MBA Previous Year Question Paper Aktu: BMB FM01 Investment & Portfolio Management 100% (Solved)
MBA Previous Year Question Paper Aktu: BMB FM01 Investment & Portfolio Management
BMB FM01 Investment & Portfolio Management MBA Previous Year Question Paper
| 1. | Attempt all questions in brief. | 2 × 10 = 20 |
| a. | Define stock exchange and list its primary functions. |
| b. | List the major regulatory bodies governing equity markets. |
| c. | Name the key assumptions of Markowitz's Portfolio Theory. |
| d. | Explain how beta measures systematic risk. |
| e. | Name the basic principles of Dow Theory. |
| f. | Explain the different types of charts used in technical analysis. |
| g. | Summarize balance sheet valuation. |
| h. | What does the Price/Book Value ratio measure? |
| i. | Explain the primary purpose of evaluating a portfolio's performance. |
| j. | Recall the role of mutual funds in portfolio management. |
| 2. | Attempt any three of the following: | 7 × 3 = 21 |
| a. | Analyze how clearing and settlement procedures affect market efficiency. |
| b. | Compare the strengths and limitations of Markowitz's Theory and the Single Index Model. |
| c. | Discuss the impact of breaking a trend line on market sentiment. |
| d. | Analyze the impact of changes in market interest rates on bond prices. |
| e. | Compare the impact of active versus passive portfolio revision strategies. |
| 3. | Attempt any one part of the following: | 7 × 1 = 7 |
| (a) | Evaluate the effectiveness of regulatory systems in equity markets. |
| (b) | Assess the limitations of stock exchanges in developing markets. |
| 4. | Attempt any one part of the following: | 7 × 1 = 7 |
| (a) | Evaluate the importance of combining economic, industry, and company analysis for investment decisions. |
| (b) | Examine the effectiveness of variance and standard deviation as measures of investment risk. |
| 5. | Attempt any one part of the following: | 7 × 1 = 7 |
| (a) | Compare the implications of EMH for active versus passive investment strategies. |
| (b) | Assess the importance of relative strength analysis in a bearish market. |
| 6. | Attempt any one part of the following: | 7 × 1 = 7 |
| (a) | Evaluate the importance of EVA compared to traditional financial metrics. |
| (b) | Discuss the impact of an upward‑sloping versus downward‑sloping yield curve on bond portfolios. |
| 7. | Attempt any one part of the following: | 7 × 1 = 7 |
| (a) | Analyze how these three measures account for risk in portfolio performance evaluation. |
| (b) | Interpret the reliability of historical performance data in predicting future. |
This AKTU MBA previous year question paper has Sections A, B, and C, and each section covers important management topics to help you prepare well for the exam.
MBA Previous Year Question Paper Aktu: BMB MK02 Marketing & Web Analytics Answers
Section A – Answers
a. Define stock exchange and list its primary functions.
A stock exchange is a place where people buy and sell shares of companies. Think of it as a big market where investors trade ownership pieces of businesses.
Its main functions are:
1. Trading platform – provides a safe place for buying/selling shares.
2. Price discovery – finds the fair price of shares based on demand/supply.
3. Capital formation – helps companies raise money by selling shares.
4. Transparency – all trades are recorded and publicly visible.
For example, BSE and NSE in India are stock exchanges where you can buy Reliance or HDFC Bank shares.
b. List the major regulatory bodies governing equity markets.
Major regulatory bodies keep stock markets fair and safe:
- SEBI (India) – oversees companies, brokers and investors.
- NSE/BSE – self‑regulatory exchanges.
- RBI – controls foreign investment flows.
- NSDL/CDSL – manage demat accounts.
Example: SEBI punishes companies for fake financial reports to protect small investors.
c. Name the key assumptions of Markowitz's Portfolio Theory.
Markowitz's theory says investors can reduce risk by mixing different investments. Key assumptions:
- Investors are rational and want maximum return for minimum risk.
- They are risk‑averse – prefer less uncertainty.
- Investments have expected returns and risks that can be calculated.
- Markets are perfect – no taxes or transaction costs.
Example: Instead of putting all money in one stock, spread it across 10 different stocks.
d. Explain how beta measures systematic risk.
