APRIL 2009

QUESTION 4
ANSWER:-
A.) The agency was formed in November 1990, with a paid up capital of ! 10!. The formation of
A! is very important for the development of capital mar"et especially in the bond and debt
securities mar"et
AT#N$ %&A'(%
) *rivate +ebt %ecurities atings
AT#N$ +(,#N#T#-N
AAA
The best .uality and offer the highest safety for timely payment of interest and
principal
AA /igh safety for timely payment of interest and principal

A
Ade.uate safety for timely payment of interest and principal. !ore susceptible
to changes in circumstances and economic conditions than debts in higher)
rated categories.
00A
!oderate safety for timely payment of interest and principal. 'ac"ing in
certain protective elements. &hanges in circumstances are more li"ely to lead
to wea"ened capacity to pay interest and principal than debts in higher)rated
categories
00
#nade.uate safety for timely payment of interest and principal. ,uture cannot
be considered as well assured
0
/igh ris" associated with timely payment of interest and principal Adverse
business or economic conditions would lead to lac" of ability on the part of the
issuer to pay interest or principal
0.) (1plain the difference between yield) to) maturity 23T!) and 3ield)to)call 23T&). 24!)
3ield)to)maturity 23T!) 5 The yield is the rate of return that the investor will get from the
purchase of bond at current mar"et price and held to maturity.
3ield)to)call 2 3T&) 5 The yield on a bond if it remains outstanding only until a specified call
date.
&.)
67 of convertible bond
m) 18years
c. ratio) 800 shares of common shares
c. price of convertible bond) m 990
!* of common shares) m :
+ividend ) 197

&-N;(%#-N ;A'<( = &.AT#- > !* -, &.%/A(%.
= 800 %hares >m:
= m 900
&-N;(%#-N *(!#<! 2!) = !.* -, &.0-N+ 5 &.;A'<(
= !990)!900
= !90
&-N;(%#-N *(!#<! 2 7) = ! 90
!900
= 107
*A30A&? *(#-+ = !90
2 !1000 > 67 ) 5 2 800 > 197)
= 6.@1 3(A%
QUESTION 5 (A.)
#. <N#T% 2800@)
NA; = T.Asset) T.liabilities
No.-f -utstanding
1.0A99 = 8:8,800 5 1@00
B
B = 88:,99@.AA units
##. ;A'<( 2 8009)
NA; = T.Asset) T.liabilities
No.-f -utstanding
1.0800 = 2 B C 1@00) )8100
800,000
80A,100 = B = C 1@00
B= ! 80:,:00
0.)
RETURN
SPECULATIVE STOCK
UNIT TRUST
T,BILLS

RISK
#n general, there is a positive relationship between ris" and return. #nvestment with high ris" tend to
give high e1pected return. ,or those with low ris", the return will also be low. ,rom the diagram,
we can see that instruments regarded as ris" free 2 for e1ample treasury bills) have very low return.
Dhile those which are very ris"y tend to be on the higher end of the spectrum and give high returns.

