Final Exam

SULIT PENUH MASA

INDEX NUMBER : ____________________

First Semester Examination
2021/2021 Academic Session

February 2022

AFW369E/4 & AFW369/3 – Security Investment & Portfolio
Management

(Pelaburan Sekuriti & Pengurusan Portfolio)

Duration : 2 hours
(Masa : 2 jam)

Please check that this examination paper consists of TWO (2) pages of printed
material before you begin the examination.

[Sila pastikan bahawa kertas peperiksaan ini mengandungi DUA (2) muka surat
yang bercetak sebelum anda memulakan peperiksaan ini].

Instructions : Answer FOUR (4) questions. All questions carry the same marks. You
may answer the question either in Bahasa Malaysia or in English.

[Arahan : Jawab EMPAT (4) soalan. Semua soalan membawa jumlah markah yang
sama. Anda dibenarkan menjawab soalan sama ada dalam Bahasa Malaysia atau
Bahasa Inggeris.]

Write your index number in the space provided on the question paper.

[Tulis nombor angka giliran dalam ruangan yang disediakan pada kertas soalan
peperiksaan. Anda tidak dibenarkan membawa keluar kertas soalan peperiksaan dari
dewan peperiksaan.]

...2/-
SULIT

1. How do you apply efficient diversification (Markowitz Portfolio Theory) theory or concept
in investment analysis? (Hint: Explain its theory, the risk, the efficient frontier) DO NOT
write in point form (25 marks)

2. a) Wilson is evaluating the expected performance of two common stocks, Siakap Bhd and
Sardin Bhd. He has gathered the following information,

 The risk-free rate is 5%
 The expected return on market portfolio is 11.5%

 The beta for Siakap is 1.5

 The beta for Sardin is 0.8
Based on his own analysis, Wilson’s forecast for the return of Siakap is 13.25% and for
the return of Sardin is 11.25%. Calculate the required rate of return for Siakap’s and
Sardin’s stocks. Indicate whether the stocks are undervalued, fairly-valued or
overvalued. (12 marks)

b) In using CAPM, one must understand its assumptions. Choose 4 assumptions and
describe the reasons behind these assumptions (13 marks).

3. Are Malaysian stock market efficient? Why? What are the issues which will never be
settled if one wants to argue on 100% efficiency? Explain (25 marks)

4. An analyst wants to evaluate Portfolio X, consisting entirely of U.S common stocks using
both the Treynor and Sharpe measures of portfolio performance. The following table
provides the average annual rate of return for portfolio X (as measured by S&P500) and
U.S Treasury Bills during the past 8 years:

Average Annual Standard Deviation Beta
Rate of Return (%) of Return (%)
Portfolio X 0.60
S&P 500 10 18 1.00
T-Bills 12 13 N/A
6 N/A

a. Calculate the Treynor and Sharpe measures for both portfolio X and S&P 500. Briefly
explain whether portfolio X underperformed, equaled or outperformed the S&P 500 on
a risk-adjusted basis using both the Treynor measure and the Sharpe ratio (10 marks)

b. On the basis of the performance of portfolio X relative to the S&P 500 calculated in part
(a), briefly explain the reason for the conflicting results when using the Treynor measure
versus the Sharpe ratio. (3 marks)

c. In the emerging trend, robo-advisor has started to be a part of investment analysis.
Explain 3 advantages and 3 disadvantages of investment robo-advisor. (12 marks)