Applied Investments Question Paper

Applied Investments

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2010

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2010/2011
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE

BAC 408: APPLIED INVESTMENTS

DATE:
Thursday 2nd December 2010
TIME: 2.00p.m - 4.00p.m

INSTRUCTIONS: Attempt all questions
1.
a)
Discuss the various types of mutual funds.

[15marks]

b)
What are the roles of mutual funds in the economy?
[10marks]

[Total 25 marks]
2.
a)
Describe the portfolio management process?

[8marks]

b)
Mwananchi ltd has been trading at Nairobi Stock Exchange for the last 10

years. The return of its share for the last six years and the market returns

are shown below:

Year
Return (%)

Mwananchi ltd
Market returns
1
18
15
2
9
7
3
20
16
4
-10
-13
5
5
4
6
12
7

Required:
i)
Calculate the covariance and correlation coefficient of returns.
[8marks]
ii)
Determine the beta coefficient for the Mwananchi share.

[5marks]
iii)
Distinguish between systematic and unsystematic risk.

[4marks]

[Total 25 marks]
Page 1 of 2

3.
a)
To what extent is the Nairobi Stock Exchange an emerging capital Market.

[10marks]

b)
Distinguish between technical asset allocation and fundamental asset

allocation.

[6marks]

c)
Differentiate the Dow Theory and Hatch system using relevant examples.

[9marks]

[Total 25 marks]

4.
a)
The following portfolios are being considered for investment. During the

period under consideration, the risk free rate is 7%.

Portfolio
Return
Beta
Standard deviation
A
0.15
1.0
0.05
B
0.20
1.5
0.10
C
0.10
0.6
0.03
D
0.17
1.1
0.06
Market
0.13
1.0
0.04

Required:
i)
Compute the Sharpe measure for each portfolio and the market portfolio.

[6marks]
ii)
Compute the Treynor measure for each portfolio and market portfolio.

[6marks]
iii)
Rank the portfolios using each measure and explain the cause for any differences

in the ranking.

[8marks]

b)
Briefly discuss the Hamanda model in (CAPM) and how it related to the

firm.

[5marks]

[Total 25 marks]

Page 2 of 2

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