FIN630 - Portfolio Analysis FINAL TERM PAPER

My Today's Paper
Total MCQs. 56
Q.No.57. What are the causes of risk? 3
Q.No.58. Describe the rationale of derivative asset? 3
Q.No.59. Keeping in the view business cycle, describe which industries are least senstive to change in the economy? Give two examples. 3
Q.No.60. The covariance of market's returns with the stocks returns is 0.008. The standard deviation of the markets returns is 0.08, and standard. Derivation of the stock's returns is 0.11. Calculate the correlation coefficient between the returns of the stock and returns of the market? 3
Q.No.61. Differenciate between bottom-up and top-down approach of fundamental analysis.? 5
Q.No.62. Suppose you are going to invest and you have the following options.
1. Company A = Beta,2
2. Company B = Beta,0.5
3. Company C= Beta, 2.5. As an investor , what company would you preffer for investing and why? 5
Q.No.63. An investor can always purchase shares of common stock if he/she is bullish about the company's prospects or sell them shoot if bearish. why then investors invest in futures as an alternative way of investment?
Q.No.64. A Company reports its past six year's growth at 10%,14%,12%,10% ,-10% and 12%. Calculate the Geometric mean of the company? 5

What is call option? 3 marks

How the hedger uses different ways manage the risk? 3 marks

What is the difference between load stock and no load stock? 3 marks

Two percentage were given, those were 6% and 14% and beta 1.2 was given and it was asked to calculate k 5 marks

How credit risk put adverse effect upon bond market dealing? 5 marks

Three stocks were given A, B, and C with their respective beta and it was asked in which you would like to invest and why? 5 marks

Describe six fundamental risks? 5 marks

1.
2. Markowitz diversification advantages? ( 3 marks)

3. What is rationale for derivative asset? ( 3 marks) (p-243)

4. Why junk bond is called a speculative bond? (3 marks) {page -166}
5. What is difference between Option and Futures? ( 5 marks ) {page -247}

6. Differentiate defensive and cyclical stock with example? ( 5 marks ) {page -25}

7. Adverse effect of credit risk to bond performance? ( 5 marks )

* If a lender can not tell whether a borrower is a good or a bad credit risk, the demand for a risk premium will be based on the average risk
* Borrowers having good credit risk will not pay higher risk premiums and would withdraw from the market
* Only bad credit risk bonds are left in the market

* The adverse effect resulting in good investments not to be undertaken, the economy will not grow as rapidly as it could.
* So there must be some way of distinguishing good firms from the bad ones.


8. The correlation coefficient between the returns of the stock and the market is 0.85. The variance of stock’s returns is 0.75 and variance of market returns is 0.22. Calculate the covariance of market and stock’s returns. (5 marks)

Solution :

Formula to calculate the covariance is σ AB = ρAB σA σB . (page no. 209)

Correlation coefficient = ρAB = 0.85

Variance of stock’s returns = σA = 0.75

Variance of market returns = σB = 0.22

σ AB = ρAB σA σB
σ AB = 0.85(0.75) (0.22) = 0.14025