Office Use Only

SAMPLE EXAM PAPER

Faculty of Business and Economics

EXAM CODES: BFC5935

TITLE OF PAPER: Portfolio Management and Theory
EXAM DURATION: 2 hours writing time
READING TIME: 10 minutes

THIS PAPER IS FOR STUDENTS STUDYING AT: (tick where applicable)

 Caulfield  Clayton  Parkville  Peninsula

 Monash Extension  Off Campus Learning  Malaysia  Sth Africa
 Other (specify)

During an exam, you must not have in your possession any item/material that has not been
authorised for your exam. This includes books, notes, paper, electronic device/s, mobile phone,
smart watch/device, calculator, pencil case, or writing on any part of your body. Any authorised
items are listed below. Items/materials on your desk, chair, in your clothing or otherwise on
your person will be deemed to be in your possession.

No examination materials are to be removed from the room. This includes retaining,
copying, memorising or noting down content of exam material for personal use or to share with
any other person by any means following your exam.
Failure to comply with the above instructions, or attempting to cheat or cheating in an exam is
a discipline offence under Part 7 of the Monash University (Council) Regulations.

AUTHORISED MATERIALS

OPEN BOOK  YES  NO

CALCULATORS  YES  NO
(If YES, only a HP 10bII+ calculator is permitted, except at Malaysia and Sth Africa campuses where an
'approved for use' Faculty label is permitted)

SPECIFICALLY PERMITTED ITEMS  YES  NO

if yes, items permitted are:

Candidates must complete this section if required to write answers within this paper

STUDENT ID: __ __ __ __ __ __ __ __ DESK NUMBER: __ __ __ __ __

Page 1 of 5
 INSTRUCTIONS
This paper consists of ten (10) questions in Part I and six (6) questions in Part II, printed on a total of
twelve (12) pages and includes 1 page of formulae.

This exam consists of two parts.

Part I consists of 10 multiple-choice questions that are worth 1 mark each for a total of 10 marks. Choose
only the best answer. Please answer in the MCQ template provided. We will mark the answers in
the MCQ template only.
Part II consists of 6 questions that is worth 15 marks each for a total of 90 marks. Use the examination
script book provided to write your answer. The marks for each sub-questions are given in parenthesis.

The examination is out of a total of (100) marks.

There is a hurdle requirement in this unit. Students must attain a mark of at least 50% to pass.

Students must attempt to answer ALL questions.

Page 2 of 5
NOTE: PAST MCQs ARE NOT AVAILABLE

SECTION 1
10 MCQs (1 mark each) = 10 marks
(Note: Please transfer the answers to the MCQ template below)

Question Circle appropriate response

1 A B C D E
2 A B C D E
3 A B C D E
4 A B C D E
5 A B C D E
6 A B C D E
7 A B C D E
8 A B C D E
9 A B C D E
10 A B C D E

Marker Use Only No. Of CorrectTOTAL

Answers

Page 3 of 5
QUESTION 1 (5 + 3 + 2 + 5 = 15 Marks)

(A) Explain why an investment policy statement is important to investors. What are the main
components of an investment policy statement?

(B) What are the components of the required rate of return for investors who buy equity in a
company?

(C) On February 1, you bought 100 shares of stock in the Francesca Corporation for $34 a share and
a year later you sold it for $39 a share. During the year, you received a cash dividend of $1.50 a
share. Compute the Price Relative [HPR] and Return [HPY] on this Francesca stock investment.

(D) Explain what is meant by asset allocation and why it is important?

QUESTION 2 (7 + 8 = 15 Marks)

(A) Describe and show on the graph the concept of utility curves. Why are investors’ utility curves
important in portfolio theory?

(B) An analyst expects a risk-free return of 4.5 percent, a market return of 14.5 percent, and the
returns for Stocks A and B that are shown in the following table.

Stock Beta Actual Return

A 1.2 16%
B 0.8 14%

Show on a graph

(i) where Stocks A and B would plot on the security market line (SML) if they were
fairly valued using the capital asset pricing model (CAPM);

(ii) where Stocks A and B actually plot on the same graph according to the actual returns
in the table.

QUESTION 3 (9 + 6 = 15 Marks)

(A) Explain the concept of the efficient market hypothesis (EMH); The three forms of the EMH; and
the degree to which existing empirical evidence supports each of the three forms of the EMH.

(B) What is behavioural finance? Discuss why has it become an important field of study in finance?

Page 4 of 5
QUESTION 4 (7 + 5 + 3 = 15 Marks)

(A) Calculate the duration of an 8 percent, $1000 par bond that matures in three years if the bond’s
yield is 10 percent and interest is paid semi-annually.

(B) Calculate the modified duration of this bond. Estimate the percentage change in price given the
drop in the yield from 10% to 9.5%.

(C) What is the term structure of interest rates? Explain the basis of an upward-sloping yield curve.

QUESTION 5 (4 + 4 + 4 + 3 = 15 Marks)

(A) Hawthorn Ltd had consistently paid out 40 percent of its earnings in dividends. The company’s
return on equity is 16 percent. What is your estimate of the dividend growth rate?

(B) If the required rate of return on Hawthorn Ltd’s equity is 13 percent. What P/E ratio would you
use to value the company?

(C) What P/E ratio would you use if you learnt that Hawthorn Ltd had decided to increase its pay-
out ratio to 50 percent?

(D) Describe the Dow Theory and its three components. Which component is most important? What
is the reason for an intermediate reversal?

QUESTION 6 (6 + 9 = 15 Marks)

(A)
Outline the possible implications of both a fall and a rise in the inventory turnover measure.

(B) Discuss the key features of Treynor and Information Ratio as portfolio performance measures.

Page 5 of 5