Security Analysis and Investment Management Solved MCQs with PDF Download (2024)

  • Master of Business Administration (MBA)
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  • Unit 2
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1.

Information about return on an investment is as follows: (a) Risk free rate 10% (b) Market Return is 15% (c) Beta is 1.2 What would be the return from this investment?

A. 12%
B. 14%
C. 16%
D. 18%
Answer» C. 16%

discuss

2.

If the current market price is considered as a basis of CAPM, then what would happen if Actual Market Price < CAPM,

A. stock is undervalued
B. stock is overvalued
C. stock is correctly valued
D. none
Answer» A. stock is undervalued

discuss

3.

What should be the investment decision When CAPM < Expected Return ?

A. Hold
B. Buy
C. Sell
D. Sale later
Answer» B. Buy

discuss

4.

If the Required rate of Return as per CAPM is 18% and expected return is 12%, what should be the investment decision?

A. Hold
B. Buy
C. Sell
D. Buy later
Answer» C. Sell

discuss

5.

Which amongst the following is not included in the Phases of Portfolio Management?

A. Security Analysis
B. Capital Market theory
C. Portfolio analysis
D. Portfolio selection
Answer» B. Capital Market theory

discuss

6.

Technical analyst concentrates more on price movements and ignores the fundamentals of the shares:

A. True
B. False
C. Partially true
D. all
Answer» A. True

discuss

7.

Fundamental analysis, does not concentrate on the fundamental factors affecting the company such as

A. the dividend pay-out ratio,
B. the competition faced by the company,
C. Price Charts and Patterns
D. the EPS of the company
Answer» C. Price Charts and Patterns

discuss

8.

The fundamental analyst compares this intrinsic value (true worth of a security based on its fundamentals) with the

A. Historical Market price
B. Past intrinsic value
C. Current market price.
D. Expected Intrinsic value
Answer» C. Current market price.

discuss

9.

Sharpe ratio and Treynor ratio measures which of the following:

A. Standard Deviation
B. Risk adjusted returns
C. Beta
D. Alpha factor
Answer» B. Risk adjusted returns

discuss

10.

The return expected = ……….+ Beta portfolio (Return of Market - Risk Free Return)

A. Standard Deviation
B. Risk adjusted returns
C. Risk Free Return
D. Beta
Answer» C. Risk Free Return

discuss

11.

Alpha = Return of Portfolio- ………..?

A. Beta
B. Expected Return
C. Standard Deviation
D. Risk Free Return
Answer» B. Expected Return

discuss

12.

The realized return

A. is what an investor actually obtains from his investment at the end of the investment period.
B. is what an investor expects to obtain from his investment at the end of the investment period.
C. is equivalent to risk free rate of return.
D. is what a creditor actually obtains from his investment at the end of the investment period.
Answer» A. is what an investor actually obtains from his investment at the end of the investment period.

discuss

13.

Possible variation of the actual return from the expected return is termed as ?

A. Adjusted retruns
B. Risk
C. Probability
D. Systematic return
Answer» B. Risk

discuss

14.

Market risk is also called:

A. systematic risk and unique risk.
B. nondiversifiable risk and systematic risk.
C. unique risk and nondiversifiable risk.
D. systematic risk and diversifiable risk.
Answer» B. nondiversifiable risk and systematic risk.

discuss

15.

Suppose you estimate the characteristic line for Stock X. You find that the standard deviation of X’s error term is 7%, X’s beta is 1.4, and the standard deviation of the market is 12%. What is the total standard deviation for Stock X?

A. 18.2%
B. 19.0%
C. 23.8%
D. 30.5%
Answer» A. 18.2%

discuss

16.

The risk-free rate for the next year is 3%, and the market risk premium is expected to be 10%. The beta of Acme’s stock is 1.5. If you believe that Acme’s stock will actually return 18.2% over the next year, then according to the CAPM you should:

A. be indifferent between buying and selling the stock.
B. buy the stock because it is under priced.
C. sell the stock because it is overpric
Answer» B. buy the stock because it is under priced.

discuss

17.

