Section A:

Multiple-choice - Answer all questions. Circle the correct answer in this part and show workings if necessary.

1. Which of the following normally have voting rights attributed to them at the time of issue?

A. Preference shares

B. Warrants

C. Ordinary shares

D. Eurobonds

2. Stock market indices form the basis of:

A. tracker products

B. warrant issues

C. Treasury Bills

D. active funds

3. An international portfolio manager expects to receive a large incoming payment next month and intends purchasing a particular asset with it. What type of product can be used to offset the risk that this asset`s price will rise before the purchase can be made? A. Certificate of Deposit

B. Commercial Paper

C. Exchange-Traded Fund

D. Future

4. In accordance with the definition of a unit trust, who is deemed to be the legal owner of the trust`s underlying assets?

A. The depositary

B. The manager

C. The unitholders

D. The trustee

5. A short-term borrowing arrangement funded through a current account accurately describes which retail banking service?

A. Credit card

B. Debit card

C. Bridging loan

D. Overdraft facility

6. A bond that pays no interest but is issued at a significant discount to redemption value is known as a:

A. clean bond

B. dirty bond

C. short coupon bond

D. zero-coupon bond

7. Treasury Bills are considered low-risk investments because:

A. they are government-backed

B. they cannot fall in value

C. they have a short life-span

D. the risk lies with the issuer

8. The GSE All share index relates to stock market performance in which country?

A. Italy

B. Ghana

C. France

D. Spain

9. A client is planning to borrow some money. A high street bank has quoted an interest rate of 9%, with interest payable half-yearly. What is the effective annual rate that the bank is quoting?

A. 9.00%

B. 9.20%

C. 10.9%

D. 18.00%

10. Compared to direct property investment, Real Estate Investment Trusts normally offer a reduced level of:

A. liquidity risk

B. institutional risk

C. legal risk

D. systemic risk

11. Which of the following is TRUE of insurance companies? They:

A. collect tax-deductible premiums in return for compensation in the event of property loss or damage

B. collect premiums in return for compensation in the event of property loss or damage

C. compensate policy holders for loss or damage of property up to regulatory limits

D. compensate policy holders for loss or damage of property up to government limits

12. Which of the following risks is MOST relevant when holding government bonds?

A. Credit risk

B. Price risk

C. Seniority risk

D. Early redemption risk

13. If tax is deducted at source from the gross interest, the actual amount payable is normally described as:

A. nominal interest

B. yield interest

C. real interest

D. net interest

14. The fundamental reason an instant access deposit account is deemed a safe home for savings is that:

A. the interest is guaranteed

B. the capital cannot decrease

C. cash can be withdrawn without penalty

D. interest paid is free of tax

15. Which of the following objectives does an investor in equities seek to achieve?

A. Capital growth

B. A risk-free return

C. A guaranteed income

D. A return related to interest rates

16. What is the PRIME responsibility of the Bank of Ghana's Monetary Policy Committee? A. Determining interest rates in accordance with inflation targets

B. Intervening in the market to influence exchange rates

C. Organising the amount of notes and coins in circulation

D. Preparing economic statistics for the government

17. What do Forex dealers trade in?

A. Financial futures

B. Eurobonds

C. Currencies

D. Commodities

18. A capitalisation issue will have which of the following effects on an investor`s shareholding?

A. The number of shares will change

B. The share price will remain the same

C. There will be partial payment of capital

D. The investor will be required to sell part of their holding

19. Which type of occupational pension scheme converts pensionable service into a benefit related to pensionable salary at or near retirement?

