Applied Investment Question Paper

Applied Investment

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
INSTITUTE OF OPEN LEARNING
EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
BAC 408: APPLIED INVESTMENT
DATE: WEDNESDAY, 12TH AUGUST 2009

TIME: 11.00 A.M. - 1.00 P.M.

INSTRUCTIONS: Answer ALL Questions.
Question 1
a)
Mr. Kamau bought 500, 15% debentures of KSh.100 par value of a company

(interest payable half yearly) on 1.4.2002 at KShs.98.50. If the price of the

debentures on 31.12.2003 is Ksh.102.75 and Mr. Kamau has received interest on

30.6.2002 and 31.12.2002, what would be Mr. Kamau’s return?

(12 marks)
b)
Explain the important sources of capital market information.

(8 marks)

Question 2
Mutual Funds can be classified into three board categories which in turn form the main
types of mutual funds. Discuss the three categories of mutual funds giving examples
under
each
category.
(10
marks)

Question 3
a)
Using the following information, compute the portfolio return using the Sharpe and
Treynor
measures:
FUND
X:

Average rate of return
22%

Standard deviation of returns 16%
Beta
1.20

Risk free return

12%

MARKET:

Average rate of return
20%

Standard deviation or returns 14%
Beta
1.0

Risk free return

12%

(12 marks)
Page 1 of 2

b)
The capital market-pricing model (CAPM) is based on some assumptions

which make it usable in analysing the investments. Critically review at least
FIVE
of
the
main
assumptions. (10
marks)

Question 4
a)
A company has a book value par share of KShs.137.80. Its return on equity is

15 per cent and it follows a policy of retaining 60 per cent of its earnings. If the

opportunity cost of capital is 18 per cent, what would be the price of the share

today?

(10 marks)
b)
Discuss the concept of “beating the market”. Why are professional money
managers
unable
to
achieve
it? (8
marks)

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Page 2 of 2

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