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Answer any six (6) of the following questions. Each question carries 15 Marks.
A. “An investment is the current commitment of dollars for a period of time in order to derive future payments that will compensate the investor for the time the funds are committed, the expected rate of inflation, and the uncertainty of the future payments.”- Discuss
- Risk Premium
- The major sources of uncertainty.
B. You are considering acquiring shares of common stock in the Madison Corporation. Your rate of return expectations is as follows:
Compute the expected return [E(Ri)] on your investment in Madison.
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A.“The asset allocation decision is not an isolated choice; rather, it is a component of a portfolio management process.” Discourse the process.
B. “The portfolio’s performance should be compared to guidelines specified in the policy statement, not on the portfolio’s overall return.” – Elucidate the standards for evaluating portfolio performance.
A.“Capital market instruments are fixed-income obligations that trade in the secondary market, which means you can buy and sell them to other individuals or institutions.” – Expound the types of securities.
A. “It is necessary to understand the different securities markets around the world and the changes that are occurring” – Expound
- Market and Characteristics of a Good Market
- Primary Capital Market and
- Secondary Financial Market.
“There is an intuitive notion that most individual stocks or bonds move with the aggregate market. Therefore, if the overall market rose, an individual’s portfolio probably also increased in value. To supply investors with a composite report on market performance, some financial publications or investment firms have developed stock market and bond market indexes.” Give an account of
- Uses of security market indexes
- Efficient capital market
- Assumptions of capital market
“In general, an industry’s prospects within the global business environment will determine how well or poorly an individual firm will fare, so industry analysis should precede company analysis. Few companies perform well in a poor industry, so even the best company in a poor industry is a bad prospect for investment.”
- Industry analysis
- The business cycle and industry sectors
“Firm Competitive Strategies” continues the Porter discussion of an industry’s competitive environment. The basic SWOT analysis, is intended to articulate a firm’s strengths, weaknesses, opportunities, and threats. These two analyses should provide a complete understanding of a firm’s overall strategic approach. Expound.
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