Sybfm_sem Iii_portfolio Management_internal Examination_8th September2018
Shri Chinai College of Commerce & Economics
Andheri East
Mumbai
Questions and Answers
- 1.
Investor has to review and revised its Portfolio
- A.
Regularly
- B.
Yearly
- C.
Quarterly
- D.
Daily
Correct Answer
D. DailyExplanation
The correct answer is "Daily" because it is important for an investor to review and revise their portfolio on a daily basis. The financial markets are dynamic and can experience rapid changes. By reviewing the portfolio daily, the investor can make timely adjustments to take advantage of opportunities or mitigate risks. Additionally, daily monitoring allows the investor to stay updated with market trends and news that may impact their investments. This proactive approach helps ensure that the portfolio remains aligned with the investor's goals and objectives.Rate this question:
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- 2.
The modern portfolio theory believes in the maximisation of return.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The modern portfolio theory is a widely accepted investment strategy that aims to maximize the return on investment while minimizing risk. It suggests that by diversifying investments across different asset classes, such as stocks, bonds, and commodities, an investor can achieve a higher return. This theory emphasizes the importance of creating a well-balanced portfolio that takes into account the risk tolerance and investment goals of the individual. Therefore, it is accurate to say that the modern portfolio theory believes in the maximization of return.Rate this question:
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- 3.
Investment decision and financial decision interact with each other.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Investment decision and financial decision interact with each other because they are closely related and have a significant impact on each other. Investment decisions involve allocating funds to different investment opportunities, while financial decisions involve managing and allocating funds within the organization. The financial decisions made by a company, such as obtaining financing or managing cash flow, can affect the investment decisions by determining the available funds for investment. Similarly, the investment decisions made by a company can impact the financial decisions by influencing the organization's financial performance and profitability. Therefore, investment and financial decisions are interconnected and influence each other in the decision-making process.Rate this question:
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- 4.
The concept of economic investment means deduction to the capital stock of the society.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The concept of economic investment does not mean deduction to the capital stock of the society. Instead, economic investment refers to the allocation of resources to acquire or improve capital goods, such as machinery, equipment, or buildings, in order to increase future production and generate income. This investment contributes to the growth and expansion of the capital stock, rather than deducting from it. Therefore, the correct answer is False.Rate this question:
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- 5.
Speculation, is an activity, where investor always earn profit
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The statement is incorrect. Speculation is not an activity where investors always earn a profit. Speculation involves making high-risk investments in the hopes of making a quick profit, but there is also a possibility of incurring losses. The outcome of speculation depends on various factors such as market conditions, economic trends, and individual investment decisions. Therefore, it is not accurate to say that investors always earn a profit through speculation.Rate this question:
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- 6.
Investment involves putting money into an asset which is not necessarily marketable in orderto enjoy a series of returns.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Investment refers to the act of putting money into an asset with the expectation of generating returns over time. These assets may not be easily marketable, meaning they may not be readily sold or converted into cash. However, despite the lack of marketability, investors still anticipate receiving a series of returns, such as dividends, interest, or capital gains, from their investment. Therefore, the statement is true.Rate this question:
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- 7.
Speculation involves a higher level of risk and a more uncertain expectation of returns.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Speculation involves taking higher risks and having a more uncertain expectation of returns compared to other investment strategies. This means that when engaging in speculation, there is a greater likelihood of losing money or not achieving the desired returns. Therefore, the statement "Speculation involves a higher level of risk and a more uncertain expectation of returns" is true.Rate this question:
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- 8.
Investing is a wide spread practice and many have made their fortunes in the process.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Investing is indeed a widespread practice that has allowed many individuals to accumulate wealth over time. People invest their money in various financial instruments such as stocks, bonds, real estate, and businesses with the expectation of earning a return on their investment. Successful investors have been able to generate significant wealth and achieve financial success through smart investment decisions. Therefore, the statement "Investing is a widespread practice and many have made their fortunes in the process" is true.Rate this question:
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- 9.