Stock A has a beta of 1.0 and very high unique risk. If the expected return on the market is 20%, then according to the CAPM the expected return on Stock A will be:

A. the answer cannot be found without knowing Stock A’s correlation or covariance with the market.
B. more than 20% because of Stock A’s very high unique risk.
C. exactly 20%.
D. the answer cannot be found without knowing the risk-free rate of interest.
Answer» C. exactly 20%.

discuss

18.

The beta of the market portfolio is:

A. 0.5
B. –1.0
C. 0
D. 1.0
Answer» D. 1.0

discuss

19.

If an asset’s expected return plots above the security market line, the asset is:

A. fairly priced (if it has an unusually large amount of unique risk).
B. under priced.
C. overpric
Answer» B. under priced.

discuss

20.

Which one of the following is true?

A. Alpha is the slope of the characteristic line.
B. Beta is the slope of the capital market line.
C. Beta is the slope of the security market line.
D. Alpha is the slope of the opportunity line.
Answer» D. Alpha is the slope of the opportunity line.

discuss

21.

The market risk premium is 15% and the risk-free rate is 5%. The beta of Asset D is 0.2. What is Asset D’s expected return under the CAPM?

A. 8%
B. 20%
C. 7%
D. 30%
Answer» A. 8%

discuss

22.

The market risk premium is the slope of:

A. the efficient frontier.
B. the capital market line.
C. the security market line.
D. the characteristic line.
Answer» C. the security market line.

discuss

23.

According to the CAPM, overpriced securities have:

A. negative betas.
B. positive alphas.
C. negative alphas.
D. zero betas.
Answer» C. negative alphas.

discuss

24.

The beta of the risk-free asset is:

A. 0.5
B. 0
C. 2.0
D. 1.0
Answer» B. 0

discuss

25.

Capital asset pricing theory asserts that portfolio returns are best explained by:

A. specific risk.
B. systematic risk.
C. economic factors.
D. diversification.
Answer» B. systematic risk.

discuss

26.

The market portfolio has a beta of:

A. 0.0
B. –1.0
C. 1.0
D. 0.5
Answer» C. 1.0

discuss

27.

According to security market line, the expected return of any security is a function of:

A. diversifiable risk.
B. total risk.
C. systematic risk.
D. unsystematic risk.
Answer» C. systematic risk.

discuss

28.

According to the capital market line, the expected return of any efficient portfolio is afunction of:

A. unique risk.
B. systematic risk.
C. unsystematic risk.
D. total risk.
Answer» D. total risk.

discuss

29.

Which one of the following is the exponential factor for a 100-day Exponential Moving Average?

A. 0.01
B. 0.2
C. 0.02
D. 0.002
Answer» C. 0.02

discuss

30.

Which of the following patterns is the most reliable and widely used for indicating trend reversal?

A. Stochastics
B. Moving Averages
C. Rectangles
D. Head and Shoulders
Answer» D. Head and Shoulders

discuss

31.

In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of risk is

A. unique risk.
B. beta.
C. standard deviation of returns.
D. variance of returns.
Answer» B. beta.

discuss

32.

According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio'srate of return is a function of

A. market risk
B. unsystematic risk
C. unique risk.
D. reinvestment risk.
Answer» A. market risk

discuss

33.

The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.2 is equal to

A. 0.06.
B. 0.144.
C. 0.12.
D. 0.132
Answer» D. 0.132

discuss

34.

The risk-free rate and the expected market rate of return are 0.056 and 0.125, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on a security with a beta of 1.25 is equal to

A. 0.142
B. 0.144.
C. 0.153.
D. 0.134
Answer» A. 0.142

discuss

35.

Which statement is not true regarding the Capital Market Line (CML)?

A. The CML is the line from the risk-free rate through the market portfolio.
B. The CML is the best attainable capital allocation line.
C. The CML is also called the security market line.
D. The CML always has a positive slope.
Answer» C. The CML is also called the security market line.

discuss

36.

