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MS-44
Q. What do you understand by 'investment'? Explain the various factors,
which form the basis of the investment process.
Answer. The word
"investment" can be defined in many ways according to different
theories and principles...... Investment is a conscious act of an individual or
any entity that involves deployment of money (cash) in securities or assets
issued by any financial institution with a view to obtain....... Investment is
usually the result of forgoing consumption. In a purely agrarian society, early
humans had to choose how much grain to eat......
Q. Differentiate between fundamental analysis and technical analysis.
Discuss the usefulness of odd lot theory and Elliot wave theory on stock market
prediction.
Answer. Fundamental analysis uses
a company’s financial statements to determine its value with regard to its
potential growth in earnings. Fundamental analysts use projected forecasts of
the economy to focus on industries that are expected to generate increased
sales and earnings........
Q. What is Efficient Market Hypothesis (EMH) Explain the techniques for
testing the various forms of E.M.H
Answer. The efficient market
hypothesis contends that stocks are always fairly valued, trading at their
intrinsic values. According to the efficient market theory, information about
companies is conveyed quickly and efficiently by the market, resulting in no
underpriced stocks..... Basically, the efficient market hypothesis states that:
current prices incorporate all available information and expectations, current
prices are the best approximation to intrinsic value, price changes are due to
unforeseen events, 'mispricings' do occur but not in predictable patterns that
can lead to consistent outperformance.
Q. What are formula plans? How is a constant rupee value plan different
to a constant ratio plan? Discuss
Answer. The investor makes use of
formula plans to help him in making investment decisions for the future by
taking advantage of the fluctuations........ Formula plans have been made to
give the investor.......
Q. Compare and contrast capital Asset Pricing Model(CAPM) and Arbitrage
Pricing Theory(APT).Which of the two is a better model for pricing risky
assets.
Answer. The capital asset pricing
model (CAPM) provides a methodology to determine the level of return expected
by shareholders from their investment in a particular listed company. Investors
generally expect a capital gain by way of share price appreciation, or a yield
by way of dividends, or some combination of both....... In a world where these
assumptions are held, all investors will hold the same portfolio of risky
assets, which is the market portfolio. The market portfolio contains all
securities and the proportion of each security is its market value as a
percentage of the total market value. The risk premium on the market depends on
the average risk aversion of all market participants.......
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