Investor will go for low priority objectives and invest their money accordingly.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Investors typically prioritize their investment objectives based on their financial goals, risk tolerance, and time horizon. They usually focus on high-priority objectives such as maximizing returns, preserving capital, or generating income. They allocate their funds accordingly to achieve these objectives. Therefore, the statement that investors go for low priority objectives and invest their money accordingly is incorrect.Rate this question:
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- 10.
Investor , usually prefer a diversified approach while selecting different types of investments.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Investors usually prefer a diversified approach while selecting different types of investments. This is because diversification helps to spread the risk across various assets, reducing the impact of any individual investment's performance on the overall portfolio. By investing in a variety of assets such as stocks, bonds, real estate, and commodities, investors can potentially achieve a more balanced and stable return. Diversification also allows investors to take advantage of different market conditions and sectors, increasing the potential for overall returns. Therefore, it is true that investors generally opt for a diversified approach when selecting investments.Rate this question:
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- 11.
Risk is the chance of loss due to variablility of returns on an investment.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement accurately defines risk as the possibility of experiencing losses due to the fluctuation of returns on an investment. This means that when investing, there is always a chance that the returns may not meet expectations and result in financial loss. Therefore, the answer "True" is correct.Rate this question:
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- 12.
Time is an important factor in investment.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Time is indeed an important factor in investment. The longer an investment is held, the greater the potential for growth and compounding returns. Time allows for the smoothing out of market fluctuations and enables investors to take advantage of long-term trends. Additionally, time allows for the benefits of dollar-cost averaging, where regular investments are made over time, reducing the impact of market volatility. Therefore, considering the importance of time in investment, the answer is true.Rate this question:
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- 13.
UTI and mutual funds run by LIC, banks and HDFC, ect.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement is suggesting that UTI and mutual funds are operated by LIC, banks, and HDFC. This implies that these financial institutions are involved in managing and running UTI and mutual funds. Therefore, the correct answer is True.Rate this question:
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- 14.
Investment in gilt-edged securities.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Investment in gilt-edged securities is considered to be a safe and low-risk investment option. Gilt-edged securities are government bonds that are backed by the government and have a fixed interest rate. They are considered to be highly secure because they are backed by the creditworthiness of the government. Therefore, it is true that investment in gilt-edged securities is a good option for risk-averse investors looking for stable returns.Rate this question:
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- 15.
The financial advisor does not needs to keep liquidity constraints in mind.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement is true because liquidity constraints refer to the availability of cash or easily convertible assets to meet financial obligations. A financial advisor does not need to consider liquidity constraints as their role is to provide advice on investments, financial planning, and strategies to achieve financial goals. They focus on maximizing returns and managing risk rather than ensuring immediate access to cash.Rate this question:
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- 16.
Capital gains and investment income are subjected to differential tax treatments.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Capital gains and investment income are indeed subjected to differential tax treatments. This means that the tax rates for these types of income may vary depending on the specific tax laws and regulations in a particular jurisdiction. In many countries, capital gains and investment income are often taxed at a different rate than regular income, such as wages or salaries. This is done to incentivize investment and encourage economic growth.Rate this question:
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- 17.
A trust portfolio for individual investor may have to follow substantial regulatory and constraints.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
A trust portfolio for an individual investor is subject to various regulatory and legal constraints. These constraints are in place to ensure that the trust portfolio is managed in a way that protects the interests of the investor and complies with relevant laws and regulations. These constraints may include limitations on the types of investments that can be made, restrictions on the level of risk that can be taken, and requirements for reporting and transparency. Therefore, it is true that a trust portfolio for an individual investor may have to follow substantial regulatory and constraints.Rate this question:
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- 18.
Portfolio means combined holding of many kinds financial securities i.e. shares, debentures.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
A portfolio refers to a collection or combination of various financial securities such as shares and debentures. It represents an individual's or an organization's investment holdings. The statement correctly states that a portfolio is the combined holding of different kinds of financial securities, making the answer "True" accurate.Rate this question:
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- 19.