Beta shows how much a stock moves with the overall market. It measures systematic risk (market risk).
- Beta = 1: Stock moves same as market
- Beta > 1: Stock moves more than market (risky)
- Beta < 1: Stock moves less than market (safer)
Example: If market falls 10% and your stock falls 20%, beta = 2 (high risk). Safe utility stocks often have beta below 1.
e. Name the basic principles of Dow Theory.
Dow Theory is the foundation of technical analysis. Its 6 principles:
- Trend principle – markets have uptrend, downtrend or sideways trends.
- Three trends – primary (1+ year), secondary (weeks‑months), minor (days).
- Volume confirms trend – rising volume supports uptrend.
- Averages must confirm – Dow Industrials and Transports must move together.
- Trend continues until clear reversal signals.
- History repeats – human psychology creates patterns.
f. Explain the different types of charts used in technical analysis.
Technical analysis uses charts to predict price movement. Main types:
- Line chart – connects closing prices (simple trend).
- Bar chart – shows open, high, low, close for each period.
- Candlestick chart – colorful bars showing price action (most popular).
- Point & Figure – ignores time, shows only price changes.
Example: Candlestick charts show green candles for price rise and red for fall.
g. Summarize balance sheet valuation.
Balance sheet valuation values a company based on its assets minus liabilities. Method: Book Value = Total Assets - Total Liabilities. Share value = Book Value ÷ Number of shares. Good for asset‑heavy companies like banks, real estate.
Example: If company assets ₹100 crore, liabilities ₹60 crore, 10 lakh shares → Value per share = ₹40.
h. What does the Price/Book Value ratio measure?
Price/Book Value (P/B) ratio = Market price per share ÷ Book value per share. It shows if a stock is overvalued or undervalued compared to its assets.
- P/B < 1: Stock undervalued (bargain)
- P/B > 3: Stock overvalued (expensive)
Example: Bank with P/B = 0.8 may be good value; tech stock with P/B = 5 may be overpriced.
i. Explain the primary purpose of evaluating a portfolio's performance.
The main purpose is to check if your investment choices are working. It answers: Did the portfolio beat the market? Is risk justified by returns? Should I change strategy?
Example: If your portfolio gave 12% return while market gave 10% with same risk, you did well. Regular evaluation helps avoid losses.
j. Recall the role of mutual funds in portfolio management.
Mutual funds help small investors create diversified portfolios:
- Diversification – invest in 50+ stocks with small money.
- Professional management – experts pick stocks.
- Liquidity – buy/sell any time.
- Low cost – economies of scale reduce fees.
Example: ₹10,000 in equity mutual fund gives you shares in 100+ companies.
Section B – Answers
a. Analyze how clearing and settlement procedures affect market efficiency.
Clearing and settlement is the process that happens after you buy or sell shares. Clearing means confirming the trade details, and settlement means actually exchanging the money and shares. When this process is fast and smooth, the market becomes efficient.
Good clearing and settlement reduce risk of default—the chance that one side fails to pay or deliver shares. This builds trust among traders. Fast settlement (like T+1 or T+0) means money and shares move quickly, so traders can use their funds again for new trades instead of waiting days. This increases trading volume and liquidity.
For example, imagine you buy 100 shares at 9 AM and get them by evening. You can sell them next day if the price rises. But if settlement takes 7 days, your money is blocked, and you miss other opportunities. In India, SEBI reduced settlement from T+2 to T+1, which made the market faster and more efficient.
Poor clearing systems cause delays, disputes and fear, which reduce trading. Advanced systems with technology like blockchain can make settlement almost instant, making markets even more efficient.
b. Compare the strengths and limitations of Markowitz's Theory vs Single Index Model.
Markowitz's Theory (Modern Portfolio Theory) and Single Index Model are two ways to build investment portfolios. Both aim to balance risk and return, but they work differently.
Markowitz Theory Strengths:
- Considers relationship between all stocks (correlation), so it finds the best mix.
- Helps create diversified portfolios with minimum risk for a given return.
- Uses math to show the "efficient frontier" – best possible portfolios.
Markowitz Limitations:
- Needs lots of data and calculations (covariance between every pair of stocks).
- Assumes investors are rational and can measure risk perfectly.