A. Contracted-Out Money Purchase Scheme

B. Executive Pension Plan

C. Final Salary Scheme

D. Small Self-Administered Scheme

20. Two companies have decided to raise money. Company A is issuing shares and Company B is issuing bonds. This means that the issue will take place in the:

A. primary market for both

B. secondary market for both

C. primary market for the shares and in the secondary market for the bonds

D. primary market for the bonds and in the secondary market for the shares

21. Which of the following instruments is principally designed to protect the holder against a fall in the market?

A. A hedge fund

B. A unit trust

C. An ISA

D. An index tracker fund

22. How can a small retail investor normally gain access to money market instruments? A. By direct investment

B. Through collective investment funds

C. Through the central bank

D. Through a commercial bank

23. Which of the following is a mandatory event?

A. Dividend

B. Rights issue

C. Takeover

D. Scrip dividend

24. The basic trade-off in the investment process is

A. between the anticipated rate of return for a given investment instrument and its degree of risk.

B. between understanding the nature of a particular investment and having the opportunity to purchase it.

C. between high returns available on single instruments and the diversification of instruments into a portfolio.

D. between the desired level of investment and possessing the resources necessary to carry it out.

E. None of the above.

25. The ____ the variance of returns, everything else remaining constant, the ____ the dispersion of expectations and the ____ the risk.

A. Larger, greater, lower

B. Larger, smaller, higher

C. Larger, greater, higher

D. Smaller, greater, lower

E. Smaller, greater, greater

26. The coefficient of variation is a measure of

A. Central tendency.

B. Absolute variability.

C. Absolute dispersion.

D. Relative variability.

E. Relative return.

27. The nominal risk-free rate of interest is a function of

A. The real risk-free rate and the investment's variance.

B. The prime rate and the rate of inflation.

C. The T-bill rate plus the inflation rate.

D. The tax free rate plus the rate of inflation.

E. The real risk free rate and the rate of inflation.

28. Sources of risk for an investment include

A. Variance of returns and business risk

B. Coefficient of variation of returns and financial risk

C. Business risk and financial risk

D. Variance of returns and coefficient of variation of returns

E. All of the above

29. Unsystematic risk refers to risk that is

A. Undiversifiable

B. Diversifiable

C. Due to fundamental risk factors

D. Due to market risk

E. None of the above

30. The total risk for a security can be measured by its

A. Beta with the market portfolio

B. Systematic risk

C. Standard deviation of returns

D. Unsystematic risk

E. Alpha with the market portfolio

Use the information below to answer questions 31 and 32

Suppose you bought a HFC corporate bond on January 25, 2001 for GHS 750, on January 25, 2004 sold it for GHS 650.00.

31. What was your annual holding period return?

A. 0.8667

B. 0.1333

C. 0.0333

D. 0.9534

E. 0.0466

32. What was your annual holding period yield?

A. 0.0466

B. 0.1333

C. 0.0333

D. 0.3534

E. 0.8667

33. Given investments A and B with the following risk return characteristics, which one would you prefer and why?

Investment Expected Return Standard Deviation of Expected Returns

A 12.2% 7%

B 8.8% 5%

A. Investment A because it has the highest expected return.

B. Investment A because it has the lowest relative risk.

C. Investment B because it has the lowest absolute risk.

D. Investment B because it has the lowest coefficient of variation.

E. Investment A because it has the highest coefficient of variation.

34. In an investment policy statement the objectives of an investor are expressed in terms of

A. risk and return

B. Risk

C. Return

D. time horizon

E. liquidity needs

35. Which of the following is not a life cycle phase?

A. Discovery phase

B. Accumulation phase

C. Consolidation phase

D. Spending phase

E. Gifting phase

36. Which of the following is not a step in the portfolio management process?

A. Develop a policy statement.

B. Study current financial and economic conditions.

C. Construct the portfolio.

D. Monitor investor's needs and market conditions.

E. Sell all assets and reinvestment proceeds at least once a year.

37. Once the portfolio is constructed, it must be continuously

A. Rebalanced.

B. Recycled

C. Reinvested

D. Monitored.

E. Manipulated.

38. Investments with predetermined contractual payments are known as:

A. Fixed-income

B. Real estate

C. Real assets

D. Equities

E. Low liquidity investments

39. Adding international investments to an all Ghana portfolio will most likely:

A. Increase the overall risk of the portfolio

B. Decrease the overall risk of the portfolio

C. Increase the expected return of the portfolio

D. Decrease the expected return of the portfolio

E. None of the above

40. Which of the following is not a step in the portfolio management process?

A. Develop a policy statement.

B. Study current financial and economic conditions.

C. Construct the portfolio.

D. Monitor investor's needs and market conditions.

E. Sell all assets and reinvestment proceeds at least once a year.