Q1.
An investor is deciding between Securities X (priced at Rs. 10) and Y (priced at Rs. 15). Determine his opportunity set for a budget of Rs. 500.
Q2.
If the investor’s investible corpus increases, in which direction would the opportunity set move?
Q3.
A fair gamble is one where the amount to be invested is equal to the expected value of the returns.
Q4.
Suppose your portfolio comprised only two securities – 40% in Security A and 60% in Security B. If you earned 8% in Security A and 6% in Security B, what is your overall portfolio return?
Q5.
The standard deviations of two securities A and B are 0.02 and 0.05 respectively. The returns of the two securities are 5% and 10%. What is the portfolio return and portfolio risk, assuming the investor has invested equally in both securities?
Q6.
The risk that you are not able to sell your investment because there are no trades in the market is called:
Q7.
Illiquidity becomes a greater risk in equities.
Q8.
The risk that the party whom you have funded defaults on the principal and/or interest commitments is called:
Q9.
(I) The portfolio return is the weighted average of the returns in the individual securities.
(II) The compounded return is normally calculated when the period for which return is compounded is less than a year.
Q10.
Opportunity set is the set of choices that a person can afford to make in an “arms length transaction”, given the financial resources she can commit, or physical resources she can offer in exchange.
Q11.
(I) A risk averse investor would be indifferent between investing and not investing i.e. U”(W) would equal zero.
(II) The point of tangency between an indifference curve and the opportunity set would be an option that the investor is able and willing to choose.
Q12.
(I) If A’(W) less than 0, indicates that the investor has increasing absolute risk aversion.
(II) If R’(W) less than 0, indicates that the investor has decreasing relative risk aversion.
Q13.
Suppose an investor’s utility function is given as -5W2. How is she likely to respond to a fair gamble?
Q14.
When returns are viewed in the context of risk, it is called ___________.
Q15.
If standard deviation of security A is 0.002, standard deviation of security B is 0.003 and the covariance is 0.05, then the portfolio risk would be:
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