QUESTION ONE:

a.Describe the term "investor profile" and explain the two ways how investor profile can be viewed.

b.List four properties of Beta factor as a measure of risk of a security or a portfolio.

c.Given the following information compute covariance.

R_iR_j

713

1115

d.By describing a forward contract and a future contract distinguish between the two terms.

e.In the recent past there have been several emerging issues in relation to investments done.Discuss four such emerging issues.

QUESTION TWO:

a.Using an investment flow chart describe investment process highlighting what happens in each step.

b.The following information was provided by the financial analysist of Kisii Ltd regarding the expected returns of a given market.

State of economy Boom Average Recession

Probability 0.7 0.2 0.1

Return of security 0.2 0.15 0.1

Return of market 0.15 0.1 0.05

Use the information to compute the Beta factor of the security.

c.Highlight four (4) characteristics of hedge funds.

QUESTION THREE:

a.Describe any five sources of information for investment purposes.

b.Capital Asset pricing Model (CAPM) is a creation of portfolio theory.The model was developed to price risky assets.The model considers all marketable securities/investments.Highlight any five assumptions which were made in the development of the CAPM.