Investment analysis exam

BUS329 (Investment Analysis) January Trimester 2020

Final examination guidelines

Structure of the exam paper:

(a) The exam paper has six (mostly numerical) questions

(b) Each question has subsections, such as (a), (b) etc.

(c) Total mark is 45

(d) The exam paper does not have any multiple-choice question (MCQ)

Exam paper guidelines:

Final exam will cover all chapters; however, following chapters (and the topics in each chapter mentioned below should be given more emphasis for final exam:

(1) Chapter 3 (How Securities Are Traded): Market order; price-contingent orders; buying on margin, short seeling on margin, initial margin, maintenance margin, margin call.

(2) Chapter 4 (Mutual Funds and Other Investment Companies): open-end fund; closed-end fund, front-end load, back-end load, NAV, return on NAV etc.

(3) Chapter 5 (Risk, Return, and the Historical Record): Real and nominal interest rate; determination of equilibrium real rate of interest; calculation of mean and standard deviation of time series.

(4) Chapter 6 (Capital allocation to Risky assets): Risk aversion and utility, risk-free asset, risk and return of portfolio of one risky asset and a risk-free asset, capital market line (CML), optimal investment in risky portfolio for a given risk aversion value.

(5) Chapter 7 (Optimal Risky Portfolios): Risk and return of portfolio of two risky assets; Sharpe ratio, optimal risky portfolio, capital allocation line (CAL).

(6) Chapter 8 (Index Model): Single-Index model; risk and return in the Single-Index model.

(7) Chapter 9 (The Capital Asset Pricing Model): Security Market Line (SML); SML and over-priced & under-priced security.

(8) Chapter 20 (Options Markets): Put option; call option; put premium; call premium; in-the-money call and put; out-of-the money call and put; put-call parity relationship.

FORMULA SHEET

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1. Effective annual rate:

1. Annual percentage rate:

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1.

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1. Optimal capital allocation to risky portfolio:

1. Sharpe ratio =

1. Portfolio weights when correlation between two risky assets (D & E) is -1: ;

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1. Sharpe ratio maximising portfolio weights with two risky assets (S & B) and a risk-free asset:

1. Portfolio return in (equally weighted) single index model: