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.
. What is the stakeholder view of the firm?
!hareholders should eventually be returned their stake in the firm.
"he firm must honors its wider social obligations as well as making money.
"he only obligation on the firm is to maximize profit.
"he firm exists to maximize return.
#. $ great deal of financial theory is based on the concept of free markets and in particular the theory
of%
Perfect competition.
&onopolistic competition.
&onopoly.
'ligopoly.
(. )sing the *PV criteria+ a pro,ect should be selected when%
-ts *PV is positive or zero.
-ts *PV is e.ual to zero.
-ts *PV is negative.
-ts outflows are greater than its inflows.
/. Why is it sometimes possible to obtain inconsistent results between -nternal 0ate of 0eturn 1-002 and
*et Present Value 1*PV2 for the purposes of comparison between two or more pro,ects?
3ecause they are measured in different units.
3ecause -00 does not take account of the time value of money.
3ecause *PV does not take account of the time value of money.
3ecause the *PVs 4cross over4 as the discount rate is increased.
5. Which of the following is not true with respect to the $ccounting 0ate of 0eturn 1$002?
-t is based on accounting concepts such as accounting profit and depreciation.
-t takes account of the time value of money.
"he hurdle rate is arbitrary.
"he definition of both profit and capital can be somewhat arbitrary and variable.
6. "he fundamental principle of the application of 7iscounted 8ash 9low 17892 techni.ues to investment
appraisal is%
"o incorporate all incremental cash flow.
"o incorporate all sunk cost.
"o incorporate all relevant depreciation.
A
ASMs INSTITUTE OF INTERNATIONAL BUSINESS & RESEARCH
EXTERNAL EXAMINATION MAY 2014
SUB: SECURITY ANALYSIS
PGDM II SEM
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"o absorb all company overheads.
:. Volatility risk of a single asset is usually measured by which of the following?
!tandard deviation.
Variance.
8orrelation.
8ovariance.
;. What is the <ead and !houlders pattern?
$ fre.uent pattern in the academic publication process.
$ synonym for a 0andom Walk process.
$ 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.
-t 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 />
years.
1>. Which of these is an appropriate measure of individual share risk 1i.e. the risk of a single share held as
part of a portfolio2?
Variance.
3eta.
!tandard deviation.
8orrelation.
11. "he sum of s.uared deviations from the mean+ multiplied by probability+ describes which of the
following?
!tandard deviation.
Variance.
8orrelation.
8ovariance
1. "he standard deviation is calculated as the s.uare root of variance because the variance calculation
results in which of the following?
"oo many decimal places.
!ample bias
"wo roots.
!.uared units
1#. "he calculation of covariance most closely resembles which other statistical measure?
Variance.
3eta.
!tandard deviation
8orrelation.
1(. -f an asset has zero beta+ then it can be described in which of the following ways?
-t is very risky.
-t is risk free.
-t is riskier than the market portfolio.
-t has the same risk as the market portfolio.
1/. -f an asset has a beta of one+ then it can be described in which of the following ways?
-t is very risky.
-t is risk free.
-t is riskier than the market portfolio.
-t has the same risk as the market portfolio.
15. What is the <ead and !houlders pattern?
$ fre.uent pattern in the academic publication process.
$ synonym for a 0andom Walk process.
$ 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.
-t 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 />
years.
16. Who was the first person to use the ?fficient &arkets <ypothesis term?
<arry 0oberts
?ugene 9ama
@arl Pearson
8harles 8onant
1:. "he ultimate reason for holding a stock+ in theory+ is that%
"he stock price may go up in the future
"he company is promising
$ stock may pay out a dividend in the future
*one of the above
1;. !hare repurchase is sometimes motivated by%
8orporate governance structure
"axation considerations
8ash flow management
*one of the above
>. Which of the following statements about preferred shares is correct?
"he preferred sharesA dividends often varies overtime
"he preferred shares get payment before corporate bondholders
-f the company goes bankrupt+ the preferred shareholders cannot get their money back
"he preferred shares always pay out dividends higher than the common stock
Q. Fill in the blanks with appropriate option:
1. "he =========may be defined as a commitment of funds made in the expectation of some positive
rate of return.1 investmentB capital appreciation2
. -n =============sense+ investment means the net additions to the economyAs capital stock which
consists of goods and services that are used in the production of other goods and services.
1economicB environmental2
#. )nsystematic risk associated with security of particular company can be reduced by combining it
with another security having opposite characters known asCCCC..1 diversification of
investmentB investment multiplicity2
(. "he systematic risk of security can be measured by a statistical measure calledCC...1 betaBalpha2
/. $n 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. !uch evaluation or analysis is
called as==================. 1fundamental analysisB technical analysis2
5. ?ach share is assumed to have an economic worth based on its present and future earning capacity
is known as ==========================of the share. 1intrinsic valueB face value2
6. "he =============================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. 1demand pull
inflationB cost push inflation2
:. "he dividend or interest received from investment is known as==========.1 price appreciationByield2
;. "he ==========maturity period+ the larger is the risk.1 shorter/longer2
1>. "he ========of an investment implies the certainty of return of capital without loss of money or
time.1 safetyBrisk2
11. $n investment which is easily saleable or marketable without loss of money and time is said to
possess===========.1 li.uidityBtradability2
1. "he 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=================.
1!ystematic 0iskB unsystematic risk2
1#. =============is a type of systematic risk that particularly affects debt securities like bonds and
debentures.1 -nterest rate riskB purchase power risk2
1(. $ bond is normally issued with ==========which is e.ual to the interest rate prevailing in the market
at the time of issue.1 coupon rateB intrinsic value2
1/. $ general rise in share price is referred as=========.1 bullish trendB bearish trend2
15. "he ========refers to the variation in investor return caused by inflation. 1purchasing power riskB
market risk2
16. 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
e.uilibrium. "his phenomenon is known as============. 1demand pull inflationB cost push inflation2
1:. When variability of returns occurs because of firm specific factorsD it is known as============.
1!ystematic 0iskB unsystematic risk2
1;. "he widely used procedure for assessing the risk is known asCCCCCC.1 mean variance
approachB correlation regression2
>. "he value of =========denotes estimated return of the security when the market is stationary.
1betaBalpha2