Module 12 - Investment Management And Corporate Finance

30 Questions | Total Attempts: 83

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Module 12 - Investment Management And Corporate Finance

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Questions and Answers
  • 1. 
    Which of the following BEST describes the Strategic Asset Allocation Strategy?
    • A. 

      The most comprehensive strategy that requires a constant examination of the investor’s needs and circumstances as well as changes in the capital market and this is reflected by continuous rebalancing of the portfolio

    • B. 

      The strategy where the investment decision i.e. to reduce or increase exposure in risky or non-risky asset is dependent on the difference between portfolio value and the predetermined floor value of the portfolio

    • C. 

      The strategy where the weight of each asset in the portfolio is fixed and periodically rebalanced to maintain the weight, taking into consideration the changes in the value of the assets

    • D. 

      The strategy which focuses on changes in the capital market conditions and attempts to take advantage of perceived mispricing of securities

  • 2. 
    All of the following statements about features of swap contracts are TRUE, EXCEPT:
    • A. 

      Swap contracts are multi-period agreement

    • B. 

      Swap contracts are highly standardised and negotiated over the counter

    • C. 

      Swap contracts are mainly used by institutional managers, corporations, banks and public sector institutions

    • D. 

      Swap contracts have high default risk as there is no clearing house to ensure performance of the counterparty

  • 3. 
    The market value of goods and services produced over a period of time within a country is known as:
    • A. 

      Gross national product

    • B. 

      Gross domestic product

    • C. 

      National productivity

    • D. 

      Total domestic productivity

  • 4. 
    Which of the following instruments are used in fiscal policy? (i)                Taxation(ii)               Transfer payments(iii)              Reserve requirements(iv)              Government purchases
    • A. 

      (i) and (iii) only

    • B. 

      (i), (ii) and (iv) only

    • C. 

      (ii), (iii) and (iv) only

    • D. 

      All of the above

  • 5. 
    The statutory requirements that lay down the responsibilities of directors for preparation of a company’s financial statements are under the purview of which of the following authorities?
    • A. 

      Securities Commission Malaysia

    • B. 

      Bank Negara Malaysia

    • C. 

      Bursa Malaysia Securities Berhad

    • D. 

      Companies Commission of Malaysia

  • 6. 
    When a company decides to be the lowest cost producer in the industry to compete in the market, it is said to be pursuing a:
    • A. 

      Cost cutting strategy

    • B. 

      Cost leadership strategy

    • C. 

      Cost optimisation strategy

    • D. 

      Cost competitiveness strategy

  • 7. 
    The duration of a straight bond will usually have a positive relationship with the:
    • A. 

      Coupon rate of the bond

    • B. 

      Yield to maturity of the bond

    • C. 

      Time to maturity of the bond

    • D. 

      Prevailing risk-free rate of interest

  • 8. 
    The holder of a European put option may exercise the option under which of the following circumstances?
    • A. 

      As and when the value of the underlying exceeds the strike price

    • B. 

      As and when the value of the underlying is less than the strike price

    • C. 

      When the value of the underlying exceeds the strike price upon expiry

    • D. 

      When the value of the underlying is less than the strike price upon expiry

  • 9. 
    Which of the following should be the primary determining factor for a company to undertake corporate restructuring exercise?
    • A. 

      To create value for shareholders of the company

    • B. 

      To manage the company’s share price from declining

    • C. 

      To prevent from an unwanted takeover by business competitors

    • D. 

      To increase the company’s current earnings per share regardless of cash flow implication

  • 10. 
    Which of the following is a measure of the degree to which 2 variable moves together relative to their individual mean values over time?
    • A. 

      Variance

    • B. 

      Covariance

    • C. 

      Semi-variance

    • D. 

      Standard deviation

  • 11. 
    A bond with a put provision would allow an investor to:
    • A. 

      Convert the bond to a specified number of ordinary shares

    • B. 

      Receive additional interest payments if inflation goes above a specified level

    • C. 

      Sell the bond back to the issuer at a pre-determined price at a specified time

    • D. 

      Sell the bond back to the issuer at a small premium over par at a specified time period

  • 12. 
    A central bank can use several methods to achieve its monetary policy objectives including: (i) control of money supply by controlling the borrowing and lending  activities of banks(ii) control of liquidity in the banking system by selling government securities to the public(iii) control of liquidity by controlling the statutory reserve requirements (SRR) of banks(iv) require the government to deposit excess funds with central bank rather than private sector
    • A. 

      (ii) and (iii) only

    • B. 

      (i), (ii) and (iv) only

    • C. 

      (i), (iii) and (iv) only

    • D. 

