Prepared by SM Nahidul Islam
Dept. of Finance & Banking (2nd batch)
1. Define factor model & state the features of one factor model
Answer: A factor model is a return-generating process that relates returns on securities to the movement in
one or more com
Prepared by SM Nahidul Islam
Dept. of Finance & Banking
1. Why must it be the case that an investor with diminishing marginal utility of wealth is
risk-averse?
Answer: An investor with diminishing marginal utility of wealth is necessarily risk-averse beca
Prepared by SM Nahidul Islam
Dept. of Finance & Banking
1. Why would you expect individual securities to generally lie in the eastern portion of the
feasible set, whereas only portfolios would lie in the northwestern portion?
Answer: Because very few secu
SM Nahidul Islam
Dept. of Finance & Banking (2nd batch)
1. In what significant ways docs the APT differ from the CAPM?
Answer: In general, APT is a much less restrictive equilibrium asset pricing theory than is the
CAPM. The CAPM utilizes certain strong a
SM Nahidul Islam
Dept. of Finance & Banking (2nd batch)
1. Describe the key assumptions underlying the CAPM.
Answer: There are ten key assumptions underlying the CAPM:
1. Investors evaluate portfolios by analyzing expected returns and standard deviations
Prepared by SM Nahidul Islam
Dept. of Finance & Banking
1. Define option with example
Answer: A contract between two parties whereby one party obtains the rights, but not the obligation, to
buy or sell a particular asset, at a specified price, on or befor
Prepared by SM Nahidul Islam
Dept. of Finance & Banking
1. Describe the conflict of interest that typically exists in the investment advisory
relationship between a brokerage firm and its clients.
Answer: Brokers are compensated largely on the basis of th
Prepared by Nahidul Islam
Dept. of Finance & Banking
1. Differentiate between the role of a specialist on the NYSE and the role of a dealer on the
OTC market.
Answer: A specialist is charged by the NYSE with maintaining a "fair and orderly" market in his
SM Nahidul Islam
Dept. of Finance & Banking (2nd Batch)
1. Distinguish between reinvestment-rate risk and interest-rate risk.
Answer: Interest rate risk involves the effect that interest rate changes over the investor's holding period
will have on the mar
Prepared by SM Nahidul Islam
Dept. of Finance & Banking
1. What is investment environment?
Answer: Investment environment can be defined as the existing investment
vehicles in the market available for investor and the places for transactions with
these in
