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2023
COMMERCE
(Honours Elective)
Paper COM-HE-6016
(Fundamentals of Investment)
(Solved Paper)
Full Marks: 80
Time: Three hours
The figures in the margin indicate full marks for the questions.
1. Answer the following as directed: 1×10=10
(a) Write the full form of CARE.
ANSWER - The full form of CARE is Credit Analysis and Research Limited. It is a credit rating agency in India that provides credit ratings, research, and risk analysis services.
(b) Which of the following is an example of financial derivative? (Choose the correct alternative)
(i)Share
(ii) Debenture
(iii) Forward contract
(iv) GDR
ANSWER - (iii) Forward contract
(c) Who is the propounder of dividend capitalisation model? (Choose the correct alternative)
(i) Myron J. Gordon
(ii) David Ricardo
(iii) Adam Smith
(iv) John Stuart Mill
ANSWER - (i) Myron J. Gordon
(d) On which date SEBI introduced compulsory trading of shares of listed companies in DEMAT?
(i) 1st January, 2016
(ii) 1st April, 2017
(iii) 1st January, 2018
(iv) 1st April, 2019 (Choose the correct alternative)
ANSWER - (ii) 1st April, 2017
(e) Who is the regulatory authority of Indian securities market?
ANSWER - Securities and Exchange Board of India (SEBI) is the regulatory authority of the Indian securities market.
(f) NAV is a fund per share market value. (The statement is True/False)
ANSWER - False. NAV (Net Asset Value) is the per share market value of a mutual fund's assets minus liabilities.
(g) “Securities market is a market for equity, debts and derivatives.” (The statement is True/False)
ANSWER - True.
(h) Bond is a risk-free security. (The statement is True/False)
ANSWER - False.
(i) SBI mutual fund is the first public sector mutual fund in India. (The statement is True/False)
ANSWER - True.
(j) Investment in equity is safer than bank fixed deposit. (The statement is True/False)
ANSWER - False.
2. Answer questions of the following in about 50 words each: 2×5=10
(a) Give the meaning of equity share.
ANSWER - Equity share represents ownership in a company, granting shareholders partial ownership rights and potential dividends. It involves sharing profits, voting in decisions, and bearing risks along with potential gains.
(b) State any two risks associated with bonds.
ANSWER - [DOWNLOAD PDF FOR COMPLETE SOLUTION]
(c) Explain any two types of financial derivatives.
ANSWER - [DOWNLOAD PDF FOR COMPLETE SOLUTION]
(d) Write two functions of SEBI.
ANSWER -
1. Regulation: SEBI oversees securities markets, formulates rules, and ensures fair practices, protecting investors' interests and maintaining market integrity.
2. Investor Education: It educates the public about investing, risks, and market functioning, promoting informed investment decisions.
(e) Explain any two assumptions of technical analysis.
ANSWER -
1. Price Discounts Everything: Technical analysis assumes that all available information, including past prices, is reflected in the current market price.
2. Price Moves in Trends: It assumes that prices tend to move in trends, allowing analysts to predict future price movements based on historical patterns.
GU BCom 6th Sem Fundamentals of Investment Solved Question Paper 2023
3. Answer any four questions of the following in about 150 words each: 5x4=20
(a) Explain the structure of Indian securities market.
ANSWER - [DOWNLOAD PDF FOR COMPLETE SOLUTION]
(b) Write a note on price earning ratio.
ANSWER - [DOWNLOAD PDF FOR COMPLETE SOLUTION]
(c) Describe the factors affecting the choice of mutual fund.
ANSWER - The choice of a mutual fund depends on factors like investment goals, risk tolerance, and time horizon. Financial objectives, whether income or growth, influence fund selection. Risk appetite determines whether to opt for equity, debt, or balanced funds. Fees, expenses, and past performance are considered. Market conditions and economic outlook influence sector or thematic choices. Manager expertise, fund size, and exit load impact decisions. An investor's knowledge, liquidity needs, and tax considerations also play a role in selecting the right mutual fund.
(d) What do you mean by fundamental analysis? What are its objectives?