- Very time‑consuming for large portfolios.
Single Index Model Strengths:
- Simple and fast – only needs data about how each stock moves with the market index.
- Less calculation, good for big portfolios.
- Easy to understand and implement.
Single Index Limitations:
- Ignores relationship between individual stocks (only considers market movement).
- Less accurate for stocks that don't follow market trends.
For example, Markowitz is like planning a full meal by checking how every ingredient tastes together. Single Index is like planning based on only the main spice (market). Markowitz gives better results but takes more effort.
c. Discuss the impact of breaking a trend line on market sentiment.
A trend line is a line drawn on a price chart connecting higher lows (uptrend) or lower highs (downtrend). When this line is broken, it sends a strong signal to traders about possible change in direction.
Breaking an uptrend (price falls below the trend line) creates bearish sentiment. Traders think the upward momentum is lost. Many start selling, which pushes prices further down. Fear spreads that the stock or market may enter a bigger fall.
Breaking a downtrend (price rises above the trend line) creates bullish sentiment. Traders see it as a sign of reversal and start buying, pushing prices higher. Hope spreads that recovery is coming.
The impact is stronger when the trend line is tested multiple times before breaking. Volume (number of trades) also confirms the break – high volume means more conviction.
For example, during March 2020 COVID crash, Nifty broke its uptrend line with heavy volume. This turned market sentiment from optimistic to fearful, and prices kept falling for weeks. Traders who saw this early exit or sold short. Later when it broke the downtrend, sentiment turned positive again.
d. Analyze the impact of changes in market interest rates on bond prices.
Bond prices and interest rates have an inverse relationship. When interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. This happens because of opportunity cost.
When new interest rates rise, new bonds give higher returns. Old bonds with lower rates become less attractive, so their prices drop to match the yield of new bonds. Conversely, when rates fall, old bonds with higher rates become valuable, so their prices rise.
The impact is stronger for longer‑term bonds because they have more future payments affected by rate changes. Short‑term bonds are less sensitive.
For example, suppose you have a 10‑year bond paying 6% interest. If new market rate rises to 8%, nobody wants your 6% bond at face value, so its price drops to say 85 rupees (to give effective 8% yield). If rate falls to 4%, your bond price may rise to 115 rupees. In 2022, when RBI raised rates to control inflation, bond prices fell sharply, causing losses for bond investors.
e. Compare the impact of active versus passive portfolio revision strategies.
Active portfolio revision means regularly buying and selling stocks to beat the market. Portfolio managers study companies, markets and news to pick winners and drop losers. Passive revision means buying a market index fund (like Nifty 50 ETF) and holding it with minimal changes.
Active Strategy Impact:
- Higher potential returns if manager picks good stocks.
- Higher risk and costs (brokerage, taxes, time spent).
- Needs skill and luck to beat market consistently.
Passive Strategy Impact:
- Market returns (average, no beating or lagging).
- Lower costs and risk (no frequent trading).
- Simple, good for long‑term investors.
For example, an active fund manager may sell IT stocks in 2022 and buy metals to gain 15% while market fell 5%. But if wrong, may lose 20%. A passive Nifty ETF would give exactly market return (-5%) with no effort. Over 10 years, most active funds underperform passive index funds due to costs and errors.
Section C – Answers
3(a). Evaluate the effectiveness of regulatory systems in equity markets.
Regulatory systems are the rules and bodies like SEBI in India, SEC in USA, that control stock markets to keep them fair and safe. They check companies, brokers and traders to prevent fraud and protect investors.
These systems work well when they have strong powers, good technology and strict enforcement. For example, SEBI's surveillance systems catch unusual trading patterns in real‑time and can freeze accounts if needed. Insider trading rules and disclosure norms make sure all investors get the same information at the same time.
However, effectiveness depends on execution. In some markets, regulators are understaffed or get political pressure, so rules exist on paper but not in practice. Corruption or weak penalties also reduce fear of breaking rules.
Take the 2010 Sahara scam – SEBI acted late because the company hid funds in complex structures. But after that, SEBI tightened rules for unlisted companies and pooling schemes. Overall, good regulation builds investor confidence, increases market participation and attracts foreign money, making the market deeper and more efficient.
