Practice Test

Q1) Security Analysis is a process of estimating _____ for individual securities. Show Answer

Q2) Return from listed security is in two forms - Show Answer

Q3) Which of the following is correct formula to calculate returns of listed security? Show Answer

Q4) The market price of a bond depend on - Show Answer

Q5) A risk associated with project and way considered by well diversified stockholder is classified as - Show Answer

Q6) An attempt to make correction by adjusting historical beta to make it closer to an average beta is classified as - Show Answer

Q7) A corporate bond is a corporation's write undertaking that it will refund a specific amount of money plus - Show Answer

Q8) The common stock of a company must provide a higher expected return than the debt of the same company because Show Answer

Q9) A main difference among real and nominal interest proceeds is that - Show Answer

Q10) The beta of the market portfolio is: Show Answer

Q11) Non-systematic risk is furthermore identified as - Show Answer

Q12) Beta is measure of - Show Answer

Q13) Investors should be agreeing to invest in riskier investments merely - Show Answer

Q14) A beta of 1.15 for a security would indicate that - Show Answer

Q15) A beta of 0.8 for a security would indicate that - Show Answer

Q16) Capital Asset Pricing Model (CAPM) provides the link between - Show Answer

Q17) Which of the following investment advice will you provide to your client investor if CAPM Return < Expected return? Show Answer

Q18) Which of the following investment advice will you provide to your client investor if CAPM Return > Expected return? Show Answer

Q19) If expected return is more than required return as per CAPM, then - Show Answer

Q20) The Security Market Line (SML) is a line drawn on a chart that serves as a graphical representation of the Capital Asset Pricing Model, which shows different levels of _____ of various marketable securities plotted against the expected return. Show Answer

Q21) Market risk is also called: Show Answer

Q22) Which of the following investment advice will you provide to your client investor if CAPM Return = Expected return? Show Answer

Q23) If required return as per CAPM is more than expected return, then - Show Answer

Q24) According to the CAPM, overpriced securities have: Show Answer

Q25) The beta of the risk-free asset is: Show Answer

Q26) Capital asset pricing theory asserts that portfolio returns are best explained by: Show Answer

Q27) Alpha is an indicator of the extent to which the - Show Answer

Q28) Alpha is denoted by symbol - Show Answer

Q29) Negative alpha value indicates that - Show Answer

Q30) Systematic Risk is - Show Answer

Q31) Positive alpha value indicates that - Show Answer

Q32) Systematic risk = ? Show Answer

Q33) __________ is also called specific risk. Show Answer

Q34) In contrast to the capital asset pricing model, arbitrage pricing theory: Show Answer

Q35) The APT is an equilibrium model developed by: Show Answer

Q36) Which of the following is NOT an assumption of the APT? Show Answer

Q37) Which of the following statements is correct? Show Answer

Q38) Which of the following statements about the APT is false? Show Answer

Q39) Which of the following statements is true according to the theory of arbitrage? Show Answer

Q40) Which of the following is an assumption of the APT? Show Answer

Q41) Suppose risk free rate is 4% and is 2.5%. If an investor takes 13% risk, he can expect a return of - Show Answer

Q42) Yogesh invest Rs.1,25,000 in shares of BABA Ltd., a listed company. At the end of period investment value is Rs. 1,32,000. He gets dividend of Rs.8,000. Return from investment is - Show Answer

Q43) Actual return of GK Ltd. for last four year is 20%, 14%, 17% and 18%. GK Ltd. has beta of 1.15. Return on market portfolio is 15%. Risk free rate of return is 6%. Compute Alpha value and decide whether to hold, buy or to sell the security? Show Answer

Q44) Return of last 5 years of listed security is 16.2%, 19.8%, 18%, 15% & 21%. Five years ago price of the security was 120 per share. What is its average return? Show Answer

Q45) Return of last 5 years of listed security is 16.2%, 19.8%, 18%, 15%&21%. Five years ago price of the security was 120 per share.
What is its holding period return?
Show Answer

Q46) Dividend for last 4 years of Tara Ltd. was Rs.7, Rs.5, Rs.12.8 & Rs.10 and market price was Rs.120, Rs.80, Rs.130 & Rs.150 respectively. What is the average return of last 3 years considering capital gain and dividend? Show Answer

Q47) Return on XM Ltd. shares has a standard deviation of 23%, as against the standard deviation of the market at 19%. Correlation co-efficient between market and stock of XM Ltd. is 0.8. Compute the systematic risk of XM Ltd.’s shares. Show Answer

Q48) Return on Lucky Ltd. shares has a standard deviation of 20%, as against the standard deviation of the market at 15%. Correlation co-efficient between market and stock of XM Ltd. is 0.9. Compute the unsystematic risk of Lucky Ltd.'s shares. Show Answer

Q49) ABC Ltd beta is 1.45. Rate of market return is 16%. Rate of return on government securities is 8%. What is the expected return as per Capital Asset Pricing Model? If the risk premium on the market goes up by 2.5% points, what would be revised expected return on this stock? Show Answer

