QUESTION ONE

(a)Describe the following terms;

(i)Investment

(ii)Portfolio management

(iii)Risk

(iv)Investment companies

(b)Discuss the investment process highlighting what happens at each step using an investment flow chart.

(c)(i)List FOUR properties of Beta factor

d) Describe investment process highlighting what happens in each step using an investment flow chart.

QUESTION TWO

(a)Explain FIVE sources of investment information that is available to investors.

(b) You have been invited to give a talk on the importance of making investments.By giving four reasons, explain to the audience you are to address in your opinion why it is important to make investments.

c) Describe the following terms:

(i)Debt securities

(ii)Equity securities

(iii)Swaps

(iv)Financial derivatives

(v)Intangible investments

QUESTION THREE

(a)There are three possibilities when options are exercised.Explain each of them.

(b)Distinguish between futures and forwarded contracts.

(c)Explain any FOUR assumptions of the portfolio theory.

d)Consider a call option with the following characteristics:

-Exercise price Kshs. 100.

-Premium per call option Kshs. 10

-Remaining time to maturity for the option is three months

Determine the value of the call option and the profits or loss on the option assuming the following market prices of underlying securities after three months:(6 Marks)

0, 80,100,110,150

e)Explain the following investment strategies:

(i)Passive strategy

(ii)Active strategy

Question Four

a)Explain five (5) sources of information available for investors.

b)(i) Highlight four (4) objectives of financial risk management.

(ii)Distinguish between the following:

Call option and put option

American option and European option

Naked options and covered option