Hence option (b) is the answer. 12.C Rate of change index method is used to measure the momentum and not market breadth. Hence option (c) is false. Other statements are true. Thus option (c) is the answer.13.B The higher the expected interest rate volatility, the lower the OAS. Hence statement (III) is false. Thus option (b) is the answer. 14.B Current yield of bonds selling at premium would be less than the coupon interest rateHence option (b) is false. Other statements are true. Thus option (b) is the answer. 15.C Preferred Habitat Theory states that it is not necessary that the liquidity premium should increase at a uniform rate with maturity. Hence option (c) is the answer. 16.B In deleveraged FRNs the reference rate is adopted as a percentage of the value of reference index. Hence option (b) is the answer.17.C Return on equity (ke) = 7.5 + (12 - 7.5)1.4 = 13.8%.Value of the stock P4= D0(1+g)5/(ke- g) = 8.5(1.065)5/(0.138 - 0.065) = Rs.159.5318.A A gap refers to the occurrence of an empty space in a bar chart between the prices of two consecutive trading sessions. Hence statements (I) is false. Thus option (a) is the answer. 19.B Mean (μ)= = = 33.60Standard error = σ= 3.15 At 10% level of significance α= 0.01, Z = 1.65 Upper limit = μ+ Zσ= 33.60 + 1.65(3.15) = 38.80 12122n n+1n +n23928+139+28××20.D Maximum value of the warrant = current market price of the stock ×number of shares 132.5 ×3 = Rs.397.50 21.A Point and Figure Chart does not have time dimension. It does not measure every movement in prices. Other statements are true. Hence option (I) and (III) are false. Thus option (a) is the answer. 22.D P/S ratio is directly proportional to net profit margin and inversely proportional to the required rate of return. Hence option (d) is false. 23.D Modified duration = Where p is frequency of coupon payment.= = 8.76 yearsDYTM1P+9.180.09512+24.B One of the drawbacks of cost approach is that it is difficult to quantify the functional and external obsolescence. Hence option (b) is false. Other statements are true. Thus option (b) is the answer. 25.E Expected utility function is an increasing function of expected return. Hence option (e) is false. Other statements are true. Thus option (e) is the answer. 26.E An industry evolves into the stabilization stage at which the growth begins to moderates is a true statement. All other statements are false. Hence option (e) is the answer.
27.B Leveraged Funds are used in order to increase the size of the value of the portfolio and benefit the shareholders by gains exceeding the cost of the borrowed funds. Hence option (b) is false. Other statements are true. Thus option (b) is the answer. 28.C Variance of the portfolio of two stocks is calculated as σ12w12+ σ22w22+ 2σ1σ2w1w2, whereσiis variance of the stockwiis weight of the stockis the correlation coefficient of two stocks,In the given case, 324 ×0.72+ 178 ×0.32+ 2 ×0.7 ×0.3 = 205174.78 + 100.86= 205= 0.3012ρ12ρ12324178ρ12ρ12ρ29.C The longer it takes for prices to break through a pattern, the greater is the significance of the penetration. Thus option (c) is false. Other statements are true. Hence option (c) is the answer.
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