OCTOBER 2008
QUESTION 3
A.)
1.) #NT((%T AT( #%?) interest rate ris" or mar"et ris" is the uncertainty cause by the
changes in interest rate during the period in which a fi1ed income security 2 bond) is held.
The price of fi1ed) income securities is highly influenced by changes in interest rate. An
increase in interest rate can cause the price of the bond is decline and a decline in interest
can cause the price of the bond to increase. Dhen interest rate fall, new issues come to
mar"et with lower yields compared to e1isting securities. This ma"es the e1isting
securities to worth more. Thus, the price increases. -n the other hand, if the interest rate
increase, new issues come to mar"et with higher yields than e1isting securities. This will
ma"e the e1isting securities to worthless , thus the price drops.
8.) *<&/A%#N$ *-D( #%? ) The uncertainty caused by the changing in price levels in
the economy 2 inflation) will adversely affect the returns on the fi1ed income securities.
Dhen the consumer price inde1 2 &*#) increase, the fi1ed return from fi1ed income
securities will reduce purchasing power, for e1ample, less value of goods can be
purchased from the income.
4.) 0usinessE financial ris" ) is associated with how the company mi1 amount of debt and
e.uity used to finance the company. ,or the company that aggressively using financial
leverage to finance its investment e1pose to higher financial ris". +ebt financing e1pose
the company to pay fi1 interest payment to the lender. #nability to pay the fi1ed) interest
payment can cause business failure to the company.
:.) '#F<#+#T3 #%? ) The ris" being unable to sell the investment at a reasonable price in a
short period of time. The secondary mar"et plays an important role in providing li.uidity
to the investors. To be li.uid, there must be a lot of mar"et players and different types of
securities to suit different investors.
6.) &A'' #%? ) A ris" related calls features attached to the bond issued, called callable
bond. &allable bond is a type of bond that gives the right to the issuer to call the bond
before maturity date. #nvestors usually invest in bond for the fi1 income from the interest
rate. #f the bond were called before the maturity, the investors will receive the cash , thus
there is no more fi1ed income from this investment. Dith the cash in hand, investors have
to loo" for another alternative. The issuer usually calls the bond when interest rate drops.
#n the case, investor has to replace the investment with lower yields issue.
0.)
#. A bond with a par value of !1000, a coupon rate of @7 and is currently selling for !900.
!) 80,
*;)!1000,
&) @7,
!*)!900
3T!= &* C G *;)!*H
!
G *;C !*H
8
&*= & > *;
= @7 > !1000
= !@0

! @0 C G !1000) !900H
80
G !1000C !900 H
8
= 9.997
##. !) 80,
&) 0,
*;) !1000,
!*) !400
3T!= &* C G *;)!*H
!
G *;C !*H
8
&*= & > *;
= 0 > !1000
= !0

! 0 C G !1000) !400H
80
G !1000C !400 H
8
= 6.497
#nvestors should invest in 0ond 2 1) because the 3T! is higher. The 3T! is 9.99, which is
greater than the coupon rate of @7. To encourage the investor to buy the bond, the issuer must sell
the bond at a discount and provide a rate of return of 9.99 to investors
APRIL 2008
QUESTION 2
A.) 3T!= &* C G *;)!*H
!
G *;C !*H
8
3T! 2 0-N+ A)
&*= & > *;
= 0 > !1000
= !0

