Security Analysis and
Portfolio Management MCQs
For BCOM/MCOM/CMA/CA and CS
Exams
In this exclusive page, you will get chapter wise Security Analysis and Portfolio Management
MCQs for various exams such B. Com, BBA, MBA, CMA, CS and ICAI.
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Chapter Wise MCQs for of Various Subjects.
Introduction to Security Analysis
Security analysis deals with the
analysis of securities within the framework of return and risk. Portfolio
analysis begins where the security analysis ends. The concept of portfolio
analysis has very important relevance for investors, because portfolios which
are combinations of securities may or may not take on the aggregate
characteristics of their individual parts.
Introduction to Portfolio Management
Portfolio analysis deals with the determination of future risk and return in holding various combinations of individual securities. The portfolio expected return is the weighted average of the expected returns, from each of the individual securities, with weights representing the proportionate share of the security in the total investment. The portfolio expected variance, in contrast, can be something less than a weighted average of security variances. Therefore, an investor can sometimes reduce risk by adding another security with greater individual risk compared to any other individual security in the portfolio.
Part I – Multiple Choice Questions (MCQs)
Q.1. Investment is best defined as:
a) Spending money on luxuries
b) Employment of funds for returns
c) Keeping money idle
d) Hoarding cash
Answer: b) Employment of funds for
returns
Q.2. Fixed securities are also known as:
a) Variable income securities
b) High-risk assets
c) Fixed income securities
d) Equity instruments
Answer: c) Fixed income securities
Q.3. Risks in fixed securities are:
a) Maximum
b) Minimum
c) Same as equity shares
d) None
Answer: b) Minimum
Q.4. Concentration of securities means:
a) Diversification of securities
b) Investing in a limited set of
securities
c) Reducing all risks
d) Investing only in government bonds
Answer: b) Investing in a limited set
of securities
Q.5. The principle behind time value of money is:
a) Money today is less valuable than
future money
b) Money today equals future money
c) Money today is more valuable than
future money
d) Value of money never changes
Answer: c) Money today is more valuable
than future money
Q.6. Beta measures
the:
a) Dividend yield
of shares
b) Sensitivity of
security to market risk
c) Growth rate of
investment
d) Risk-free return
Answer: b)
Sensitivity of security to market risk
Q.7. A low beta
indicates that investment will:
a) Outperform in
bear markets
b) Underperform in
bear markets
c) Be more volatile
than the market
d) Always perform
better than equity
Answer: a)
Outperform in bear markets
Q.8. Sharpe
performance index evaluates:
a) Only systematic
risk
b) Return per unit
of total risk
c) Cash inflow
variations
d) Market share of
a firm
Answer: b) Return
per unit of total risk
Q.9. Risk in
investments is the:
a) Guarantee of
profits
b) Certainty of
fixed income
c) Deviation of
actual return from expected return
d) Elimination of
losses
Answer: c)
Deviation of actual return from expected return
Q.10. Investment
expenditure relates to:
a) Purchase of household
items
b) Spending on
holidays
c) Acquiring
financial assets
d) Buying
consumables
Answer: c)
Acquiring financial assets
Q.11. Security
Market Line (SML) depicts:
a) Demand and
supply curve
b) Dividend model
c) Capital Asset
Pricing Model
d) Balance sheet
ratios
Answer: c) Capital
Asset Pricing Model
Q.12. The slope of
Security Market Line represents:
a) Risk-free rate
b) Market risk
premium
c) Systematic risk
d) Unsystematic
risk
Answer: b) Market
risk premium
Q.13.
Diversification is intended to reduce:
a) Systematic risk
b) Total risk to
zero
c) Unsystematic
risk
d) Interest rate
fluctuations
Answer: c)
Unsystematic risk
Q.14. The saying
“Do not put all eggs in one basket” is linked with:
a) Concentration
b) Diversification
c) Beta
d) CAPM
Answer: b)
Diversification
Q.15. Convertible
securities are generally:
a) Equity converted
to preference shares
b) Bonds or
preference shares converted to equity
c) Cash deposits
converted to bonds
d) Mutual funds
converted to debentures
Answer: b) Bonds or
preference shares converted to equity
Q.16. CAPM stands
for:
a) Capital
Allocation Pricing Mechanism
b) Capital Asset
Pricing Model
c) Company Asset
Performance Metric
d) Current Asset
Planning Model
Answer: b) Capital
Asset Pricing Model
Q.17. Unsystematic
risk arises due to:
a) Entire stock
market crash
b) Firm- or
industry-specific factors
c) Inflation trends
d) Political
instability
Answer: b) Firm- or
industry-specific factors
Q.18. Systematic
risk is caused by:
a) Internal
mismanagement of a company
b) Factors
affecting the entire market
c) Fraudulent
accounting practices
d) Production
inefficiencies
Answer: b) Factors
affecting the entire market
Q.19. Market risk
reflects:
a) Stable returns
from deposits
b) Changes in
investor attitudes and expectations
c) Only changes in
tax rates
d) Risk-free assets
Answer: b) Changes
in investor attitudes and expectations
Q.20. Security
valuation is easiest when based on:
a) Tangible assets
and debt levels
b) Employee
satisfaction
c) Company
advertisements
d) Market rumors
Answer: a) Tangible
assets and debt levels
Q.21. Portfolio is
a grouping of:
a) Only government
securities
b) Only real estate
and gold
c) Financial assets
like stocks, bonds, cash equivalents
d) Only mutual
funds
Answer: c)
Financial assets like stocks, bonds, cash equivalents
Q.22. Non-tradable
portfolio assets may include:
a) Bonds
b) Cash
c) Real estate and
art
d) Mutual funds
Answer: c) Real
estate and art
Q.23. A volatile
market is one where:
a) Prices remain
stable
b) Prices fluctuate
sharply and unpredictably
c) Prices only rise
d) Prices only fall
Answer: b) Prices
fluctuate sharply and unpredictably
Q.24. Risk
adjustment is a technique for:
a) Offsetting
investment cost
b) Reducing
consumption expenditure
c) Avoiding taxes
d) Calculating beta
Answer: a)
Offsetting investment cost
Q.25. Risk-adjusted
return measures:
a) Return
irrespective of risk
b) Return relative
to risk taken
c) Only dividend
income
d) Only capital
appreciation
Answer: b) Return
relative to risk taken
Part II – Fill in the Blanks (25 Questions)
Q.26. Investment means using money with
the hope of making ________.
