INVESTMENT MANAGEMENT

PAST QUESTIONS WRITTEN SECTION

1. Briefly explain
(a) Business risk
(b) Management risk
(c) Purchasing risk

2. Stock index from America, Europe, Asia and Africa

(a) DOW Jones Stock Index
(b) Nikkei Stock Index
(c) GSE Composite Index

3. Differentiate between Registered bonds and Bearer Bonds

Registered bonds -
Bearer bonds -

4. Close-end investment company and Open-end investment company

Close-end investment company stand ready to redeem or issue shares at
their NAV. Investors sell shares back to their fund at their NAV
Open-end investment company do not redeem or issue shares. Investors
who wish to cash out must sell their shares to other investors

5. What is indexing in investment fund management?

6. Give two listing requirements for listing of equities on GSE

7. Explain how interest rate affects securities on the stock market

8. Differentiate between Third market and Fourth market

Third market
used to refer to trading in listed stock outside the stock exchange.
Fourth market
The trading of exchange-listed securities between institutions on a private
over-the-counter computer network, rather than over a recognized exchange
such as the New York Stock Exchange (NYSE) or Nasdaq.

9. Briefly explain what a sinking fund is, indicating clearly what it is used for
10.Differentiate between systematic risks and unsystematic risk
Systematic risk
Unsystematic risk

11.In the bond issue, what is a bond indenture?

Used to refer to contract between the bond issuer and the bondholder

12.Explain
(a) Market order
Buy or sell at the best current price
(b)Limited order
Order specifies the buy or sell price
(c) Stock split
(d) Stock dividend
(e) Stop loss order
Conditional order to sell stock if it price drops to a given price
(f) Stop buy order

13.Explain what is meant by

(a) Derivative security
Used to refer to assets that derive their value from other securities
(b)Fixed income security
Used to refer to money market debt and capital market debt

14.Differentiate between mutual fund and hedge fund

Mutual fund mutual funds buy back r redeem their shares any time the
customer wishes. The amount of outstanding shares changes with response
to public demand.
Hedge fund used to refer to structured private partnerships opened to
wealthy or institutional investors to invest in illiquid assets.

15.Compare and contrast the efficient market hypothesis with the school of
thought termed behavioral finance

16.Differentiate between short selling and speculation

 Short selling - used to describe a position to profit from a decline in the price
of a stock or security
Speculation -

17.Define the following in just one sentence

(a) Eurobond
(b) International Bond
(c) Junk Bond
(d) Ex-dividend data
(e) Holder of record data
(f) Index fund used to describe funds that are match with the performance
of a broader market index.
18.List and describe any three important types of mutual funds according to
their investment policy and use
19.Describe how an investor may combine a risk free asset and one risky asset
in order to obtain the optimal portfolio for that investor.
20.Theoretically, the standard deviation of a portfolio can be reduced to what
level? Explain
Realistically, is it possible to reduce the standard deviation to this level?
Explain
21.Discuss two similarities and two differences between real and financial
assets
Real assets use to determine the productive capacity and net income of the
economy
Financial assets used to refer to claims on real assets

22.Discuss the advantages and disadvantages of common stock ownership,

relative to other investment alternatives
23.Discuss the differences between investors who are
(a) Risk averse
(b) Risk neutral
(c) Risk loving

24.Define the duration of a bond

Used to measure bond price sensitivity to interest rates changes
 Some useful formulas

1. Investors rate of return on margin trading

=
End of year value of sharesRepayment of principalInterest Initial margin
x 100
Initial Margin

2. Margin call price

Po[1initial margin ]
= [ 1maintenance margin ]

3. YTM on Bond

Face valuePrice
Coupon payment +[ ]
time
= Face value+ Price
2

4. Present value of bond (P0 )

n

Coupon payment Face Value

= t =1
t
+
[1+r ] [1+ r ]t

5. Portfolio Performance Evaluation

[ E(r p )r f ]
(a) Sharpe ratio = Standard deviationof portfolio

[ E(r p )r f ]
(b) Treynor measure = p

(c) Jensen (p) = r pCAPM

6. Correlation (X, Y)
Variance ( X )Variance (Y )
[ ]
= Covariance( X , Y )

Covariance( X ,Y )
= SD XSD Y

7. Covariance of sample data

y y
n

Cov (Y, Z) =
()(zz )
i=1
n1

Certificates of Deposit
- use to refer to time deposit with a bank.
- time deposits may not be withdrawn on demand.
- the bank pays interest and principal to the depositor only at the end of the fixed term

Commercial Paper
- used to refer to short-term unsecured debt notes issued by large, well-known companies.
- usually backed by a bank line of credit.

Eurodollars
- used to refer to dollar-denominated deposits at foreign banks or foreign branches of American banks.

Repos and Reverses

- used to refer to a form of short term, usually overnight, borrowing.
- dealer sells government securities to an investor on an overnight basis, with an
agreement to buy back those securities the next day at a slightly higher price.

Eurobond
- used to refer to a bond denominated in a currency other than that of the country in which it is issued.