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Exam Papers for Investments and Portfolio Management in BBA (With Answers)

PAPER # 1
**Instructions:**
1
...

2
...

3
...


**Section A: Multiple Choice Questions (1 mark each)**

1
...
It represents the performance of a single stock
...
It includes all stocks in the market
...
It is used to track the performance of a specific sector
...
It is a measure of inflation
...
What does the Capital Asset Pricing Model (CAPM) help investors calculate?
A
...
Market risk premium
C
...
Total portfolio risk

**Answer: A**

3
...
Market risk
B
...
Systematic risk

2

D
...
What is a 'blue-chip' stock?
A
...
A start-up company with high growth potential
C
...
A speculative stock with low market capitalization

**Answer: A**

5
...
Frequent trading to maximize short-term gains
B
...
Long-term ownership of assets with minimal trading
D
...
Explain the concept of risk-return trade-off in investments and how it influences
portfolio management decisions
...
In simple terms, investors expect a higher return for
taking on higher levels of risk
...


In portfolio management, this concept influences decision-making in several ways
...
A conservative investor may opt for a

3

portfolio with lower risk, such as bonds and dividend-paying stocks, while an aggressive
investor may be willing to take on more risk by investing in growth stocks or
commodities
...
By spreading
investments across different asset classes and industries, investors can reduce the risk
associated with individual assets while potentially maintaining competitive returns
...
What are the major differences between fundamental analysis and technical analysis
in the context of stock valuation and investment decision-making?

**Answer:** Fundamental analysis and technical analysis are two distinct methods
used for stock valuation and investment decision-making:

Fundamental Analysis:
- Focuses on the intrinsic value of a stock by examining financial statements,
company performance, and economic indicators
...

- Seeks to determine whether a stock is undervalued or overvalued based on its
fundamental characteristics
...

- Examples of tools used in fundamental analysis include P/E ratios, earnings reports,
and balance sheets
...

- Relies on chart patterns, technical indicators, and trend analysis
...

- Often used for short-term trading decisions
...


4

In summary, fundamental analysis is concerned with the underlying value of a
company, while technical analysis is concerned with price patterns and market
sentiment
...


8
...


**Answer:** Modern Portfolio Theory (MPT) is an investment framework developed by
Harry Markowitz in the 1950s
...
The key components of MPT include:

- **Expected Return:** This represents the average return an investor can anticipate
from an investment
...


- **Risk:** In MPT, risk is measured by the standard deviation of returns
...
Lower risk is preferred, but it's
important to balance risk with return
...
Negative correlation or low correlation between assets
can reduce overall portfolio risk
...


- **Efficient Frontier:** The efficient frontier is a key concept in MPT
...


- **Optimal Portfolio:** Investors should select a portfolio along the efficient frontier
that aligns with their risk tolerance and return objectives
...


MPT is a foundational concept in portfolio management, emphasizing the importance
of diversification and the trade-off between risk and return
...


5

PAPER # 2
Section A: Multiple Choice Questions (10 questions x 1 mark each)
1
...
Capital appreciation

o

B
...
Liquidity

o

D
...
Which of the following is NOT a type of risk associated with investments?
o

A
...
Interest rate risk

o

C
...
Business risk

3
...
Technical analysis

o

B
...
Discounted cash flow analysis

o

D
...
Which of the following is a type of portfolio management strategy?
o

A
...
Passive management

o

C
...
All of the above

5
...
Diversification

o

B
...
Low cost

o

D
...
D
2
...
D
4
...
D
Section B: Short Answer Questions (5 questions x 5 marks each)
1
...

2
...
Discuss the factors to consider when choosing an investment strategy
...
What are the different types of mutual funds?
5
...

Answers:
1
...

Technical analysis, on the other hand, is a method of evaluating a security based
on its past price and volume movements
...
The different types of investment risks include:
o

Market risk: The risk that the value of a security will decrease due to a
decline in the overall market
...


o

Inflation risk: The risk that the value of a security will decrease due to an
increase in the cost of living
...


3
...
The different types of mutual funds include:
o

Equity funds: Invest in stocks
...


o

Hybrid funds: Invest in a mix of stocks and bonds
...


5
...
This is because different asset classes and
securities tend to perform differently in different market conditions
...
Discuss the different methods of valuing stocks
...
Explain the concept of portfolio optimization and how it can be used to create an
efficient portfolio
...
The different methods of valuing stocks include:
o

Discounted cash flow (DCF) analysis: This method values a stock by
discounting the company's future cash flows to the present value
...


o

Dividend yield analysis: This method compares the price of a stock to its
dividend per share
...
Portfolio optimization is the process of constructing a portfolio that maximizes
return for a given level of risk
...


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PAPER # 3
Instructions: Answer all questions
...

Question 1
Define the following terms:
 Investment
 Portfolio
 Asset allocation
 Risk-return trade-off
 Capital market
Answers:
 Investment: An investment is anything that you buy in the hope of generating
income or capital appreciation in the future
...