Safety means protection for investment agints loss under reasonably variations.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Safety refers to the measures taken to protect an investment from potential losses caused by various factors. These factors could include market fluctuations, economic downturns, or unforeseen events. By implementing safety measures, investors aim to minimize the risk of losing their investment and ensure its protection. Therefore, the statement that safety means protection for investment against loss under reasonable variations is true.Rate this question:
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- 20.
Investors try to minimise their tax liabilities from the investments.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Investors try to minimize their tax liabilities from investments because taxes can significantly reduce their overall profits. By strategically managing their investments, investors can take advantage of tax deductions, credits, and other tax-saving strategies to minimize the amount of taxes they owe. This can involve strategies such as investing in tax-efficient funds, utilizing tax-advantaged accounts like IRAs or 401(k)s, and timing the sale of investments to minimize capital gains taxes. Ultimately, minimizing tax liabilities allows investors to keep more of their investment returns and maximize their overall financial gains.Rate this question:
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- 21.
Portfolio construction means determining the actual composition of portfolio.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Portfolio construction refers to the process of selecting and allocating assets in a portfolio. It involves determining the appropriate mix of assets, such as stocks, bonds, and cash, based on the investor's goals, risk tolerance, and time horizon. This process also involves considering diversification, asset allocation strategies, and risk management techniques. Therefore, the statement "Portfolio construction means determining the actual composition of a portfolio" is true, as it accurately describes the purpose and process of portfolio construction.Rate this question:
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- 22.
Liability mix is the single most determinant of portfolio performance
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement suggests that the combination of liabilities in a portfolio has the greatest impact on its performance. This means that the types and amounts of liabilities held within a portfolio can greatly influence its overall success or failure. By managing and balancing the liability mix effectively, investors can potentially optimize their portfolio performance.Rate this question:
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- 23.
Assets allocation in simple words means investing or disturbing your money across various asset classes.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
This statement is true because asset allocation refers to the process of dividing investments among different asset classes, such as stocks, bonds, and cash, in order to achieve a desired risk and return profile. By spreading investments across various asset classes, individuals can potentially reduce risk and increase the likelihood of achieving their financial goals.Rate this question:
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- 24.
There is no one simple, straight forword solution to asset allocation.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Asset allocation is a complex process that involves considering various factors such as risk tolerance, investment goals, time horizon, and market conditions. It requires careful analysis and decision-making to determine the appropriate mix of assets in a portfolio. There is no universally applicable solution that can be applied to all individuals or situations. Therefore, it is true that there is no one simple, straightforward solution to asset allocation.Rate this question:
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- 25.
An increase in income will result in the increase of invetible surplus.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
When income increases, individuals have more disposable income, which means they have more money available to spend or save. This increase in income can lead to an increase in savings, investments, or consumption, resulting in an increase in the inevitable surplus. Therefore, it is true that an increase in income will result in the increase of inevitable surplus.Rate this question:
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- 26.
Straight asset allocation is a traditional approach.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement suggests that straight asset allocation is a traditional approach. This implies that straight asset allocation has been used for a long time and is considered a conventional method in investment management. Therefore, the correct answer is true.Rate this question:
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- 27.
Assets Allocation is the greatest influencing factor in total portfolio.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Asset allocation refers to the distribution of investments across different asset classes such as stocks, bonds, and cash. It is widely recognized as the most significant factor in determining the performance of a portfolio. The allocation of assets can have a significant impact on the overall risk and return of the portfolio. By diversifying investments across different asset classes, investors can potentially reduce risk and increase the likelihood of achieving their investment goals. Therefore, it can be concluded that asset allocation is indeed the greatest influencing factor in the total portfolio.Rate this question:
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- 28.
Portfolio management means selection of securities and constant shifting of the portfolio.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Portfolio management involves the process of selecting securities and continuously adjusting the portfolio based on various factors such as market conditions, risk tolerance, and investment objectives. This process includes analyzing the performance of different securities, making informed investment decisions, and regularly monitoring and rebalancing the portfolio to optimize returns and manage risk. Therefore, the statement that portfolio management involves the selection of securities and constant shifting of the portfolio is true.Rate this question:
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- 29.