! 0 C G !1000) !909.10H
1
G !1000C !909.10 H
8
= 9.68 7
3T! 2 0-N+ 0 )
! 0 C G !1000) !@9@.80H
8
G !1000C !@9@.80 H
8
= 11.89 7
3T! 2 0-N+ &)
! 0 C G !1000) !A@6.00H
4
G !1000C !A@6.00H
8
=18.94 7
3T! 2 0-N+ &)
! 0 C G !1000) !A94.00H
:
G !1000C ! A94.00 H
8
= 9.:8 7
&hoose 0-N+ & because the 3T! is higher. The 3T! is 18.94, which is greater than the
coupon rate.
B.) 0-N+ *#&(
;0 = &* 2 *;#,A #, m ) C *; 2 *;#, #, m )
= 2 1000 > 10 7 ) 2 *;#,A 97, 1 ) C ! 1000 2 *;#,A 97, 1)
= !100 > 2 0.9869) C ! 986.98
= !1019.61
/*= 2 1000>10 7 >1) C 2 !1019.61 5!1000)
!1000
= 11.96 7
QUESTION
C.) &<(NT 3#('+
= 2 1000 > A 7 )
! 900
= @.67
&-N;(%#-N ;A'<(
= 100 > !@
= !@00
&-N;(%#-N *(!#<! 2 !)
=!900 5 ! @00
= !100
&-N;(%#-N *(!#<! 2 7)
= !100
!@00
= 1:.89 7
*A30A&? *(#-+
= !100
2 1000 >A7) 5 2 100>0.40)
= 4.44 3(A%.
APRIL 200!
QUESTION 3
A.) The relationship between bond prices and yields is when the mar"et interest rates
increases the bond prices will decline or sells at a discount. #f the mar"et value of the
bond is selling lower than the par value it is called a discount bond and when the mar"et
interest rates decline the bond prices will increase or sell at premium. #f the mar"et value
of the bond is selling above the par value, it is called a premium bond.
0.) &all ris" or prepayment ris" is the ris" that a bond will be I calledJ 2 retired) long before
its scheduled maturity date. #ssuers often prepay their bonds by calling them in for
prepayment. Dhen issuers call their bonds, the bondholders end up getting cashed out of
the deal and have to find another place for their investment funds and there is a problem.
0ecause bonds are nearly always called for prepayment after interest rates have ta"en a
big fall. Thus, the investors have to replace a high)yielding bond with a much lower
yielding issue. ,rom the bondholderKs perspective, a called bond means not only a
disruption in cash flow but also a sharply reduced rate of return
C.) CAPITAL "AINS# PV- $P
m1000)m9A4.0@ = ! 14A.94
! 1000) !186.@9 = !9@:.81
&hoose bond which have Lero coupon because (rnie can gains more profit
TOTAL RETURN# CP ( PVI%A I, & ) ' PV ( P VI% I, &)
&) @.67
!) 80
#) 97
&*)! @6
=!@6 > 2 *;#,A 97, 80) C 1000 2 *;#, 97, 80)
= !@6 2 9.1896) C 1@9.:4
= !9A4.0@
&) 07
!) 86
#) 97
&*) !0
==!0 > 2 *;#,A 97, 86) C 1000 2 *;#, 97, 86)
= !0 2 9.9886) C 116.9A@9
= !186.@9
0ond which have the shorter period offers a lot more price volatility which 80 year. #t means
if (rnie want to reduce e1posure to capital loss or more to the point, to lower the price
volatility in bond holdings, then Must choose the shorten maturities.
QUESTION
T(E CONCEPT O% UNIT TRUST
A unit trust is one of the investment alternatives that are available in our economy. #t is an
investment scheme, which pools money from many investors who share the same financial
obMectives. An investors can participate in unit trust investment by buying certain number of
units of the unit trust fund which is freely traded. An authoriLed agent is responsible of the
units. A full time manager them invests the pooled money in shares or other authoriLed
securities on their behalf.
T)PE O% UNIT TRUST IN $ALA)SIA
#n !alaysia, there are seven types of unit trust that are classified according to different
categories based on the following criteriaN)
1.) $*+*,-.*& I&/012 %3&4-) !alaysian domiciled unit trust which mainly invest in
!alaysian e.uities and on a regular basis. Appro1imately half of the total returns
achieved are distributed to unit trust)holder in the form of income. #ncome funds are less
volatile. #t is an investment in high dividend yield companies or in the money mar"ets.
Thus, dividend payment is of primary importance and is consistent even during an
economic downturn.
8.) $*+*,-.*& "50678 %3&4-) The fund invested in stoc"s of smaller and emerging
companies with better growth potential. !alaysian domiciled unit trust, mainly invest in
!alaysia e.uities and on a regular basis, where more than half of the returns are in the
form of capital gains 2 increase unit price or bonus units)
4.) $*+*,-.* B*+*&/24 %3&4-) !alaysia domiciled unit trust, which will only invest up to a
ma1imum of A07 in !alaysian e.uities and the balance in fi1ed interest securities. #t is
an investment in stoc"s with good growth potential and high earning yield. A reasonable
dividend payout and capital appreciation can be e1pected.
:.) %052.9& $*&*924 $*+*,-.*& E:3.7, %3&4-- ,oreign domiciled unit trust, which
mainly invest in !alaysian e.uities.
6.) $*+*,-.*& I-+*1./ %3&4-) !alaysian domiciled unit trust, which mainly invest in
!alaysian e.uities e1cluding Inon halal stoc"J and interest)bearing money mar"et
instruments. These funds are investment in IhalalJ stoc"s based on #slamic principles of
the %yariah 'aws.
A.) $*+*,-.*& B0&4 %3&4-) !alaysian domiciled unit trust, which mainly invest in fi1ed
interest securities. 0ond funds are primarily invested in high yielding government
securities, corporate bonds, and loan stoc"s. They tend to be more conservatively
managed than e.uity funds and less subMect to fluctuation. Their obMective is to preserve
capital while producing a moderate income.
@.) E*-7 A-.*& %3&4-) (ast Asian e.uities are foreign domiciled unit trusts, which mainly
invest in a selection in (ast Asian or Asian countries including !alaysia.
A;VANTA"ES O% INVESTIN" IN T(E $ALA)SIAN UNIT TRUST %UN;S, QUATE;
AN; UNQUATE;
1.) ;IVERSI%ICATION 5 The investors , especially with small capital outlay, can diversify the
ris" as the funds are invested in a wide range of securities and across different assets classes
such as stoc"s, bonds, money mar"et instruments and or cash
8.) VARIET)) The investors have various investments to choose from to suit their needs and
obMectives.
4.) PRO%ESSIONAL $ANA"E$ENT) ,or an average investor, the unit trust is one of the
few avenues of investment where they can obtain professional management of his investment
at a reasonable service charge. The portfolio management process of a unit trust management
company involves an investment committee which sets an investment policies and strategies
while the fund manager provides research, analysis of assets allocation and stoc"s
recommendations
:.) EASE O% TRANSACTION) The investors can easily invest, redeem, split, transfer or merge
the units they have.
6.) LIQUI;IT)- The investment can be cashed at any time, thus allowing the investors the
fle1ibility to enter and e1it the mar"et at their discretion. The unit trust manager is obligated to
buy bac" any units redeemed by the investors. All the investors have to do is fill in redemption
or repurchase form and submit it to the management company. The unit will be redeemed and
