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Applied Investment Question Paper

Applied Investment

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2008

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE

BAC 408: APPLIED INVESTMENT

DATE: Monday 23rd June 2008 TIME: 2.00pm – 4.00pm

INSTRUCTIONS: Answer ALL questions
Question 1
(a)
A 10-year bond of Ksh.1,000 has an annual rate of interest of 12 per cent. The
interest is paid half-yearly. If the required rate of return is 16 per cent, what is the
value of the Bond?

[10 marks]
(b)
Illustrate how a bullish trend in the market can be identified using Dow theory.

[10 marks]

Question 2
Securities of Channia Bakers Ltd and those of Lolwe transporters are equally risky, but
they have different expected returns as follows.

Channia (C)

Lolwe (L)
E(R Channia)
= 0.16
E (R Lolwe) = 0.24
W Channia

= 0.50
W Lolwe
= 0.50
2
? Channia
= 0.04
2
? Lolwe
= 0.04
? Channia
= 0.20
? Lolwe
= 0.20

What is the portfolio variance if
(a)
Corcl = + 1.0

[5 marks]
(b)
Corcl = - 1.0

[5 marks]

1
(c)
Corcl = + 0.10

[5 marks]
(d)
Corcl = - 0.10

[5 marks]
Comment on the variances.
Note: C = Channia

L = Lolwe

Question 3
(a)
Explain the three main principal tests of weak form efficiency.

[10 marks]
(b)
The capital asset pricing model is based on certain explicitly assumptions
regarding behaviour of investors. Comment on the assumptions.

[10 marks]

Question 4
(a)
Consider the following data for the year 2007.

Portfolio
Market

Average return 54%
38%

Beta 1.40%
1.00%

Standard deviation 52%
40%

Nonsystematic risk ? ?e? 28%
0%
Required:
(a)
Calculate the following performance measures for portfolio p and the market:

(i)
Sharp
[2 marks]

(ii)
Jensen
[2 marks]

(iii)
Treynor
[2 marks]

(iv)
Appraisal ratio
[2 marks]
The T-bill rate during the period was 9%.
By which measure did the portfolio outperform the market?
[2 marks]

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Applied Investment Question Paper

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