Free Sample Question

MPF

Which ONE of the following describes the Mandatory Provident Funds Scheme?

A publicly managed, tax-financed social safety net for the old

A mandatory, privately managed, fully funded contribution scheme

Voluntary personal savings and insurance

A means-tested basic government pension

Duration

What does duration measure?

Inflation sensitivity to changes in prices

Interest rate sensitivity to changes in inflation

Bond price sensitivity to changes in interest rates

Share index sensitivity to changes in profit forecasts

Normal Distribution

Which of the following statements are CORRECT regarding the normal distribution of a company’s returns?

There is a 68% probability that the company’s actual return is within 1 standard deviation of the expected return
There is a 95% probability that the company’s actual return is within 2.5 standard deviations of the expected return
Standard deviation does not differentiate upside potential from the downside risk of an investment
The lower the standard deviation of a company’s returns, the tighter the cluster of returns around the mean

I, and II only

I, III and IV only

II, III and IV only

I, II, III and IV

Beta

What is the beta for a portfolio that replicates the Hang Seng Index (held in the same proportions as the market) with no risk-free securities?

-1

Behavioural Finance

The study of behavioural finance has contributed to investment management strategies through the empirical results of cognitive and social psychological studies. Which ONE of the following is an investment strategy arising from such studies?

Momentum strategy over the short-term

Contrarian strategy over the short-term

Algorithmic strategy over the long-term

Data mining strategy

CML

Ronnie Return has obtained the following performance information regarding four fund managers. The current risk-free rate is 3%.

                    Return   Std Dev   Beta
Market portfolio         0.113   0.66
Fund manager A         0.113   0.23       1.80
Fund manager B         0.148   0.94       0.51
Fund manager C         0.158   0.56       0.89
Fund manager D         0.092   0.44       0.45

Which fund manager’s performance lies on the Capital Market Line?

Manager A

Manager B

Manager C

Manager D