the proceeds will be paid to the investors within 1business days.
APRIL 2008
QUESTION !
A.) A stoc" mar"et inde1 is used to measure the performance of the aggregated shares or the
entire stoc" mar"et. A well) formulated stoc" mar"et inde1 also can be used as a leading
indicator of the economic performance and as a useful summary measure of current
e1pectation of future outloo" economy. #t is also a sensitive barometer of a short) run political
and economic developments as well as a monitor of long) term structural changes in an
economy.
The inde1 movements illustrate mar"et sentiment. They are use by investors to measure
whether the mar"et going)up or down active or sluggish. The movement in the &# for the in
allows investors to describe the mar"et has having a bull or bear run. There are numerous
inde1es, the investors used them to compare which sectors outperform or underperform and
in what direction.
/owever, this does not mean investors can reap hefty profit by loo"ing at the inde1es.
Trac"ing the inde1es is Must one of the processes in ma"ing investment decision.
B.) The difference between a premium bond and discount bond is premium bond is one that sells
for more than its par value and it occurs when interest rates drop below the coupon rate and
discount bond is sells for less than par value , its occurs when mar"et rates are greater than the
coupon rate.
T(REE %ACTORS:-
1.) INTEREST RATE RISK) #s the number one source of ris" to fi1ed income investors
because itKs the maMor cause of price volatility in the bond mar"et. ,or bond, interest rate
ris" translates into mar"et ris". The behavior of interest rates affects all bonds and cuts
across all sector of the mar"et. Dhen mar"et interest rates rise, bond prices fall. As
interest rates become more volatile, so do bond prices.
8.) COUPON RATE) &oupon rate is a rate of interest payment for every bond issued.
0onds with lower coupons have a lots of price volatility and are more responsive to
changes in mar"et interest rate.
4.) $ATURIT) TER$- #s a limited life of bond. 0onds with longer maturities have a lots
of price volatility and the largest change in price occurs when the bond has the greatest
number of years to maturity.
&.) "ROWT( %UN;- The fund obMective is to have faster growth rate in term of investment
wealth. This can be seen its net asset value growth over time. This type of fund possesses
diversified portfolio of common stoc"s in the hope of achieving large capital gains for their
unit holders.
D.) AGGRESSIVE GROWTH FUND- This ,undOs investment obMective is to see" long)term
aggressive growth of capital. Aggressive $rowth ,und see"s to achieve its obMective by being
fully invested 2967 or more of net assets) in e.uity mutual funds whose obMective is growth or
capital appreciation. This ,und almost never ta"es a temporary defensive position, although it
has the ability to do so if !anagement determines that e1treme circumstances e1ist.
OCTOBER 200!
QUESTION2
A.) &losed)end company is one of the investment companies. The word I closed)endJ means
that the company has a limitation in its basic capitaliLation. The companies will use
leverage by selling senior securities such as bonds and preferred stoc". The companies
will proceed from the stoc" sale to purchase land, e.uipment, and inventory from the other
firms. &ompanies shares are traded and organiLed e1changes. Dhen investors buy
shares in a closed) end investment company, they must buy them from another person or
company. The buyers pays the nominal commission on such a purchase. The shares of
a closed)end company can be sold above or below the net asset value of the shares. The
reason that the closed) end investment companies sell at a discount are the investors
attitude concerning the abilities of the fundKs management , lac" of sales effort 2 bro"ers
earn less commission on closed)ended fund shares than an open)ended fund shares)
B.) &apital raisers consist of companies needing funds selling securities to the public through
investment ban"ers acting as intermediary between the company and investors. The
securities are purchased by the investors who provide funds to the companies. An
#N;(%T!(NT 0AN?(% is a firm that act as middleman or intermediary between the
investors and the capital raisers . They are the consultant to the corporate clients on
matters pertaining to the sale of new securities and fund raising. #nvestment ban"ers also
act as underwriters on the new issue of shares. The responsibility of an underwriter is to
guarantee the subscription of new shares issued by a company. The shares that are not
subscribed in the offer for sale are ta"en up by the underwriter. The #N;(%T!(NT
0AN?( appointed by a company usually act as a financial consultant to the company
planning on the new issues. The investment ban"er prepares a preliminary prospectus
called red herring which is similar to prospectus e1cept that it does not contain the actual
price of the shares. -nce the relevant authorities such as the %ecurities &ommission
approves the preliminary prospectus, a final prospectus is issued through ban"s and
bro"erage firms to be distributed to the public.
C.) )OUN" INVESTORS ( &26 .&<2-712&7) ) The early stages of an industry often are
characteriLed by a new technology or product. At this stage, it is difficult to predict which
firms will emerge as industry leader. +uring this start up stages, the industry e1periences
modest sales growth and very small or negative profit margins. The mar"et for the
industryKs product or services during this time is small and the firm involves maMor
development cost. Therefore, there is considerable ris" in selecting one firm within the
industry.
$.44+2-*924 .&<2-705- 5 +uring this rapid growth stage, a mar"et develops for the
product or services and demand becoming substantial. The limited number of firms in the
industry face little competition. The profit margins are very high as the sale grow at an
increasing rate as the industry attempts to meet e1cess demand.
RETIRE; INVESTORS ( OL; INVEST$ENT)) The success in the stage8 has
satisfied most of the demand for the industry goods or services. Thus future sales growth
may be above normal but it no longer accelerates. apid growth of sales and higher
profit margins attract competitors to the industry, which cause an increase in supply and
lower prices such that profit margins begin to decline to normal levels.
QUESTION 3
A.) ;0= &* 2 *;#,A #,n) C *; 2 *;#,A #, n)
= 21000 > 107) 2 *;#,A 187, 86) C 10002 *;#,A 187, 86)
= 1000 2 @.9:41) C 1000 2 0.0699)
= @9:.41 C 69.9
= ! 9:4.11
3T!= 3T!= &* C G *;)!*H
!
G *;C !*H
8
&*= & > *;
= 107 > !1000
= !100

