CONFIDENTIAL 1 BA/FEB 2022/FIN552

UNIVERSITI TEKNOLOGI MARA

FINAL TEST

COURSE : INVESTMENT AND PORTFOLIO ANALYSIS

COURSE CODE : FIN552
EXAMINATION : FEBRUARY 2022
TIME : 1 HOUR 30 MINUTES

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of one (1) part: PART A (3 Questions)

2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

a) the Question Paper

5. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 3 printed pages

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 CONFIDENTIAL 2 BA/FEB 2022/FIN552

PART A

QUESTION 1

a) The expected return and beta of five (5) stocks are given as below:
Stocks Expected Return (in %) Beta
T 21.5 1.7
A 25.0 1.8
K 22.8 1.4
R 20.0 1.3
O 32.0 2.0

If the T-Bills is 6 percent, risk premium is 12 percent and return on the market is 18 percent.

i) Classify which stock is overvalued, undervalued, and properly valued using Capital
Asset Pricing Model (CAPM)
(10 marks)
ii) Sketch the security market line using your findings in (i).
(4 marks)

iii) Interpret the relationship exist between risk and return based on findings in (ii).
(1 mark)

b) Briefly explain the difference of passive and active equity portfolio management.
(5 marks)

QUESTION 2

a) You are given the following information.

Stock Return Beta Residual variance C-value

T 35 1.90 30 13.2558

S 30 1.60 25 14.4797

R 18 0.89 16 14.6861

U 26 1.40 40 14.8304

P 22 1.20 25 14.8545

Q 20 1.10 8 14.7707

T-Bill rate = 4% Market Variance = 36

Determine:
i) The cutt-off point and which stock should be included in your portfolio.
(3 marks)

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 CONFIDENTIAL 3 BA/FEB 2022/FIN552

ii) The amount that should be invested for each stock that you have selected based on
cut off point if your total investment is RM200,000.
(12 marks)

b) Every mutual fund has a stated investment objective. Briefly explain the investment
objective of any two (2) types of mutual funds.
(5 marks)

QUESTION 3

a) Based on the following information, compute the Sharpe and Treynor performance
index, and determine which fund is outperform and underperform the market. Assume
a risk-free rate of return of 6 percent.

Portfolio Average return Correlation with Standard

(percent) the market deviation

L 14 0.85 16

P 10 0.75 14

U 16 0.90 18

Market 18 1.00 20

(20 marks)

END OF QUESTION PAPER

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