Q50) A financial consultant has gathered following facts for H Ltd.
Systematic risk of the firm is 1.4.
182 days Treasury bill yield is 8%
Expected yield on market portfolio is 13%. Calculate expected return based on capital asset pricing model (CAPM).
Show Answer

Q51) Expected return of Security A is 22% while that of Security B is 24%. Beta of Security A is 0.86 while that of Security B is 1.24. What is risk free rate? Show Answer

Q52) Dhanpat, an investor, is seeking the price to pay for a security, whose standard deviation is 5%. The correlation coefficient for the security with the market is 0.75 and the market standard deviation is 4%. The return from risk-free securities is 6% and from the market portfolio is 11%. Dhanpat knows that only by calculating the required rate of return, he can determine the price to pay for the security. What is the required rate of return on the security? Show Answer

Q53) Return on Lucky Ltd.'s shares has a standard deviation of 22%, as against the standard deviation of the market at 12%. Correlation co-efficient between market and stock of Lucky Ltd. is 0.7%. Compute unsystematic risk of Lucky Ltd.’s shares. Show Answer

Q54) In a portfolio of the company, Rs.2,00,000 have been invested in Asset-X which has an expected return of 8.5%, Rs.2,80,000 in Asset-Y, which has an expected return of 10.2% and Rs.3,20,000 in Asset-Z which has an expected return of 12%. What is the expected return for the portfolio? Show Answer

Q55) The risk free rate is 8%, return on a broad market index is 15%. The actual return provided by the security is 18%. What must be its beta, by using CAPM if the security is correctly priced in the market? Show Answer

Q56) The relationship between risk and return established by the security market line is called: Show Answer

Q57) Following are the details of Beta Limited:
Equity Share Capital (Shares of Rs 10)=1500.
8% Preference Share Capital =400.
12% Debentures=250.
Profit before interest and tax=590
Dividend Payout Ratio = 70%
Price-Earning (P/E) Ratio = 25
Corporate tax rate = 30%.
Earnings Per Share (EPS) will be:
Show Answer

Q58) Risk-Free Rate of Interest on Govt. Treasury Bonds 5.5%. Average Return on Market Portfolio 18%. Beta is 1.8. Security is said to be overpriced, if actual return is:
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Q59) Risk-Free Rate of Interest on Govt. Treasury Bonds 5%, Average Return on Market Portfolio 17.5%. What must be the beta, if the security is correctly priced with actual return of 25%?
Show Answer

Q60) The relationship between the risk and return established by the security market line is called
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Q61) Beta of Market portfolio is always
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Q62) "When a business is non-operating or has been generating losses, and the company's focus is holding investments or real estate." Which method of valuation is best used in this case? Show Answer

Q63) Beta of market portfolio is always.......
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Q64) The relationship between risk and return established by the security market line is called as :
Show Answer

Q65) Under Arbitrage Pricing Theory, it is assumed that the markets are frictionless because of the fact that there are:
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Q66) Among all measures of business value, the ............. of business is likely to be the least value.
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Q67) Risk is defined as
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Q68) Types of risks do not include Show Answer

Q69) Unsystematic risk relates to
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Q70) What is the value of the firm usually based on? Show Answer

Q71) Portfolio management reduces
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Q72) Types of risk does not include
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Q73) Assume that the following details are given for a company:
Sales - Rs 1,00,000; Costs - Rs 75,000; Depreciation - Rs 20,000; Tax -35%; Change in Net Working Capital - Rs 1,000; Change in Capital Spending - Rs 10,000.
The Free Cash Flow to Firm (FCFF) for the given data would be: Show Answer

Q74) Assume that in a stock market the CAPM is working. A company has presently beta of 0.84 and its going to finance its new project through debt. This would increase its debt/equity ratio to 1.56 from the existing 1.26 Due to increased debt/equity ratio, the company's beta would Show Answer

Q75) X Ltd.'s share beta factor is 1.40. The risk free rate of interest on government securities is 9%. The expected rate of return on the company equity shares is 16%. The cost of equity capital based on CAPM is
Show Answer

Q76) A firm current assets and current liabilities are Rs 1,600 respectively. How much can it borrow on a short-term basis without reducing the current
ratio below 1.25?
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Q77) Which of the following best describes free cash flow? Show Answer

Q78) Which of the following statements is correct?
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Q79) Which of the following statements is correct? Show Answer

Q80) Given 12 per cent expected rate of return on a suitable market index, with a standard deviation of 20 percent, and a risk-free rate of 8 percent, the required rate of return on a share whose beta is 0.8 using CAPM will be
Show Answer

Q81) The following approach states that value of a firm is unaffected by its dividend policy
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Q82) Firm Specific Risk is also called as
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Q83) An investment is risk free when actual returns are always ________ the expected returns.
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Q84) X Ltd. currently pays a dividend of 1 per share and has a share price of 20. If the dividend is expected to grow @ 12% pa forever, what is firm's required return on equity using dividend discount model?
Show Answer

Q85) Estimated fair value of an asset is based on the
operating cash flows.
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