The riskness of portfolio depends upon the attributes of individuals securities.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement is true because the riskiness of a portfolio is determined by the characteristics and attributes of the individual securities that make up the portfolio. Factors such as the volatility, correlation, and diversification of the securities all contribute to the overall risk of the portfolio. Therefore, it is important for investors to carefully analyze and consider the risk profile of each security before constructing a portfolio to ensure that it aligns with their risk tolerance and investment objectives.Rate this question:
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- 30.
The active portfolio management strategy allows the portfolio managers to select a variety of investments.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The active portfolio management strategy involves portfolio managers actively selecting investments rather than passively tracking a benchmark index. This allows them to have more flexibility in choosing a variety of investments that they believe will outperform the market. By actively managing the portfolio, the managers can make adjustments based on market conditions and their own research, potentially leading to higher returns. Therefore, the statement that the active portfolio management strategy allows the portfolio managers to select a variety of investments is true.Rate this question:
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- 31.
In order to generate profits, the investors consider that some market segments.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Investors consider some market segments in order to generate profits. This implies that they analyze and evaluate different market segments to identify potential opportunities and investment prospects that can yield profitable returns. By focusing on specific market segments, investors can tailor their strategies and allocate resources effectively to maximize their chances of generating profits. Therefore, the statement "True" accurately reflects the fact that investors consider market segments as part of their profit-making endeavors.Rate this question:
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- 32.
Investor may take additional risk for achieving higher-than-market returns.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Investors often take on additional risk in order to potentially earn higher returns than the overall market. This is because higher returns typically come with higher levels of risk. By investing in riskier assets or strategies, such as stocks or emerging markets, investors have the potential to achieve above-average returns. However, it is important to note that taking on additional risk does not guarantee higher returns and can also result in losses.Rate this question:
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- 33.
The Random Walk Theory is based on the efficient market.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The Random Walk Theory suggests that stock market prices are unpredictable and follow a random pattern, making it impossible to consistently outperform the market. This theory is closely related to the concept of market efficiency, which states that all available information is already reflected in stock prices. Therefore, if the market is efficient, it supports the idea that stock prices move randomly, aligning with the Random Walk Theory. Hence, the given statement that the Random Walk Theory is based on the efficient market is true.Rate this question:
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- 34.
Random Walk Theory suggests that the successive price changes are independent.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The Random Walk Theory suggests that the successive price changes in a financial market are independent of each other. This means that the future movement of prices cannot be predicted based on past price movements. According to this theory, stock prices follow a random pattern and any new information that becomes available is immediately reflected in the price, making it impossible to consistently outperform the market by predicting price changes. Therefore, the statement "successive price changes are independent" aligns with the principles of the Random Walk Theory, making the answer True.Rate this question:
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- 35.
Management always Ensure that right resources are used on most important securities.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Management always ensures that the right resources are used on the most important securities. This means that management is responsible for allocating resources in a way that prioritizes the most important and valuable securities. By doing so, management can maximize the effectiveness and efficiency of the resources available, ultimately leading to better outcomes and protection for the organization's most critical assets.Rate this question:
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- 36.
William Sharpe has suggested a simplified method of diversification of portfolios.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
William Sharpe, a Nobel laureate in economics, did indeed propose a simplified method of diversifying portfolios. This method, known as the Sharpe ratio, measures the risk-adjusted return of an investment and helps investors determine the optimal allocation of assets in their portfolios. By suggesting this method, Sharpe aimed to assist investors in achieving a more balanced and diversified portfolio, which can potentially reduce risk and increase returns. Therefore, the statement "William Sharpe has suggested a simplified method of diversification of portfolios" is true.Rate this question:
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- 37.
