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Hps2111:Quality Management Question Paper

Hps2111:Quality Management

Course:Bachelor Of Supplies Management

Institution: Meru University Of Science And Technology question papers

Exam Year:2010

QUESTION ONE – 30 MARKS
(a) Giving examples, define the following terms: (i) Investment (2Marks) (ii) Financial Assets (2Marks) (iii) Portfolio (2Marks)
(b) Differentiate the following terms: Investment, Speculation and Gambling. (6Marks) (c) In a logical manner, discuss the portfolio management process, highlighting what happen in each stage. (10Marks) (d) Stocks A and B have the following historical returns.
Year
Stock A’s Returns Ra
Stock B’s Returns Rb 2000 -18% -24% 2001 44 24 2002 -22% 24 2003 22 8 2004 34% 5
(i) Calculate the average rate of return of the stock during the 5 year period. Assume that someone had a portfolio consisting of 50 percent of Stock B. What would have been realized rate of return on the portfolio in each year and so the average return on portfolio during this period? ( Marks) (ii) Calculate the standard deviation of returns for each stock and for the portfolio. (8Marks)
2
QUESTION TWO – 20 MARKS
(a) Show a graphical representation of a Security Market Line and Capital Market Line and briefly discuss their differences. (10Marks) (b) Briefly discuss efficient frontier listing down its characteristics. (5Marks) (c) Explain the limitations of the CAPM (5Marks)
QUESTION THREE – 20 MARKS
(a) State the difference between Arbitrage Pricing Theory and Capital Asset Pricing Model. (5Marks) (b) Discuss the factors that explain expected return under Arbitrage Pricing Theory. (7Marks) (c) A portfolio consists of three securities P,Q and R with the following parameters.
P Q R Cor Expected return (%) 25 22 20 Standard Deviation (%) 30 26 24 Correlation: PQ QR PR -0.5 0.4 0.6
If the securities are equally weighted, how much is the risk and return of the portfolio of these three securities. (8Marks)
QUESTION FOUR – 20 MARKS
(a) Giving examples, define the following terms: (i) Option (2Marks) (ii) Put option (2Marks) (iii) Call option (2Marks) (iv) Call premium (2Marks) (v) Exercise price (2Marks)
(b) State and briefly discuss factors determining option value. (4Marks)
(c) A share is currently selling for Ksh. 120. There are two possible prices of the share after one year. Kshs. 132 or Kshs. 105. Assume the risk free rate of return is 9% per annum. What is the value of a one-year call option (European) with an exercise price of Kshs. 125? (6Marks)

Hps2111:Quality Management Question Paper

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