ANSWER - [DOWNLOAD PDF FOR COMPLETE SOLUTION]
(e) Write any five functions of stock exchange.
ANSWER - [DOWNLOAD PDF FOR COMPLETE SOLUTION]
(f) State any five features of bond.
ANSWER – [DOWNLOAD PDF FOR COMPLETE SOLUTION]
4. Answer any four questions of the following in about 600 words each: 10×4=40
(a)Explain briefly about different types of investment stating their advantages and disadvantages.
ANSWER – [DOWNLOAD PDF FOR COMPLETE SOLUTION]
(b) Do you think that credit rating is an important service for the investor?Justify your answer.
ANSWER – [DOWNLOAD PDF FOR COMPLETE SOLUTION]
(c) What do you mean by mutual fund? Discuss the different types of mutual fund. 2+8=10
ANSWER – [DOWNLOAD PDF FOR COMPLETE SOLUTION]
(d) Discuss the role played by SEBI in the protection of interest of the investors in Indian securities market.
ANSWER – The Securities and Exchange Board of India (SEBI) plays a crucial role in safeguarding the interests of investors in the Indian securities market. SEBI is the regulatory authority responsible for overseeing and regulating various aspects of the securities market to ensure transparency, fairness, and investor protection.
SEBI's role includes:
1. Regulation and Oversight: SEBI formulates and enforces rules and regulations to ensure fair practices and prevent fraudulent activities in the securities market. It oversees stock exchanges, brokers, and other market intermediaries to maintain integrity.
2. Disclosure Requirements: SEBI mandates companies to provide accurate and timely information to investors. This ensures that investors have access to relevant information to make informed investment decisions.
3. Investor Education and Awareness: SEBI conducts awareness campaigns and educational programs to enhance investor knowledge and promote safe investment practices.
4. Regulating Mutual Funds: SEBI regulates mutual funds to ensure they operate in the best interest of investors and adhere to investment guidelines.
5. Prevention of Insider Trading: SEBI enforces regulations to prevent insider trading, ensuring that individuals with access to privileged information do not exploit it for personal gain.
6. Redressal Mechanism: SEBI provides a platform for investors to file complaints and seek Redressal for grievances related to securities trading.
7. Continuous Monitoring: SEBI monitors market activities, investigates irregularities, and takes corrective actions to maintain market integrity.
(e) What are the basic features of financial derivatives? Also state briefly about the major participants in financial derivative market. 5+5=10
ANSWER – [DOWNLOAD PDF FOR COMPLETE SOLUTION]
(f) What is efficient market hypothesis? Discuss about the different forms of efficient market hypothesis.
ANSWER – The Efficient Market Hypothesis (EMH) is a theory that suggests financial markets quickly and accurately reflect all available information, making it impossible to consistently outperform the market or predict future price movements. In simpler terms, EMH posits that stock prices always incorporate all relevant information, and it is not possible to consistently find undervalued or overvalued stocks.
There are three forms of the Efficient Market Hypothesis:
1. Weak Form: This form asserts that stock prices already reflect all past trading information, including price and volume data. Therefore, technical analysis (studying historical price patterns) cannot consistently lead to excess returns.
2. Semi-Strong Form: In this form, stock prices incorporate all publicly available information, including financial statements, news, and announcements. Thus, fundamental analysis (analyzing financial data) cannot consistently lead to superior returns.
3. Strong Form: This is the strongest version, suggesting that stock prices incorporate all public and private information, even insider information. According to this form, no type of analysis or information advantage can consistently beat the market.
(g) What do you mean by bond? Mr. X purchased a 10% coupon rate bond. The bonds have a face value of Rs.10, 000 and maturity of 4 years. If the current market interest rate is 8%, find the value of the bond using present value method.
If the current market price of the bond is Rs. 9,000; state whether X should sell it or hold it till its maturity, along with the reason.
(Present value of Re.1 at 8% discount rate is as follows:
1 year - 0.926,
2 years - 0.857,
3 years - 0.794, 4 years - 0.735)
ANSWER – [DOWNLOAD PDF FOR COMPLETE SOLUTION]
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