Investment risk exists where there is more than one possible future return.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Investment risk refers to the uncertainty or possibility of losing money or not achieving the expected returns on an investment. When there are multiple potential outcomes or future returns, the investment is considered to have risk. This is because the actual return can vary and may not align with the expected return. Therefore, the statement "Investment risk exists where there is more than one possible future return" is true, as it accurately reflects the concept of investment risk.Rate this question:
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- 38.
Business risk means the risk of a particular business failing and thereby your investment is lost.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Business risk refers to the possibility of a specific business failing, which would result in the loss of the investment made in that business. This risk is inherent in any business venture and can arise from various factors such as market conditions, competition, financial instability, or poor management. Therefore, the statement that business risk means the risk of a particular business failing and thereby your investment is lost is true.Rate this question:
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- 39.
The Financial risk is a fuction of the company's capital structure or financial leverage.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement is true because financial risk refers to the potential for a company to experience financial difficulties or losses due to its capital structure or financial leverage. A company with a high level of debt or leverage is more vulnerable to financial risk because it may struggle to meet its financial obligations, such as interest payments on loans. On the other hand, a company with a lower level of debt or leverage is generally considered to have lower financial risk. Therefore, the statement accurately states that financial risk is indeed a function of a company's capital structure or financial leverage.Rate this question:
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- 40.
Portfolio mix is a combination of various securities within a unified frame work.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement is true because a portfolio mix refers to the combination of different securities within a unified framework. This means that when constructing an investment portfolio, investors typically include a mix of various assets such as stocks, bonds, and cash equivalents to achieve diversification and manage risk. By diversifying their investments across different asset classes, investors can potentially reduce the impact of any single security's performance on their overall portfolio. Therefore, the statement accurately describes the concept of a portfolio mix.Rate this question:
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- 41.
Optimal portfolio can be built overnight.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The statement is false because building an optimal portfolio requires careful analysis and consideration of various factors such as risk tolerance, investment goals, and market conditions. It is not a task that can be accomplished overnight. Creating an optimal portfolio involves conducting thorough research, diversifying investments, and regularly monitoring and adjusting the portfolio to ensure it aligns with the investor's objectives.Rate this question:
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- 42.
Portfolio management means
- A.
Managing Investment
- B.
Properly Accounting
- C.
Selection of Investment and constantly shifiting of portfolio
- D.
Investing money in stock Market
Correct Answer
C. Selection of Investment and constantly shifiting of portfolioExplanation
Portfolio management involves the process of selecting investments and continuously adjusting the portfolio to optimize returns and manage risk. This includes analyzing various investment options, considering factors such as risk tolerance and investment goals, and making strategic decisions to allocate funds across different assets. Constantly shifting the portfolio ensures that it remains aligned with the investor's objectives and market conditions. Proper accounting and managing investments are also important aspects of portfolio management, but the primary focus is on selecting investments and actively managing the portfolio.Rate this question:
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- 43.
Primary perpose of investment
- A.
Gain
- B.
Lose
- C.
Win
- D.
Appreciation
Correct Answer
A. GainExplanation
The primary purpose of investment is to gain. When individuals or organizations invest their money, they do so with the expectation of earning a return or profit on their investment. This can be accomplished through various investment vehicles such as stocks, bonds, real estate, or businesses. The goal is to increase the value of the investment over time and generate income or capital gains. While there is always a risk of losing money in investments, the intention is to make gains and grow one's wealth.Rate this question:
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- 44.
Following is not security form of investment
- A.
Corporate Bond
- B.
Corporate securities
- C.
Corporate fixed deposit
- D.
Corporate equity shares
Correct Answer
C. Corporate fixed depositExplanation
Corporate fixed deposit is not a secure form of investment because it carries a higher risk compared to other options listed. Unlike corporate bonds, which are backed by the company's assets and have a predetermined interest rate, fixed deposits are not guaranteed by any collateral and the interest rates can vary. Additionally, corporate equity shares represent ownership in a company and can potentially provide higher returns, while corporate securities are generally considered safer due to their backing by the company's assets. Therefore, corporate fixed deposits are the least secure option among the given choices.Rate this question:
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