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Cfm 310 Issues In Financial Management Question Paper

Cfm 310 Issues In Financial Management

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2011

UNIVERSITY EXAMINATIONS: 2011/2012
YEAR 3 EXAMINATION FOR THE BACHELOR OF COMMERCE
CFM 310 ISSUES IN FINANCIAL MANAGEMENT (Sunday)
DATE: APRIL 2012 TIME: 2 HOURS
INSTRUCTIONS: Answer Question One and Any other Two Questions
QUESTION ONE
Consider the returns of two securities X & Y which depend on the states of nature with the following
probabilities.
Returns %
State Probability X Y
Recession 0.25 15 10
Stable 0.5 20 15
Expansion 0.25 15 10
a) Compute the expected returns of X and Y [4 Marks]
b) Compute the standard deviation of the individual securities [6 Marks]
c) Compute the correlation coefficient between the two securities returns and comment.
[6 Marks]
d) Compute portfolios expected return for a portfolio consisting of 40% of X and 60% of Y.
[4 Marks]
e) Compute the risk of the portfolio in (d) above. [4 Marks]
f) Compute the risk reduction as a result of diversification [6 Marks]
QUESTION TWO
a) Discuss the factors that affect the efficiency of a portfolio [6 Marks]
2
b) An investor holds the following four (4) portfolios
Portfolio E (Rp) % (dp)
Expected
return
Standard deviation
A 14 6
B 12 5
C 11 8
D 17 9
If the market return is 12% with a standard deviation of 5% and risk free rate of 8%, determine using
the capital market line equation which of the portfolios are efficient and which are inefficient. Include
a diagram to show how the portfolios appear on the CML. [14 Marks]
QUESTION THREE
a) Discuss ANY five objectives of corporate restructuring [10 Marks]
b) Discuss any FIVE defensive tactics from hostile takeover [10 Marks]
QUESTION FOUR
a) Differentiate between Arbitrage Pricing Theory (APT) and Capital Asset Pricing Model (CAPM)
[10 Marks]
b) Discuss the THREE forms of mergers [6 Marks]
c) Highlight ANY FOUR considerations for mergers [4 Marks]
QUESTION FIVE
a) Highlight ANY THREE processes that are well suited for e-commerce and THREE that are not
[6 Marks]
b) Discuss ANY FOUR limitations of e-commerce [8 Marks]
c) Discuss the following terms as applied in e-commerce:
- Non repudiation [2 Marks]
- Authentication [2 Marks]
- Intellectual property [2 Marks]

Cfm 310 Issues In Financial Management Question Paper

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