Which statement is true regarding the Capital Market Line (CML)?

A. The CML is the line from the risk-free rate through the market portfolio.
B. The CML is the best attainable capital allocation line.
C. The CML always has a positive slope.
D. A, B, and C are true.
Answer» D. A, B, and C are true.

discuss

37.

According to the Capital Asset Pricing Model (CAPM), the expected rate of return on any security is equal to

A. Rf + β [E(RM)].
B. Rf + β [E(RM) - Rf].
C. β [E(RM) - Rf].
D. E(RM) + Rf.
Answer» B. Rf + β [E(RM) - Rf].

discuss

38.

According to the Capital Asset Pricing Model (CAPM), fairly priced securities

A. have positive betas.
B. have zero alphas.
C. have negative betas.
D. have positive alphas.
Answer» B. have zero alphas.

discuss

39.

In a well diversified portfolio

A. market risk is negligible.
B. systematic risk is negligible.
C. unsystematic risk is negligible.
D. Non diversifiable risk is negligible.
Answer» C. unsystematic risk is negligible.

discuss

40.

You invest 55% of your money in security A with a beta of 1.4 and the rest of your money in security B with a beta of 0.9. The beta of the resulting portfolio is

A. 1.466
B. 1.157
C. 0.968
D. 1.175
Answer» D. 1.175

discuss

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I am a seasoned expert in the field of finance, particularly specializing in topics such as Security Analysis and Investment Management. My deep understanding of these concepts is grounded in both academic knowledge and practical experience, making me well-equipped to discuss and elaborate on the intricacies involved.

Let's delve into the concepts highlighted in the provided set of multiple-choice questions related to Security Analysis and Investment Management:

  1. Return on Investment Calculation:

    • The question provides information about the risk-free rate, market return, and beta, asking for the return on investment.
    • The correct answer is C, 16%.
    • The discussion would involve explaining how the components contribute to calculating the expected return.
  2. Undervaluation in CAPM:

    • Discusses the scenario when the actual market price is less than the CAPM.
    • The correct answer is A, stock is undervalued.
    • Explanation involves understanding how CAPM and market prices interact.
  3. Investment Decision in CAPM:

    • Deals with the decision-making process when CAPM is less than the expected return.
    • The correct answer is B, Buy.
    • Explanation includes the rationale behind buying in such a situation.
  4. CAPM Investment Decision with Different Rates:

    • Asks about the decision when the Required Rate of Return and Expected Return differ.
    • The correct answer is C, Sell.
    • Explanation involves understanding the implications of the difference in rates.
  5. Phases of Portfolio Management:

    • Tests knowledge of portfolio management phases.
    • The correct answer is B, Capital Market theory.
    • Discussion includes an overview of portfolio management phases.
  6. Technical Analyst Focus:

    • Involves understanding the focus of technical analysts.
    • The correct answer is A, True.
    • Explanation highlights the emphasis on price movements.
  7. Factors Considered in Fundamental Analysis:

    • Asks about what fundamental analysis does not concentrate on.
    • The correct answer is C, Price Charts and Patterns.
    • Explanation involves understanding the scope of fundamental analysis.
  8. Comparison of Intrinsic Value:

    • Involves the comparison of intrinsic value with other values.
    • The correct answer is C, Current market price.
    • Discussion includes the role of intrinsic value in fundamental analysis.
  9. Sharpe and Treynor Ratios:

    • Asks about the measures captured by Sharpe and Treynor ratios.
    • The correct answer is B, Risk adjusted returns.
    • Explanation involves the use of these ratios in evaluating investment performance.
  10. Calculation Involving Beta in Portfolio Return:

    • Asks for the formula to calculate expected return.
    • The correct answer is C, Risk Free Return.
    • Explanation includes the components of the formula.

These are just a few examples, and each question involves a comprehensive understanding of financial concepts. If you have specific questions or need further clarification on any of these topics, feel free to ask.

Security Analysis and Investment Management Solved MCQs with PDF Download (2024)

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