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Applied Investment Question Paper

Applied Investment

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE

BAC 408: APPLIED INVESTMENT

DATE: Wednesday
19th August 2009
TIME:
2.00pm-4.00pm

INSTRUCTIONS:
ANSWER QUESTION ONE AND ANY OTHER TWO QUESTIONS
QUESTION ONE
a)
Explain each of the following terms

i)
Efficiency Market Hypothesis (EMH)
ii)
Fundamental
Analysis
iii)
Technical Analysis
iv)
Closed-End
Funds
[8marks]
b)
Explain four concepts of economist have relied on in explaining the
Exchange
Rate
Theory. [12marks]
c)
Investment needs of different investors do not have any standard pattern. They

differ from investor to investor. Explain Five Features of an investment; an

investor may focus on when choosing a specific investment.
[10marks]

QUESTION TWO
a)
Highlight Five assumptions of Capital Asset Pricing Model.
[5marks]
b)
Using illustration explain the difference between systematic risk and unsystematic
risk.

[7marks]
c)
Explain any Four term structure theories and their importance to an investor in the
Bond
Markets.
[8marks]
Page 1 of 2

QUESTION THREE
The following information was obtained from Nairobi Stock Exchange for two securities,
X and Y
State of Probability

of

Return %
Nature
state

X

Y

(pi)
boom
0.2
20
18
normal
0.5
15
16
recession
0.3
8 9

Calculate:
i)
The expected return of each security.

ii)
The variance of portfolio consisting of 60% of X and 40% of Y.
iii)
The correlation coefficient between the returns in X and in Y
iv)
Comments on the results obtained in (iii) above

[20marks]

QUESTION FOUR
a)
Highlight the Four limitation of portfolio Theory.

[4marks]
b)
Bonds are classified into four main types. Highlight and explain each type of
Bond.
[12marks]
c)
Portfolio managers constantly make broad-brush asset market allocation decisions
as well as more detailed sector and security allocation decisions within the
market. Elaborate on this statement.

[4marks]

QUESTION FIVE
a)
Explain different types of Mutual
Funds
[8marks]
b)
Highlight the benefits which may accrue to an investor who has invested through

Mutual Fund.

[8marks]
c)
Securities are analysis and managed using broad two step process-security

analysis and portfolio management. Describe the steps the two-step process is
broken
down
into.
[4marks]

Page 2 of 2

Applied Investment Question Paper

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