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Advanced Wealth Management Course (IIBF) - Paper 3

Part I: Ch 6: Portfolio Analysis & Selection - Part 2

Q1.

Beta less than 1 is an indication of a conservative stock or fund that is more aggressive than the market.

True

False

Q2.

(I) Beta measures the sensitivity of a stock with respect to the market. (II) Standard deviation and variance are measures of market risk.

Both the statements are correct

Only statement (I) is correct

Only statement (II) is correct

Both the statements are wrong

Q3.

Risks in investment that relate to the market is called:

Systematic risk

Non-systematic risk

Credit risk

None of the above

Q4.

The covariance between a stock and the market is 0.5, while the standard deviation of the market is 0.9. What is the Beta?

3.6

0.40

0.22

0.62

Q5.

(I) The capital market Line is plotted on Beta – Return space. (II) The Security Market Line is plotted on Standard Deviation – Return space.

Both the statements are correct

Only statement (I) is correct

Only statement (II) is correct

Both the statements are wrong

Q6.

If you have $2,000 invested in a stock with a beta of 1.2 and $4,000 invested in a stock with a beta of 1.05. What would be the weighted average beta of the portfolio?

0.5

1.0

1.1

2.0

Q7.

Risks which are non-systematic can be eliminated through diversification.

True

False

Q8.

If ABC Corporation's stock has a beta of 1.5, and they are 100% equity financed. The RF rate is 5% and the Rate of the market is 11%. What would their cost of equity be according to the Capital Asset Pricing Model?

15%

16%

14%

13%

Q9.

(I) The CAPM model assumes that investors can buy as many as the securities as they choose, without any transaction costs. (II) Positive Beta means an inverse relationship between the security and the market. When the market goes up, the security goes down and vice versa.

Both the statements are correct

Only statement (I) is correct

Only statement (II) is correct

Both the statements are wrong

Q10.

The CAPM model to determine asset price is based on the law of one price.

True

False

Q11.

An Indian investor invests in an index fund in the European markets. During a period that the market grew by 10%, The Euro depreciated by 10%. What is the return of the investor in rupees?

The investor gain 1%

The investor lost 0.01%

The investor gain 0.01%

The investor lost 1%

Q12.

(I) Factor analysis throws up both the value of the factors (indices) and the factor loadings (sensitivity to the index). (II) Arbitrage pricing essentially takes the multi-index model forward to determine situations of equilibrium asset prices.

Both the statements are correct

Only statement (I) is correct

Only statement (II) is correct

Both the statements are wrong

Q13.

What statistical technique is used in Arbitrage Pricing Model?

Technical Analysis

Fundamental Analysis

Factor Analysis

Internal analysis

Q14.

The main benefit/s of global diversification is/are:

Increased marketability and liquidity of assets due to the size of global markets relative to India’s.

Differences in timing of economic cycles in different countries.

Exposure to international currencies

Both (a) & (c)

All of the above

Q15.

The capital market line, which comprises of all efficient portfolios, as represented as:

Expected return = Price of time - (Price of risk * Risk)

Expected return = Price of time + (Price of risk * Risk)

Expected return = Price of risk – (Price of time * Risk)

Expected return = Price of risk + (Price of time * Risk)

Q16.

The Arbitrage Pricing Model is based on the law of one price.

True

False

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