Principle of Modern Finance Exam Paper
This is a close-book exam. Section A (Q1) and section B (Q2) are compulsory. You just need to answer one question in section C (Q3, Q4 and Q5).
This is a close-book exam. Section A (Q1) and section B (Q2) are compulsory. You just need to answer one question in section C (Q3, Q4 and Q5).
Supplementary Papers Included: Formulae Sheet
Supplementary Papers Included: Formulae Sheet
In marking the papers, the examiner will take into account clarity of exposition and logic of arguments, effective arrangement and presentation and the use of concise and lucid English.
Candidates should ensure that all workings are clearly shown.
MOBILE PHONES MUST BE SWITCHED OFF AND PLACED BEYOND REACH.
THIS IS AN INDIVIDUAL PIECE OF WORK AND ANY FORM OF COLLABORATION OR OTHER FORM OF CHEATING IS REGARDED AS A SERIOUS OFFENCE UNDER THE UNIVERSITY’S ACADEMIC MISCONDUCT PROCEDURES AND COULD HAVE AN EFFECT ON ANY FINAL AWARD CLASSIFICATION.
Section A: Short-Answer Questions - Answer All Questions
Q1
a) According to the Capital Market Theory and Capital Assets Pricing Model, what are the characteristics of the Market Portfolio? (3marks)
b) What does an overvalued asset mean in the context of CAPM, and does such an asset lie above or below the Security Market Line? (3 marks)
c) In a two-asset portfolio, what determines the degree of risk-reduction effect?
(2 marks) d) Sketch and properly label the indifference curve of a highly risk averse individual, and explain what it measures or represents. (4 marks)
e) What is the importance of the indifference curve in Markowitz Portfolio theory?
(2 marks) f) According the Efficient Market Hypothesis (EMH), why do share prices follow a random walk? (2 marks)
g) What does a fundamental analyst attempt to do, and according to the EMH why would s/he not succeed? (3 marks)
h) What are the implications of semi-strong efficiency for financial managers?
(3
This is a close-book exam. Section A (Q1) and section B (Q2) are compulsory. You just need to answer one question in section C (Q3, Q4 and Q5).
Supplementary Papers Included: Formulae Sheet
Supplementary Papers Included: Formulae Sheet
In marking the papers, the examiner will take into account clarity of exposition and logic of arguments, effective arrangement and presentation and the use of concise and lucid English.
Candidates should ensure that all workings are clearly shown.
MOBILE PHONES MUST BE SWITCHED OFF AND PLACED BEYOND REACH.
THIS IS AN INDIVIDUAL PIECE OF WORK AND ANY FORM OF COLLABORATION OR OTHER FORM OF CHEATING IS REGARDED AS A SERIOUS OFFENCE UNDER THE UNIVERSITY’S ACADEMIC MISCONDUCT PROCEDURES AND COULD HAVE AN EFFECT ON ANY FINAL AWARD CLASSIFICATION.
Section A: Short-Answer Questions - Answer All Questions
Q1
a) According to the Capital Market Theory and Capital Assets Pricing Model, what are the characteristics of the Market Portfolio? (3marks)
b) What does an overvalued asset mean in the context of CAPM, and does such an asset lie above or below the Security Market Line? (3 marks)
c) In a two-asset portfolio, what determines the degree of risk-reduction effect?
(2 marks) d) Sketch and properly label the indifference curve of a highly risk averse individual, and explain what it measures or represents. (4 marks)
e) What is the importance of the indifference curve in Markowitz Portfolio theory?
(2 marks) f) According the Efficient Market Hypothesis (EMH), why do share prices follow a random walk? (2 marks)
g) What does a fundamental analyst attempt to do, and according to the EMH why would s/he not succeed? (3 marks)
h) What are the implications of semi-strong efficiency for financial managers?
(3