Answer: more money
Q.27. Fixed securities give a ________
rate of income.
Answer: fixed
Q.28. Examples of fixed securities are
debentures and ________.
Answer: bonds
Q.29. Concentration of securities is
the opposite of ________.
Answer: diversification
Q.30. A rupee today is worth ________
than a rupee tomorrow.
Answer: more
Q.31. Beta measures the ________ of
security returns to market movements.
Answer: sensitivity
Q.32. A high beta investment is
considered ________.
Answer: volatile
Q.33. Sharpe ratio measures return in
relation to ________.
Answer: total risk
Q.34. Risk is the ________ of actual
returns from expected returns.
Answer: deviation
Q.35. Higher the variability, greater
the ________.
Answer: risk
Q.36. Expenditure on purchasing shares
or bonds is called ________ expenditure.
Answer: investment
Q.37. SML stands for ________ Market
Line.
Answer: Security
Q.38. Diversification reduces ________
risk.
Answer: unsystematic
Q.39. Convertible securities can be
converted into ________ shares.
Answer: equity
Q.40. The acronym CAPM expands to
________.
Answer: Capital Asset Pricing Model
Q.41. Unsystematic risk is also called
________ risk.
Answer: firm-specific
Q.42. Systematic risk affects ________
securities.
Answer: all
Q.43. Market risk is mainly due to
changes in investor ________.
Answer: attitudes
Q.44. The process of determining a
security’s worth is called ________.
Answer: valuation
Q.45. A ________ is a collection of
financial assets like bonds and stocks.
Answer: portfolio
Q.46. Non-tradable assets like art or
real estate may also form part of a ________.
Answer: portfolio
Q.47. A market with unpredictable price
movements is called ________.
Answer: volatile
Q.48. Risk adjustment helps to offset
the ________ of investments.
Answer: cost
Q.49. Risk-adjusted return considers
both return and ________.
Answer: risk
Q.50. Two components of return are
periodic cash flows and ________.
Answer: capital gain/loss
Part III – True or False (25 Questions)
Q.51. Investment is done only for
consumption, not for returns.
Answer: False
Q.52. Fixed securities provide
predetermined income.
Answer: True
Q.53. Equity shares are examples of
fixed securities.
Answer: False
Q.54. Concentration of securities
increases risk in volatile markets.
Answer: True
Q.55. A rupee today is more valuable
than a rupee in the future.
Answer: True
Q.56. Beta reflects how sensitive an
investment is to market changes.
Answer: True
Q.57. High beta securities are less
volatile than the market.
Answer: False
Q.58. Sharpe index ignores total risk.
Answer: False
Q.59. Risk is defined as variability of
returns.
Answer: True
Q.60. Higher variability always means
lower risk.
Answer: False
Q.61. Buying shares and bonds is
considered investment expenditure.
Answer: True
Q.62. Security Market Line is related
to CAPM.
Answer: True
Q.63. Diversification completely
removes all types of risk.
Answer: False
Q.64. Convertible securities can
usually be turned into equity.
Answer: True
Q.65. CAPM is used for pricing of
assets considering risk.
Answer: True
Q.66. Unsystematic risk is market-wide.
Answer: False
Q.67. Systematic risk arises from broad
market factors.
Answer: True
Q.68. Market risk occurs due to
investor sentiments and attitudes.
Answer: True
Q.69. Valuation of securities is
subjective but based on data.
Answer: True
Q.70. A portfolio can contain real
estate, art, and other non-tradable assets.
Answer: True
Q.71. A volatile market is predictable
and stable.
Answer: False
Q.72. Risk adjustment is a method to
reduce tax liabilities.
Answer: False
Q.73. Risk-adjusted returns help
compare securities with different risks.
Answer: True
Q.74. Return includes both periodic
cash flow and capital gain/loss.
Answer: True
Q.75. All risks in investment can be
eliminated by diversification.
Answer: False
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