Financial Economics — DU B.A. (Hons.) Economics Previous Year Question Papers

1. (a) Critically examine how NPV and IRR contribute to effective project evaluation and decision-making. (6) of immunisation in portfolio management. (c) What do you understand by accrued interest? What is the accrued interest (AI) for a U.S. Treasury (6) bond with a 4.50% coupon rate, purchased on May/ 8, when the last coupon was paid on February/15, and the next coupon is due on August/15, assuming (6) the actual/actual day count convention? (3+3) (a) What is the difference between yield to maturity (6) and yield to call? (3+3) (b) In the case of the Capital Asset Pricing Model, (6) explain what is meant by the beta coefficient (Bi) for a security? (3+3) 2. (c) Explain the difference between Jensen's index and (3+3) the Sharpe Ratio? (3+3) 3. (a) Explain the Markowitz portfolio optimisation model (3+3) with diagrams. (6) (b) What do you understand by the degeneracy (3+3) condition? And what is the significance of the minimum variance point with diagram. (3+3) 3. (c) Suppose drugmaker Pfizer has a beta of 0.7, (6) whereas the beta of Google (GOOG) is 0.9. If the riskfree interest rate is 3% and the market risk premium is 6%, what is the expected return of an equally weighted portfolio of Pfizer and Google according to the CAPM? (6) 4. (a) Suppose the risk-free return is 3% and you measure the market risk premium to be 6%. Apple (6) has a beta of 1.2. According to the CAPM, what is its expected return? (6) (b) Explain the minimum variance set and the efficient frontier. (6) (c) Suppose you buy 200 shares of the Walt Disney Capital Asset Pricing Model (CAPM)? What Company at $30 per share and 100 shares of Coca- capital market line portfolio has equivalent market Cola stock at $40 per share. If Disney's share risk, and what is its expected return? (6) return did it earn? Show that the price change, what are the new portfolio weights? (6) 7. (a) What do you understand by technical analysis? Explain its tools. (6) (a) How is Behavioural Finance different from (b) Discuss the six lessons of market efficiency. Conventional Finance? (6) (6) (c) What do you understand by arbitrage? Also, (b) What are Efficient Markets? Explain 3 forms of explain what is meant by bond rating. (6) market efficiency? (6) (c) Explain the difference between the one fund theorem and the two fund theorem. (6) (a) Difference between Capital Market Line (CML) and Security Market Line (SML) with diagram. (b) Suppose the risk-free return is 4% and the market portfolio has an expected return of 10% with a volatility of 16%. Campbell Soup stock has a 26% volatility and a correlation with the market of 0.33. What is Campbell Soup's beta with the market? What is its expected return according to the