NATIONAL OPEN UNIVERSITY OF NIGERIA

UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
JANUARY 2018 EXAMINATION

COURSE CODE: BFN721                                       CREDIT UNITS: 2

COURSE TITLE: Investment and Portfolio Management

TIME ALLOWED: 2 Hrs

INSTRUCTIONS:   1. Attempt question number one (1) and any other (2) questions.

                                   2. Question number 1 carries 30 marks, while the other two (2) questions carry 20 marks each.

1a. Security X and Y have the following expected returns and Probabilities.  20Marks

Probability                  Security X                   Security Y

0.3                               20%                             18%

0.2                               25%                             27%

0.4                               30%                             35%

0.1                               50%                             40%

Required:

Calculate the Expected Return and Risks

b. Discuss the limitations of Markowitz Model. 10Marks

2a. State and discuss the functions of Central Bank of Nigeria. 15Marks

b. State five (5) functions of Money Market. 5Marks

3a. What do you understand by the Weak Form Efficiency?   10Marks

b. Endurance Plc is proposing to take over Quickwin Ltd. Presently Quickwin Ltd is valued at PE ratio of 16. It has in issue 1,000.000 at ordinary share and earned profit after tax of N200,000 per annum.

Required:

How much will Endurance Plc pay for the share of Quickwin Ltd using PE ratio approach. 10Marks.

4a. Assume two securities A and B with the flowing information

            Current Market Price              Good state                   Bad state

A         N1.50                                      N1.90                          N1.30

B         N0.90                                      N1.20                          N0.50

Required

Determine the price to offer for the securities under the state of nature. 12Marks

b. Discuss the risk Management Strategies.  8Marks

5a. Given the following two securities with the attached standard deviation and expected value of cash flows

                                                Security A                  Security B

Standard deviation                  N5.60                          N 8.60

Expected value                       N12.00                         N15.5

Required

Estimate their coefficient of variation and decide on the riskier security.  8Marks

b. Explain the following terms in relation to classification of investment relationship

    (i)     Positive Correlation.  4Marks

    (ii)    Negative Correlation. 4Marks

    (iii)  No correlation 4Marks