 Asset allocation: Asset allocation is the process of dividing your investment




portfolio into different asset classes, such as stocks, bonds, and cash
...
Higher-risk investments typically offer the potential
for higher returns, while lower-risk investments typically offer the potential for
lower returns
...


Question 2
Explain the different types of investment analysis
...

 Fundamental analysis: Fundamental analysis involves examining the financial
and economic performance of a company to assess its intrinsic value
...


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Question 3
Discuss the different types of investment vehicles available to investors
...

Bonds: Bonds are loans that investors make to companies or governments
...

Exchange-traded funds (ETFs): ETFs are baskets of securities that are traded on
an exchange like stocks
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Question 4
Explain the concept of portfolio diversification and its benefits
...
This helps to reduce your overall risk, as losses in
one asset class or security may be offset by gains in others
...




Increased returns: Diversification can also help to increase your returns over the
long term by giving you exposure to a variety of different investment
opportunities
...




Question 5
Discuss the different portfolio rebalancing strategies
...
There are two main types of portfolio rebalancing strategies:
 Periodic rebalancing: Periodic rebalancing involves rebalancing your portfolio at
regular intervals, such as once a year or once a quarter
...

The best portfolio rebalancing strategy for you will depend on your individual
circumstances and investment goals
...








11

Discuss the factors to consider when choosing an investment advisor
...
Which of the following is NOT a type of investment? (a) Stocks (b) Bonds (c)
Real estate (d) Cash
2
...
Which of the following is a measure of the riskiness of an investment? (a)
Standard deviation (b) Beta (c) Sharpe ratio (d) All of the above
4
...
Which of the following is a type of portfolio diversification? (a) Asset allocation (b)
Industry diversification (c) Geographic diversification (d) All of the above
Answers:
1
...
(a)
3
...
(d)
5
...
Explain the difference between fundamental and technical analysis
...
List and describe the different types of investment risks
...
Explain the Capital Asset Pricing Model (CAPM)
...
Discuss the different factors that investors should consider when choosing an
investment portfolio
...
What are the different types of portfolio rebalancing strategies?
Answers:

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1
...
Technical analysis is the
study of historical price and trading volume data to identify patterns that can be
used to predict future price movements
...
The different types of investment risks include:
o

o

o

o

o

Market risk: The risk that the overall market value of an investment will
decline
...

Inflation risk: The risk that the purchasing power of an investment will
decline due to inflation
...

Liquidity risk: The risk that an investor will be unable to sell an investment
quickly and at a fair price
...
The CAPM is a model that can be used to estimate the expected return of an
investment based on its riskiness
...
The risk
premium is equal to the beta of the investment multiplied by the difference
between the expected market return and the risk-free rate of return
...
The different factors that investors should consider when choosing an investment
portfolio include:
o

o
o
o
o

Investment objectives: What is the investor's goal for investing? Are they
saving for retirement, a down payment on a house, or something else?
Risk tolerance: How much risk is the investor comfortable with?
Investment horizon: How long does the investor plan to invest for?
Liquidity needs: How much access to their money does the investor need?
Tax considerations: What are the tax implications of different investment
options?

13

5
...

Calendar-based rebalancing: This involves rebalancing the portfolio on
specific dates, such as the first day of each quarter
...

Target-based rebalancing: This involves rebalancing the portfolio to
maintain a specific asset allocation
...
Explain the different types of investment vehicles available to investors
...
Discuss the different factors that investors should consider when evaluating a
mutual fund
...
Explain the different portfolio optimization techniques that can be used to
construct an efficient portfolio
...
Discuss the challenges of investing in emerging markets
...
What are the ethical considerations that investors should keep in mind when
making investment decisions?

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PAPER # 5

**Section A - Multiple Choice (40 Marks)**

Choose the best answer for each of the following questions:

1
...
Common stock
b
...
Corporate bonds
d
...
What is the primary goal of portfolio diversification?
a
...
Minimizing risk
c
...
Increasing leverage

3
...
Total risk
b
...
Unsystematic risk
d
...
The Capital Asset Pricing Model (CAPM) is used to:
a
...
Determine the required rate of return for a security
c
...
Assess the liquidity of a stock

5
...
What is it called?
a
...
Market order
c
...
Limit buy order

**Section B - Short Answer (60 Marks)**

6
...
Provide examples
...
Risk refers to the
uncertainty or variability of investment outcomes, while return represents the gain or
loss on an investment
...


For example, stocks are typically considered riskier than bonds because their prices can
fluctuate significantly over time
...


7
...
Provide an example to illustrate
your point
...
The
benefits of diversification include:

- Risk Reduction: Diversifying a portfolio reduces the impact of the poor performance of
any single investment, as losses in one asset may be offset by gains in others
...

- Improved Risk-Return Trade-off: By combining assets with different risk-return profiles,
investors can achieve a better balance between risk and return
...


8
...


**Answer:**

The Efficient Market Hypothesis (EMH) is a theory that states that financial markets
efficiently incorporate all available information into stock prices
...


