Hps2111:Quality Management Question Paper
Hps2111:Quality Management
Course:Bachelor Of Supplies Management
Institution: Meru University Of Science And Technology question papers
Exam Year:2014
QUESTION ONE (30 MARKS)
a) Explain the assumptions of Capital Asset Pricing Model (CAPM) (4 marks) b) Discuss the factors that affect the value of a financial option. (6 marks) c) Explain the differences between investment and gambling. (2 marks) d) You are given the following returns of two securities and that of market with their probabilities under four state of nature:
State of nature
Probabilities Returns on market
Returns on Asset A Asset B 1 0.1 20% 18% -2% 2 0.2 0 12 10 3 0.3 -14 6 15 4 0.4 26 2 22
The return on the Government security during the period was 6% and you invested 40% of your endownment in asset A while 60% in Asset B.
Required:
i) Calculate the expected returns on the market, Asset A and Asset B (3 marks) ii) Calculate the Risk on the market, Asset A and Asset B (6 marks) iii) Calculate the expected return on the portfolio and also its risks. (6 marks) iv) Use CAPM to find the required returns of Asset A and Asset B. (3 marks)
2
QUESTION TWO (20 MARKS)
a) Discuss the applications of derivative instruments. (4 marks) b) Explain the assumptions of Black and scholes model of valuing options. (4 marks) c) The Equity stock of Smart Limited has a market price of Shs.120. The exercise price of stock was Shs.110 exercisable after 6 months. The risk free interest rates was 12% while the risk was a standard deviation of 40%.
Required:
i) Calculate the price of 6 months call option using black and scholes model. (12 marks)
QUESTION THREE (20 MARKS)
a) Explain the lesson learnt from efficient market hypothesis by investors and corporate managers. (8 marks) b) Describe the forms of market efficiency. (6 marks) c) Discuss any THREE seasonal market anomalies which have been reported in securities markets. (6 marks)
QUESTION FOUR (20 MARKS)
An investor is considering to make an investment in Shares of ABC Limited. The following are the activities of five economic forces that influence its returns.
Factors Beta Expected Value (%) Actual value (%) GNP 1.95 6 6.5 Inflation 0.85 5 5.75 Interest rates 1.20 7 8.0 Stock market index 2.50 9.5 11.5 Industrial production 2.20 9 10
The anticipated risk free rate of return on the shares is 9%.
a) Calculate the total return on the shares. (8 marks) b) Briefly discuss the investment process. (12 marks)
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