UNIVERSITY EXAMINATIONS: 2019/2020
EXAMINATION FOR THE DEGREE OF BACHELOR OF BUSINESS IN
INFORMATION TECHNOLOGY
BUSS 306: EVALUATION OF BUSINESS INVESTMENT
FULL TIME/ PART TIME/ DISTANCE LEARNING
DATE: MAY, 2020 TIME: 6 HOURS
INSTRUCTIONS: Answer ALL Questions
SECTION TWO: (20 MARKS)
QUESTION ONE
a) Discuss THREE forms of efficient market hypothesis. (6 Marks)
b) Explain TWO differences between the Capital Market Line (CML) and the Security Market
Line (SML)
(2 Marks)
c) The table below shows the performance of two shares x and y under four different economic
conditions and their associated probabilities of occurrence
Economic condition Rate of return (%) Probabilities
Required;
i. The expected rate of return for shares x and y. (4 Marks)
ii. The standard deviation of returns for shares x and y. (4 Marks)
iii. The coefficient of variation of returns for shares x and y. (2 Marks)
iv. Advice an investor on the preferred share. (2 Marks)
SECTION THREE: (20 MARKS)
QUESTION ONE
a) Mr.Wanjama is currently holding a portfolio consisting of shares of four companies quoted
on the Naxx securities exchange as follows;
Company No of shares Market price per
share
Beta-equity
coefficient
Expected return
on equity in the
next year
The current market return is 14% per annum and the treasury bills yield is 9% p.a.
Required;
i. calculate the risk of Wanjama’s portfolio relative to that of the market. (8 Marks)
ii. Explain whether or not Wanjama should change the position of his portfolio. (8 Marks)
b) Discuss any two factors that affected the efficiency of a portfolio. (4 Marks)