There are three forms of EMH:

- Weak Form: In this form, stock prices already reflect all past trading information, such
as price and volume data
...


- Semi-Strong Form: In this form, stock prices reflect all publicly available information,
including both historical data and all public news and information
...


- Strong Form: In this form, stock prices reflect all public and private information,
including insider information
...


9
...
How is it used in investment analysis?

**Answer:**

The risk-free rate is the theoretical return on an investment with no risk of financial loss
...
The
risk-free rate is typically associated with the yield on government bonds, such as U
...

Treasury bonds
...
It helps determine the
expected return on an investment, taking into account the risk-free rate and the
investment's risk (measured by beta in the CAPM)
...


10
...


**Answer:**

Active Portfolio Management:
- Active managers aim to outperform a benchmark or the overall market by making
specific investment decisions, such as stock selection and timing
...

- Active management typically incurs higher costs due to research, trading, and
management fees
...


Passive Portfolio Management:
- Passive managers aim to replicate the performance of a benchmark or the overall
market rather than beat it
...

- Passive management typically has lower costs because it involves minimal trading and
research
...


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PAPER # 6

**Section A: Multiple Choice Questions (15 points)**

Select the correct answer for each of the following questions
...
Which of the following is considered a primary market transaction?

a
...

b
...

c
...

d
...


**Answer: b
...
**

2
...
Maximizing returns
...
Reducing risk
...
Minimizing transaction costs
...
Increasing liquidity
...
Reducing risk
...
Beta measures:

a
...

b
...

c
...

d
...


**Answer: b
...
**

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**Section B: Short Answer Questions (20 points)**

4
...
Provide an
example
...
Generally, higher-risk
investments have the potential for higher returns, but they also come with a greater
chance of loss
...
Investors must balance their risk tolerance with their return expectations when
making investment decisions
...
Describe the difference between systematic risk and unsystematic risk in a portfolio
...
It is associated with factors that affect the entire
market, such as economic conditions, interest rates, and political events
...
For example, if you hold a portfolio of technology
stocks, a technology sector-specific issue is unsystematic risk, while general market
fluctuations are systematic risk
...
Discuss the Modern Portfolio Theory (MPT) and its key concepts
...

The key concepts of MPT include asset allocation and the efficient frontier
...
It quantifies risk and return through the use of standard
deviation and correlation coefficients
...


20

Investors aim to build portfolios on the efficient frontier to achieve their specific risk and
return objectives
...
Which of the following is not a primary objective of portfolio management?
a
...
Minimizing risk
c
...
Tax avoidance

2
...
Passive investing
b
...
Value investing
d
...
The Capital Asset Pricing Model (CAPM) helps investors:
a
...

b
...

c
...

d
...


4
...
Increase total risk
...
Reduce systematic risk
...
Maximize returns
...
Eliminate all risk
...
Which of the following types of risk can be mitigated through diversification?
a
...
Unsystematic risk
c
...
Inflation risk

**Section B: Short Answer (4 points each)**

6
...


7
...


**Section C: Essay Questions (10 points each)**

8
...
What are the three forms of EMH,
and how does each form relate to the availability of information in the market?

**Answer:**
The Efficient Market Hypothesis (EMH) is a theory that suggests that financial markets
are highly efficient in reflecting available information in stock prices
...
In other words, it
assumes that technical analysis is not effective in predicting future price movements
...
It implies that neither technical analysis nor
fundamental analysis can consistently yield abnormal returns because the information is
already reflected in the stock's price
...
This form argues that
even insider information cannot be used to gain an advantage in the market
...

However, it's essential to note that EMH has faced criticism and does not account for
market anomalies and behavioral factors that can influence stock prices
...
Discuss the key factors that an investor should consider when constructing a
diversified investment portfolio
...


**Answer:**
When constructing a diversified investment portfolio, investors should consider the
following key factors:

- Asset Classes: Diversify across different asset classes such as stocks, bonds, real
estate, and commodities
...
For
example, stocks tend to offer higher returns but also come with higher volatility, while
bonds provide more stability but lower potential returns
...
A more risk-averse investor may allocate a
larger portion of the portfolio to less volatile assets like bonds or cash
...
The time horizon for these goals can influence the investment
strategy
...
Longer time horizons may allow for a higher
allocation to equities
...
This reduces unsystematic risk, as adverse events
affecting one sector may not affect others
...
Short-term needs may require more liquid assets like money
market funds
...
For example, during a recession, investors may favor
defensive stocks and bonds
...
For instance, a
portfolio tailored to an investor's risk tolerance and goals can help them achieve longterm growth while minimizing exposure to unnecessary risks
...
BBA Exam Papers
2
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Investment Management
4
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BBA Study Materials
6
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Financial Exams
8
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Investment Strategies
10
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Risk Management
12
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Investment Analysis and Management
14
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BBA Exam Prep
16
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Investment Theory
18
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Asset Allocation
20
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Investment Decision Making
22
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Investment Appraisal
24
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BBA Sample Papers
26
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Investment Tools
28
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BBA Course Materials

25



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