Tuesday, September 9, 2014

MS-44

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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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