LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034
M.A. DEGREE EXAMINATION – ECONOMICS
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THIRD SEMESTER – APRIL 2007
EC 3900 – INVESTMENT MANAGEMENT
Date & Time: 21/04/2007 / 9:00 – 12:00 Dept. No. Max. : 100 Marks
Part – A
Answer any FIVE questions in about 75 words each. (5 x 4 = 20 marks)
- Define investment.
- What is the relationship between risk and return?
- What is time preference real rate?
- State the various investment avenues.
- Distinguish between cyclical stocks and discount stocks.
- Mention the types of tax shelters.
- What are the determinants of portfolio performance?
Part – B
Answer any FOUR questions in about 300 words each. (4 x 10 = 40 marks)
- Summarize the sources of risk according to different types of classifications.
- Compute ex ante risk and return from the following data:
| State of the economy | Probability of occurrence | Rate of return from the stock |
| Deep recession | 0.05 | -3% |
| Mild recession | 0.20 | 6% |
| Average economy | 0.50 | 11% |
| Mild boom | 0.20 | 14% |
| Strong boom | 0.05 | 19% |
- Discuss the role of 4 phases of trade cycle in investment management.
- Explain the concept of efficient securities market.
- State and explain Cootner’s price value interaction model.
- Explain the components of total risk.
- Estimate the characteristic line using the following data:
| Monthly stock price change% | -7 | -11.5 | -5 | -4.5 | 2 | 3 |
| Change in market index% | -5 | -9.5 | -5 | -0.5 | 5 | 2 |
Part – C
Answer any TWO questions in about 900 words each. (2 x 20 = 40 marks)
- Explain risk-return relationship and formation of efficient frontier using a numerical illustration.
- Distinguish between security market line and capital market line. Explain the assumption of CAPM.
- Clearly distinguish Dollar-weighted rate of return Time-weighted rate of return and unit value method with suitable illustrations.
- From the following data, estimate return per unit of risk using Sharpe’s ratio, Treynor’s measure and Jensen’s differential return.
| Portfolio | Return | Risk free return | Standard deviation | β | α |
| A | 32 | 8 | 10 | 0.67 | 6 |
| B | 40 | 8 | 8 | 1.33 | 0 |
| M | 36 | 8 | 9 | 1 | 5 |