3(b). Assess the limitations of stock exchanges in developing markets.
Stock exchanges in developing countries like India, Brazil or Indonesia have grown fast, but they still face some basic hurdles that limit their full potential.
First is low participation. Only a small percentage of people invest directly in stocks because of lack of financial literacy, fear of loss and preference for gold or property. Second, liquidity issues – many small‑cap stocks have low trading volume, so you can't buy or sell large quantities without moving the price. Third, technology gaps – while main exchanges are modern, smaller regional ones may have outdated systems causing delays.
Volatility is another issue – domestic political events, currency swings and foreign fund flows cause sharp price jumps. Settlement risks were common earlier (bad deliveries), though now mostly fixed. Corporate governance is weak in many small companies, leading to fraud or poor decisions.
For example, Indian exchanges like NSE are world‑class, but many midcap stocks still have low daily volume (under 1 lakh shares). During 2022 FII selling, Nifty fell 15% in months due to currency pressure. To overcome, exchanges need investor education, more IPOs of quality companies, better governance rules and technology upgrades.
4(a). Evaluate the importance of combining economic, industry, and company analysis for investment decisions.
Investing without looking at the big picture is like driving with eyes closed. Economic analysis tells the overall health – GDP growth, inflation, interest rates, employment. Industry analysis checks sector trends – which industries are growing (IT, pharma) and which are shrinking (textiles). Company analysis looks at specific firm health – sales, profit, debt, management.
Combining all three gives a complete view. Economic slowdown hurts all companies, but defensive sectors like FMCG survive better. Within a good sector like renewable energy, you still need to pick companies with strong balance sheets and good execution.
For example, in 2020 COVID recession, economy was bad (economic analysis). Pharma and IT industries did well (industry analysis). Within pharma, companies like Sun Pharma with low debt and good cash flow outperformed others (company analysis). Relying only on company numbers without checking economy or sector can lead to wrong choices.
This top‑down approach reduces risk and increases chances of picking winners. Warren Buffett also follows this – he invests in good companies within growing industries during favourable economic times.
4(b). Examine the effectiveness of variance and standard deviation as measures of investment risk.
Variance and standard deviation measure how much an investment's returns move away from its average. High variance means unpredictable returns (high risk), low variance means stable returns (low risk).
Strengths: They are easy to calculate and widely used. Standard deviation shows risk in the same units as returns (%), so easy to understand. Works well for normal distributions. Helps compare risk between stocks or portfolios.
Limitations: Assumes returns are normally distributed (bell curve), but stock markets have fat tails – extreme events happen more than expected. Ignores direction of movement (upside risk is treated same as downside risk, though upside is good). Short historical data may not capture true risk. Does not consider investor's risk tolerance.
For example, Stock A with 15% average return and 20% SD looks riskier than Stock B with 12% return and 10% SD. But if A has many positive surprises and B has negative ones, A may be better. During 2008 crisis, many "low SD" stocks still crashed. So while useful, these measures should be used with others like downside risk, beta and Value at Risk.
5(a). Compare the implications of EMH for active versus passive investment strategies.
Efficient Market Hypothesis (EMH) says all available information is already reflected in stock prices, so you cannot consistently beat the market by picking stocks or timing.
For Active Strategies (stock picking, market timing): EMH says they are mostly useless. Professional fund managers cannot find undervalued stocks or predict trends better than random chance after fees. Most active funds underperform index over 5-10 years.
For Passive Strategies (index funds, ETFs): EMH supports them strongly. Since you can't beat the market, just match it with low costs. Buy Nifty 50 ETF, hold long‑term, get market returns minus minimal fees.
EMH has three forms: weak (past prices useless), semi‑strong (public info useless), strong (even private info useless). Evidence shows semi‑strong holds best. Warren Buffett bet $1 million that passive S&P index would beat active hedge funds over 10 years – passive won.
However, critics say markets are not always efficient (bubbles, crashes). Still, for most investors, passive makes more sense under EMH.
5(b). Assess the importance of relative strength analysis in a bearish market.
Relative strength compares how a stock performs against the overall market or index during the same period. A stock with high relative strength falls less or rises more than the market.