      All of the above

  • 13. 
    What would be the theoretical impact on the rising domestic interest rates on the following? (Assuming other factors remain constant)  Bond PricesEquity PricesExchange rates for domestic currencyADecreaseDecreaseIncreaseBIncreaseDecreaseDecreaseCDecreaseIncreaseDecreaseDDecreaseIncreaseIncrease
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 14. 
    Which of the following describes an appropriate use of the weighted average cost of capital (WACC)?
    • A. 

      To determine the expected rate of return of a potential project

    • B. 

      To determine the weightage of assets in the capital structure of a company

    • C. 

      To determine the amount a company should retain from its earnings and the dividend payout

    • D. 

      To determine the hurdle rate for decisions related to acceptance or rejection of a project

  • 15. 
    Which of the following statements BEST describes the relationship between gross national product (GNP) and money supply (assuming other factors remain constant)?
    • A. 

      As nominal GNP increases, money supply increases

    • B. 

      As nominal GNP increases, money supply decreases

    • C. 

      As nominal GNP increases, money supply remain unchanged

    • D. 

      As nominal GNP remain unchanged, money supply increases

  • 16. 
    Which of the following statements BEST describe passive strategy in investment management?
    • A. 

      A strategy that focuses on changes in capital market conditions and attempts to take advantage of perceived mispricing in securities

    • B. 

      A strategy that concentrates on adding value to the portfolio through careful selection of securities

    • C. 

      A strategy that needs a constant rebalancing of the portfolio to achieve the target returns

    • D. 

      A strategy where the portfolio is constructed to reflect a benchmark index

  • 17. 
    Which of the following bond issues should an investor choose if he expects the market interest rate to rise?  DurationAnnual Coupon Payment (%)Bond A610Bond B810Bond C614Bond D814
    • A. 

      Bond A

    • B. 

      Bond B

    • C. 

      Bond C

    • D. 

      Bond D

  • 18. 
    Which of the following risk(s) will be faced by a company if it decides to raise funds through equity?(i)               Market volatility risk(ii)              Risk of dilution of control and earning per share(iii)             Bankruptcy risk(iv)             Interest rate risk
    • A. 

      (i) and (ii) only

    • B. 

      (iii) and (iv) only

    • C. 

      (i), (ii) and (iii) only

    • D. 

      All of the above

  • 19. 
    A company which undertakes a project with zero net present value (using the company’s cost of capital) will find that the:
    • A. 

      Book value of its equity will fall

    • B. 

      Market value of its equity will increase

    • C. 

      Total value of the company will remain unchanged

    • D. 

      Market value of its debt will fall while the value of its equity will increase

  • 20. 
    Amin decided to invest 50% of his portfolio in Share X and the remaining in Share Y. Share X has a beta of 1.0 while Share Y has a beta of 1.2. If the market risk premium was to increase while the risk-free rate remains constant, which of the following would occur?
    • A. 

      The required return will increase for Share Y but will decrease for Share X

    • B. 

      The required return will increase for Share X but will decrease for Share Y

    • C. 

      The required return will decrease by the same amount for both Share X and Share Y

    • D. 

      The required return will increase for both Shares but the increase will be greater for Share Y than for Share X

  • 21. 
    In a two-asset portfolio, which of the correlation coefficient between the returns of the two assets will provide the maximum benefits from diversification?
    • A. 

      – 0.75

    • B. 

      – 0.5

    • C. 

      0

    • D. 

      + 0.5

  • 22. 
    Which of the following conditions would allow a subsidiary to be excluded from being consolidated in group accounts?(i)  When a subsidiary is not wholly-owned(ii) When a subsidiary is partly owned by a government agency(iii) When a subsidiary is acquired and held with a view to its subsequent disposal in the near future(iv) When a subsidiary is operating under severe long-term restrictions which significantly impair its ability to transfer funds to its parent
    • A. 

      (i) only

    • B. 

      (ii) only

    • C. 

      (ii) and (iii) only

    • D. 

      (iii) and (iv) only

  • 23. 
    Which of the following dividend theories suggest that investors prefer higher dividend income to future capital gains?
    • A. 

      Bird-in Hand Theory

    • B. 

      Tax Preference Theory

    • C. 

      Residual Dividend Policy

    • D. 

      Dividend Irrelevance Theory

  • 24. 
    The premium on a call option with a strike price of RM 4.00 is RM 0.80 when the market price of the underlying share is RM 4.20. Compute the option intrinsic value and its time value       Option Intrinsic Value         Time Value    A    RM0.20RM0.80BRM0.80RM0.20CRM0.20RM0.60DRM0.60RM0.20
    • A. 

      A

    • B. 

      B

    • C. 

      C

    • D. 

      D

  • 25. 
    A portfolio has an average return of 12%. Assuming that the risk-free rate is 7%, the beta of the portfolio is 1.1 and the standard deviation of the portfolio is 14%, what would be the Treynor Index for the portfolio?
    • A. 

      0.22

    • B. 

      0.36

    • C. 

      2.80

    • D. 

      4.55

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