued stock may result in a loss that may restrain arbitrageurs from taking large enough ___ that will push the price to fully conform to fundamentals.
Ans. long position
74. ___ rose by more than 100% in a period of 2-3 months and then lost over 45% in a short time in 1992.
75. ___ provides transaction services to investors.
Ans. registrar and transfer agents
76. ___ settles securities transactions and records information on stock splits and other corporate actions.
77. ___ is a hybrid of a close-ended index fund and an open-ended index fund.
Ans. exchange-traded funds
78. ___ is the difference between the performance of an indexing scheme and the benchmark index.
Ans. tracking error
79. Hedge fund managers can engage in ___, ___ and heavy use of___ across various markets,
Ans. leverage, short sales, derivatives
80. Mutual funds invest in three broad classes of financial assets namely ___, ___ and___.
Ans. stocks, bonds, money market instruments
81. ___ try to seek out fundamentally sound companies whose shares are currently underpriced in the market.
Ans. value funds
82. State true or false: Value funds are riskier than growth funds in the long term.
83. State true or false
A mutual fund can enter into derivatives transactions on a recognized stock exchange for the purpose of hedging and portfolio balancing in accordance with SEBI guidelines
84. A scheme shall not make any investment in the listed securities of group companies of the sponsor in excess of ___ of the net asset.
Ans. 25 per cent
85. The asset mix of a scheme refers to the allocation of the corpus of a scheme across three broad asset categories viz., ___,___ and ___
Ans. stock, bonds, money market instruments
86. The market price of a ___ scheme tends to be lower than its NAV.
87. ___ refers to the annual recurring costs as a percentage of the net assets of the scheme.
Ans. expenses ratio
88. Alpha measures the extra return earned on a scheme on a ___.
Ans. Risk-adjusted beta
89. The mutual fund adjust the composition of their portfolio in response to changing ___
Ans. economic conditions
90. Mutual Fund provides ___, ___ and ___
Ans. diversification, management expertise, liquidity
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FAQs on Security Analysis and Portfolio Management
Q1. What is security analysis?
Answer: Security analysis evaluates financial instruments, such as stocks and bonds, to determine their investment potential, intrinsic value, and risks.
Q2. What is portfolio management?
Answer: Portfolio management refers to the strategic management and optimization of an investment portfolio, considering risk tolerance, investment goals, and market conditions.
Q3. What are the different types of security analysis?
Answer: The different types of security analysis are-
- Fundamental Analysis: Evaluating a security’s intrinsic value based on financial and economic factors.
- Technical Analysis: Analyzing historical market data and trends to predict future price movements.
- Quantitative Analysis: Using statistical models and mathematical techniques to assess securities.
Q4. What are the objectives of security analysis?
Answer: Security analysis aims to:
- Determine the fair value of securities.
- Identify undervalued or overvalued securities.
- Assist in making informed investment decisions.
- Minimize risks and optimize returns for investors.
Q5. What does the term “risk-return tradeoff” mean?
Answer: The risk return tradeoff principle states that greater risk levels are linked to the potential for higher returns. Investors must balance the desire for greater returns with accepting increased risks.
Q6. What is portfolio revision and its significance?
Answer: Portfolio revision involves making changes to the composition of an investment portfolio. Adapting to changing market conditions, investment goals, and risk preferences is essential to optimize portfolio performance.
Q7. What are mutual funds?
Answer: Mutual funds pool together investments from different individuals to create a diverse portfolio of stocks, bonds, or other securities managed by experts.
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