In a bearish market (falling prices), relative strength is very valuable. Most stocks fall, but some "strong" stocks fall less or even rise. These are defensive stocks or leaders that investors flock to even in panic.
Importance: Helps identify stocks that will recover first when market turns up. Protects capital by avoiding weak stocks that keep falling. Gives psychological comfort – you see your portfolio declining less than Nifty.
For example, during 2022 bear market when Nifty fell 15%, FMCG stocks like HUL fell only 5%, showing high relative strength. Investors who spotted this early held cash losses low and gained when market recovered.
How to use: Plot stock price vs Nifty on chart. Rising relative strength line = buy signal even in bear market. Tools like RSI, price ratio also help. In downtrends, relative strength separates survivors from losers.
6(a). Evaluate the importance of EVA compared to traditional financial metrics.
EVA (Economic Value Added) = Net Operating Profit After Tax minus (Capital Employed × Cost of Capital). It measures true economic profit after charging for all capital used (equity + debt).
Traditional metrics like Net Profit, EPS, ROE look good but ignore capital cost. A company earning 10% ROE when capital cost is 12% is actually destroying value. EVA fixes this by deducting true cost of money.
Importance: Aligns management with shareholders (bonus only when EVA > 0). Encourages efficient capital use – stop low‑return projects. Better for comparing firms across industries. Predicts stock returns better than accounting profits.
Example: Company A has ₹100 cr profit on ₹1,000 cr capital (10% ROE). Company B has ₹80 cr profit on ₹500 cr capital (16% ROE). Traditional view prefers A. But if capital cost is 12%, A's EVA = -20 cr (loss), B's EVA = 20 cr (profit). EVA shows B creates real value.
6(b). Discuss the impact of an upward‑sloping versus downward‑sloping yield curve on bond portfolios.
Yield curve plots bond yields vs maturity. Upward sloping (normal) means longer bonds have higher yields. Downward sloping (inverted) means short‑term yields higher than long‑term.
Upward sloping impact: Good for bond ladder strategy – invest in mix of short, medium, long bonds. Reinvest maturing short bonds at higher rates. Banks borrow short, lend long and profit from spread. Indicates economic growth expectation.
Downward sloping impact: Recession warning. Short‑term rates high due to tight money policy. Investors expect rate cuts, so demand long bonds (prices rise, yields fall). Bond portfolios should shift to longer duration to benefit from falling rates. Banks face pressure (high deposit cost, low loan rates).
Example: 2019 India yield curve inverted briefly – Nifty fell, RBI cut rates. Long bond holders gained as prices rose. In normal upward curve (2023), short bonds safer for parking money.
7(a). Analyze how these three measures account for risk in portfolio performance evaluation.
The three measures are Sharpe Ratio, Treynor Ratio, Jensen's Alpha. All adjust returns for risk but use different risk definitions.
Sharpe Ratio = (Portfolio return - Risk free rate) / Standard deviation. Total risk measure. Good for standalone portfolios. Penalises volatility in all directions.
Treynor Ratio = (Portfolio return - Risk free rate) / Beta. Systematic (market) risk only. Good for diversified portfolios where unsystematic risk is diversified away.
Jensen's Alpha = Actual return - Expected return (CAPM). Shows manager skill in beating market after adjusting for systematic risk.
Example: Portfolio A: 15% return, 20% SD, Beta 1.0. Portfolio B: 14% return, 15% SD, Beta 0.8. Sharpe prefers A (less total volatility). Treynor prefers B (less market risk). Alpha shows if manager added value beyond beta.
7(b). Interpret the reliability of historical performance data in predicting future.
Historical data shows what happened in the past but does not guarantee future results. Markets change due to new technology, policies, global events.
Strengths: Patterns like bull/bear cycles, sector rotations repeat. Good benchmarks (Nifty past 10% average). Helps set realistic expectations.
Limitations: Past winners may not repeat (value stocks beat growth 2000-2010, growth beat 2010-2020). Black swan events (COVID, 2008) break patterns. Survivorship bias (failed funds disappear from data). Small sample size for new strategies.
Example: Mutual funds showing 25% CAGR past 5 years may slow to 12% next 5 years as market matures. Use history as guide, not gospel. Combine with current valuation, macro trends and risk metrics for better prediction.
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