Sample/practice exam 3 November 2019, questions PDF

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Warning: TT: undefined function: 32 Office Use OnlyPractice Exam PaperFaculty of Business and EconomicsEXAM CODES: BFCTITLE OF PAPER: Equities and Investment Analysis EXAM DURATION: 2 hours writing time READING TIME: 10 minutes THIS PAPER IS FOR STUDENTS STUDYING AT: (tick where applicable)o Caulfie...

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!!!!!!!!!!!!!!!!!Office!Use!Only! !

Practice(Exam(Paper(( (

Faculty(of(Business(and(Economics( !

EXAM(CODES:( TITLE(OF(PAPER:( EXAM(DURATION:! READING(TIME:!

BFC3241( Equities(and(Investment(Analysis( 2!hours!writing!time! 10!minutes! !

THIS%PAPER%IS%FOR%STUDENTS%STUDYING%AT:%(tick%where%applicable)% % o ((Caulfield(( (((((((((((((R(Clayton!!!!!!!!!!!!!!!!!! !o (Parkville!!!!!!o (Peninsula(( o (Monash!Extension!!!!!o (Off!Campus!Learning!!! !o ((Malaysia!!!!!o (Sth!Africa( o (Other!(specify)!! ! During! an! exam,! you! must! not! have! in! your! possession! any! item/material! that! has! not! been! authorised!for!your!exam.!This!includes!books,!notes,!paper,!electronic!device/s,!mobile!phone,! smart!watch/device,!calculator,!pencil!case,!or!writing!on!any!part!of!your!body.!!Any!authorised! items!are!listed!below.!!Items/materials!on!your!desk,!chair,!in!your!clothing!or!otherwise!on! your!person!will!be!deemed!to!be!in!your!possession.!! !

No( examination( materials( are( to( be( removed( from( the( room.!This! includes! retaining,! copying,!memorising!or!noting!down!content!of!exam!material!for!personal!use!or!to!share!with! any!other!person!by!any!means!following!your!exam.! Failure!to!comply!with!the!above!instructions,!or!attempting!to!cheat!or!cheating!in!an!exam!is! a!discipline!offence!under!Part!7!of!the!Monash!University!(Council)!Regulations.! !

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( ! ALL!QUESTIONS!SHOULD!BE!ANSWERED!IN!THE!SPACE!PROVIDED!WITHIN!THIS!QUESTION! BOOK.! ! !

Page 1 of 16

( Question(1((13(marks)( ! a) Compare!and!contrast!the!efficient!market!hypothesis!(EMH)!with!the!school!of!thought! termed!‘behavioural!finance’.! ( ( ( ( ( ( ( ( ( ( ( ((((((((((((4(marks)( ! ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________! ! ! b) Explain! why! any! test! of! the! efficient! market! hypothesis! faces! the! joint! hypothesis! problem?!What!are!the!joint!hypotheses!being!tested?! (3 marks)! ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________! ! Page 2 of 16

c) What! is! technical! analysis?! What! are! the! implications! of! technical! analysis! on! market! efficiency?! ( ( ( ( ( ( ( ( ( ( ( ((((((((((((3(marks)( ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________( ! d) What!is!Mental!Accounting!Bias?!How!does!it!generally!affect!investors?!! (2(marks)! ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________! ( Page 3 of 16

! Question(2((8(marks)( ( The! following! portfolios! are! being! considered! for! investment.! During! the! period! under! consideration!the!risk!free!rate!is!7%.! ! Portfolio( Return( Beta( Standard( Deviation( P! 0.15! 1.0! 0.05! Q! 0.20! 1.5! 0.10! R! 0.10! 0.6! 0.03! S! 0.17! 1.1! 0.06! Market! 0.13! 1! 0.04! Required:! a) Compute!the!Sharpe!measure!for!each!portfolio!and!the!market!portfolio.! (3(marks)( ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________! ( ! b)

Compute!the!Treynor!measure!for!each!portfolio!and!the!market!portfolio.! (3(marks)(

____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________! ! Page 4 of 16

c)

Rank!the!portfolios!in!terms!of!performance!using!each!measure,!explaining!the!cause!for! any!differences!you!find!in!the!rankings?!! (2(marks)(

____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________! ! Question(3((8(marks)( ( When!managing!an!equity!portfolio,!professional!fund!managers!need!to!be!aware!of!both!their! legal!and!ethical!obligations.! ! a) Describe! the! legal! obligations! imposed! on! financial! advisors! in! the! Future! of! Financial! Advice!Act.!In!your!answer,!briefly!explain!how!an!advisor!can!ensure!that!they!have!met! the!requirements!of!this!legislation.! ( ( ( ( ( ( ( ( ( ( ((((((((((((4(marks)( ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________! ! ! Page 5 of 16

b)

Explain! which! standard! a! financial! advisor! is! required! to! adhere! to! if! there! is! an! inconsistency!between!the!local!laws!and!their!company’s!ethical!standards.! (1(mark)(

____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________! c)

! Ying!Zhang!spent!her!first!two!years!post-graduation!working!as!an!analyst!with!Hargrave! Financial!Advisors.!As!part!of!her!job,!she!developed!a!set!of!programs!that!allowed!her! colleagues!to!automatically!download!and!analyse!key!financial!ratios!for!the!firms!that! they! were! conducting! research! into.! Ying! recently! moved! to! a! new! firm,! Monash! &! Co.! Before!leaving!Hargrave!Financial!Advisors,!she!copied!the!firm’s!software!that!she!helped! develop! because! she! believes! that! these! programs! will! assist! her! in! her! new! position.! Discuss!whether!Madeline!is!complying!with!her!ethical!obligations.!

! (3(mark)! ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________! ! Page 6 of 16

Question(4((10(marks)! ! a) What!are!the!key!steps!in!the!investment!process?!Explain!each!of!the!key!steps!in!detail.! !!!!!!!!!!!!(5(marks)( ! ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ ____________________________________________________________________________________________________________ _______________________________________________________________________________________...