UNIVERSITY OF LIBERAL ARTS BANGLADESH

School of Business
BBA PROGRAM
BUS 422 (Security Analysis and Portfolio Management)
Mid Term Exam, Fall 2021
Section: 1 TIME: 1.5 hour Full Marks: 30
Answer all the questions.
1.a Discuss how financial market and assets help in developing the economy of a country. 4
b Top managers of corporations are provided with different types of incentives (stock option) to 4
match shareholder-management goal. Still, reports of corporate scandals by top management
dampens the image and trust of the governance system. Explain the reasons and suggest
solutions to this problem.

2.a Explain the concept of indifference curve and Capital Allocation line (CAL) with appropriate 5
diagram.

Assume you sold short 300 shares of common stock at Tk45 per share. The initial margin is 2
b.
60%. What would be the maintenance margin if a margin call is made at a stock price of Tk55?

3.a You purchase a share of CBX stock for Tk 80. One year later, after receiving a dividend of Tk. 5, 2
you sell the stock for Tk. 92. What was your holding-period return?

You have Tk. 20,000 to invest in a portfolio. There is 80% probability to earn Tk 12,000 and 2
b. 20% probability to earn Tk. 2000. If risk free investment can earn Tk. 7000 then calculate the
risk premium in Taka.

c. Calculate the Expected return and Standard deviations of the following stocks 4
Recession Normal Boom
Probability 0.25 0.4 .35
Stock A -15% 20% 30%
Stock B -12% 25% 40%

4.a You invest Tk2,000 in a risky asset with an expected rate of return of 0.16 and a standard 2
deviation of 0.30 and a T-bill with a rate of return of 0.05. What percentages of your money must
be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an
expected return of 0.11?

What percentages of your money must be invested in the risk-free asset and the risky asset, 2
b. respectively, to form a portfolio with a standard deviation of 0.20?

c. Calculate the slope of CAL. 1

d. If the degree of risk aversion A=3, what proportion of the money should be invested in risky 2
asset.