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Investment Planning ( Finally Done )

Investment Planning ( Finally Done )

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Financial Planning Academy
Investment Planning
Part 1
1) Which of the following costs best describes the cost of foregone income that results
from making an economic decision to use funds to purchase a piece of equipment?
(a) Cost of Capital
(b) Fixed Cost
(c) Marginal Cost
(d) Opportunity Cost
2) A mutual fund that invests in Indian Equities, foreign equities, Indian Corporate

Bonds, Indian Government Gilts is subject to the following risks?
1.Business Risk,
2.Default Risk,
3. Systematic Risk,
4. Interest Rate Risk.
(a) 1 & 3 only
(b) 1,3 & 4 only
(c) 3 & 4 only

(d) 1,2,3 & 4
3) Which of the following statements concerning technical stock market indicators is/are
correct?
1. The stock market is considered strong when the volume of the market is increasing in
a rising market.
2. 2. The market\u2019s direction will change when the percent of odd-lot short sales
significantly increases or decreases.
3. Prices crossing the moving average line would be an indication of the change in the
market.

(a) 1 only
(b) 1 & 2 only
(c) 2 & 3 only

(d) 1,2 & 3

4) If a new issue was offered to the public at 15 times earnings but the market was pricing
similar shares at 19 times, this would be_____________.
(a) Appalling proposition to the investor
(b) The investor cannot take a position
(c) An example of low gearing

(d) Bargain not to be missed
Financial Planning Academy
1
5) Mr. X buys 50 RIL October Rs. 350 call options for Rs. 15. The current share price is
Rs. 345. The break-even share price, ignoring transaction costs is Rs.________.
(a) 350
(b) 360
(c) 365
(d) None of the above
6) Investor complaints relating to the following Capital Market issues will not be
entertained by SEBI:
(a) A company declaring no dividend on equity for the fourth consecutive year.
(b) A company has declared dividend but not paid the same after six months of
declaration.
(c) A company not paying the redemption proceeds on debentures issued by the
company, one year after maturity date.
(d) None of the above cases.

7) If a bond is selling at a premium:
(a) It is an attractive investment
(b) Its coupon rate is below market rate

(c) Its current yields is lower than the coupon rate
(d) Its realized compound yield will be less than the yields to maturity
8) A portfolio manager can hedge a share portfolio by_______.
(a) Buying call options
(b) Selling call options
(c) Buying index options
(d) Selling put options

9) Which of the following is NOT a characteristic of a balance fund?
(a) It is less risky than growth funds
(b) It is more risky than income funds

(c) It must invest in both equity and bonds in equal amount
(d) It provides both growth and income objectives
10) Beta is a measure of:
(a) Geometric average return
(b) Holding period return
(c) Systematic risk
(d) Unsystematic risk
Financial Planning Academy
2
11) If the current share price is S and the set exercise price is X, the intrinsic value of the
call option is_______.
(a) Max (O, S-X)

(b) Max (O, X-S)
(c) Min (O, S-X)
(d) Min (O, X-S)

12) The CAPM is a model that:
(a) Determines the geometric return of a security.
(b) Determines time-weighted return

(c) Explain return in terms of risk.
(d) Explains systematic risk
13) SAIL is an AAA rated issuer of Corporate Bonds in the International Debt markets.

The issue price of a typical SAIL corporate bond is affected by all the following EXCEPT
the_______.
(a) Face value, coupon rate, and maturity of the bond.
(b) Firm\u2019s required return on debt.
(c) Percentage of debt in the firm\u2019s capital structure.

(d) Required return on the firm\u2019s competitors\u2019 bonds.

14) RPL is raising funds through a bond issuance to fund a new power plant at Noida, UP. They are issuing Two Year maturity, Zero-coupon bond with face value of Rs 1000 and yield of 4%. What price would you pay for this RPL Zero-coupon bond today?

(a) Rs. 920.00.
(b) Rs. 924.56.
(c) Rs. 925.95.
(d) Rs. 960.00.

15) The best method of valuing a share is:
(a) Book value based on net tangible assets.
(b) Liquidation value based on the proceeds of liquidation of the company.
(c)Present value of all the dividends to be received from holding that share.
(d) Apply the P / E ratio to expected earnings per share.

16) Public Issue through the book building process is better than I.P.O at fixed price
because__________.
(a) High fixed price will result in under subscription leading to loss to the investor.
(b) It helps the issuer to ascertain the exact price at which the investor is willing to
subscribe.
(c) Low fixed price will result in over subscription leading to loss to the issuer.
(d) All of the above
Financial Planning Academy
3

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