Hello, here I am providing you the papers of the ICFAI university MBA course as under:

1. The standard deviation of returns of a portfolio of two stocks will be the weighted average of the standard
deviation of returns of the stocks, if
(a) The coefficient of correlation between the returns of two stocks is zero
(b) The coefficient of correlation between the returns of two stocks is –1
(c) The coefficient of correlation between the returns of two stocks is +1
(d) The coefficient of correlation between the returns of two stocks is 0.5
(e) The coefficient of correlation between the returns of two stocks is –0.5.

2. An investor can construct a portfolio that lies to the left of the optimal risky portfolio on asset allocation line by
I. Borrowing at the risk-free rate and investing in the optimal risky portfolio.
II. Lending some money at the risk-free rate and investing the remainder in the optimal risky portfolio.
III. Investing only in risk free security.
(a) Only (I) above
(b) Only (II) above
(c) Both (I) and (III) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above.

3. Consider the following information in relation to three stocks:
Stock Realized Return (%) Beta
19
15
11
Anand Ltd.
Bhanu Ltd.
Cyan Ltd.
1.25
1.10
0.50
The portfolio consists of the shares of Anand Ltd., Bhanu Ltd. and Cyan Ltd. in equal proportions. It is observed
that the market index on an average generated a return of 12.5%. Assuming that the risk free rate is 8.5%, the
excess return generated b y the portfolio as per Jensen is
(a) 1.74%
(b) 2.70%
(c) 3.85%
(d) 4.46%
(e) 5.10%.

4. Which of the following risks is not considered by Burmeister, Ibbotson, Roll and Ross (BIRR) macro economic
factor model?
(a) Confidence risk
(b) Time horizon risk
(c) Currency risk
(d) Business cycle risk
(e) Market timing risk.

5. Which of the following statements is true regarding formula plans in portfolio revision?
(a) In dollar-cost-averaging, the investor must fix predetermined action points called revaluation p oints
(b) Variable ratio plan implies selling of stocks and buying of bonds as stock prices rise and the buying of
stocks and selling of bonds as stock prices fall
(c) Dollar-cost-averaging works well over short periods such as one to two years
(d) Variable ratio plan requires less accurate forecasting than other plans and hence is less complicated
(e) The constant dollar value plan does not require forecast of the level to which stock prices may fall.

6. Preference of a sure gain to an uncertain event with the same expected value as that of a sure outcome, is
referred to as
(a) Asset aversion
(b) Loss aversion
(c) Risk aversion
(d) Liability aversion
(e) Emotional constraint.

7. Goldman Sachs Asset Management (GSAM) factor model uses nine factors, which are categorized into three
measures-value, growth and momentum & risk. Which of the following factors represent growth and momentum
measure?
(a) Book value per share/Price
(b) Retained EPS/Price
(c) Estimate revisions
(d) Beta
(e) Disappointment risk.

8. For stock A, the residual variance of returns is 56(%)2 and its beta is 1.23. If the variance of the market’s returns
is 62(%)2 , the coefficient of correlation of stock A’s return with that of market is appro ximately
(a) 0.50
(b) 0.79
(c) 0.84
(d) 0.89
(e) 0.92.

9. A stock with a beta of 0.85 is currently trading at Rs.44. After one year the price of the stock is expected to be
Rs.48. The market return is 15% p.a and the risk-free rate is 8.5% p.a. If stock pays Rs.2.5 as dividend during the
next year
I. The required return on stock is 14.025% p.a.
II. The stock’s alpha is 3.295%.
III. The stock is under priced and should be purchased.
IV. The stock is over priced and should be sold .
(a) Both (I) and (II) above
(b) Both (I) and (III) above
(c) Both (II) and (III) above
(d) Both (II) and (IV) above
(e) (I), (II) and (III) above.

10.The portfolio rebalancing should ensure that
(a) The systematic risk remains constant
(b) The unsystematic risk remains at unity
(c) The systematic risk remains at unity
(d) The systematic risk remains at zero
(e) The total risk does not exceed unity.

11.Which of the following statements is/are not true with respect to constant mix strategies?
I. These strategies are more static in nature.
II. The risk tolerance level of the investors varies with the level o f their wealth.
III. When the stock markets are perfectly capable of reversing themselves, such reversals fav or the constant
mix strategies over the buy and hold strategies.
(a) Only (I) above
(b) Only (III) above
(c) Both (I) and (II) above
(d) Both (I) and (III) above
(e) Both (II) and (III) above.

12.Alpha of stock of Cipla Ltd. is – 2.8%. Beta of the stock is 0.68. If the standard deviation of returns on market is
34.25%, the systematic risk of the stock returns is
(a) 542.42(%)2
(b) 498.58(%)2
(c) 412.64(%)2
(d) 376.86(%)2
(e) 304.32(%)2.

13.Which of the following is/are the reason(s) which make(s) the SML a band instead of a thin line?
I. Transaction costs.
II. Imperfect information.
III. Taxes.
IV. Number of stock s in the mark et index.
(a) Only (I) above
(b) Only (III) above
(c) Both (II) and (III) above
(d) (I), (II) and (III) above
(e) (I), (III) and (IV) above.

14.Who among the following assumes that the term structure of interest rates can provide best information about
the rate of expected inflation?
(a) Markowitz
(b) Nelson
(c) Fama
(d) Sharpe
(e) Livingston.

15.At the prevailin g environment, the slope of the SML is 6.5%, the sensitivity o f the return s of the portfolio to the
market returns is 1.2. If the realized return on the portfolio is 15% and the excess return on the portfolio as per
Jenson is 1.2, the yield on 91-day T-Bill is
(a) 10.00%
(b) 9.50%
(c) 8.97%
(d) 7.25%
(e) 6.00%.

16.As per Arbitrage Pricing Theory (APT), which is a multi factor model, the return on any asset i is given b y
Ri = i 0 + i 1 I1 + i2 I2 + i 3I3 + - - - - - + i mIm + ei
where the notations are in their standard use.
If the variance (Ri ) = 360(%)2 and the above equation explains 80% of the total variance, then the variance of
error term i.e. Var (ei ) will be
(a) 0(%)2
(b) 72(%)2
(c) 100(%)2
(d) 150(%)2
(e) 160(%)2.

17.The data given below relates to the sensitivity of a stock based on the BIRR model.
Estimated Market price for
Risk Factor Estimated Factor
Sensitivity
Risk (%)
Confidence risk 0.65
2.89
Time horizon risk 0.76
3.24
Inflation risk – 0.78
-
Business Cycle risk – 2.65
0.95
Market Timing risk 1.75
2.45
If the risk-free rate is 8.5% and the expected return on the stock is 13.3%, the estimated market price for
inflation risk is
(a) –2.87%
(b) –3.30%
(c) +0.35 %
(d) +1.68 %
(e) +2.87 %.

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