Security Investment Analysis Question Paper

Security Investment Analysis

Course:Master Of Business Administration

Institution: Kenyatta University question papers

Exam Year:2010

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
SPECIAL/SUPPLEMENTARY EXAMINATION FOR THE DEGREE OF
MASTERS OF BUSINESS ADMINISTRATION

BAC 607: SECURITY INVESTMENT ANALYSIS

DATE: Monday, 27th September 2010

TIME: 2.00 p.m-5.00 p.m

INSTRUCTIONS:
Answer all questions
QUESTION ONE
Consider the following information about a risky portfolio that you manage, and a risk-
free asset: E ?r
? p
R

p ? ?
%,
11
? %,
15
? %.
5
f
a)
Your client wants to invest a portion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 8%. What proportion should she invest in risky portfolio, P and what proportion in risk- free asset? [ 5 marks]
b)
What will be the standard deviation of the rate return on her portfolio? [ 5 marks]
c)
Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 12 %. Which client is more risk averse? [ 5 marks]

QUESTION TWO
a)
Consider a portfolio that offers an expected rate of return of 12% and a standard deviation of 18%. T- bills offer a risk- free 7% rate of return. What is the maximum level of risk aversion for which the risky portfolio is still preferred to bills? [ 10 marks]
b)
International Bonds are commonly divided into two categories of Foreign and Eurobonds. Comment on the categories. [ 5 marks]

QUESTION THREE
a)
Two bonds Q and R are both having face values of shs.10000, yield to maturity of 9 per cent and four years to maturity. Bond Q has a coupon rate of 10 per cent and bond R has a coupon rate of 7.5 per cent. Coupons are paid annually.
Required:
i)
Calculate the duration of bonds Q and R [ 10 marks]
ii)
Explain the difference in duration between the two bonds [ 5 marks]

QUESTION FOUR
Security analyses has one key objective to appraise the intrinsic value of securities. Discuss how each of the following three main approaches appraises the value;
i)
Fundamental analysis
[ 5 marks]
ii)
Technical analysis
[ 5 marks]
iii)
Efficient market theory
[ 5 marks]

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