! 100 C G !1000) !980H
6
G !1000C !980 H
8
= 18.09 7
Dhen re.uired rate of return 2 ?) = &oupon interest rate, bond will sell at par.
Dhen re.uired rate of return 2 ?) P &oupon interest rate, bond will sell at discount
Dhen re.uired rate of return 2?) Q &oupon interest rate, bond will sell at premium.
0.) BUSINESS ASSESS$ENT- #nvolves assessing the companyKs ability to overcome
challenges and threats, growth ,potential, level of profitability and cost compared to industry,
research, and development capability, mar"eting strategies
%INANCIAL ANAL)SIS) At this point, A! will focus on the different data. #t involve in)
depth ratio analysis and also the e1pected cash flows.
$ANA"E$ENT EVALUATION) The .uality of management is also being assessed
because it is believe the credit strength will also depend on managementKs ability to anticipate
change and react timely. A! loo" for managementKs capability of formulating policies
appropriate to the state of economy.
&.) =ERO COUPON BON; also "nown as original discount bond is sold at a large discount
from par. Thus the investors return comes from the gain in value that is par value minus
purchase price. The main attraction to investors to buy these bonds would be the low prices
and they would receive full face value at maturity. ,irms can raise large capitals at minimum
cost because they donKt pay interest or pay only little interest.