mgt401 papers

Question # 1 of 15 ( Start time: 05:25:23 AM ) Total Marks: 1
Which of the following would probably NOT earn an A rating from Standard & Poor's:
Select correct option:
30 years bond issued by the U.S. Treasury
New vegetarian fast-food chain
90 days T-Bills issued by the U.S. Treasury
Both 30 years bond and 90 days T-Bills issued by U.S. Treasury
Question # 2 of 15 ( Start time: 05:25:55 AM ) Total Marks: 1
Time affects the value of which of the following?
Select correct option:
Financial Instruments
Financial Markets
Financial Institutions
Central Banks
Question # 3 of 15 ( Start time: 05:26:40 AM ) Total Marks: 1
Current accounts of commercial bank lies in which money aggregate definition?
Select correct option:
Currency
M1
M2
M3
Question # 4 of 15 ( Start time: 05:27:27 AM ) Total Marks: 1
Debt instruments is categorized on the basis of which one of the following?
Select correct option:
Loan maturity period
Interest rates
Mode of payment of interest
Amount of the debt taken
Question # 5 of 15 ( Start time: 05:28:11 AM ) Total Marks: 1
GDP deflator is called
Select correct option:
Retailer price index
Consumer price index
Producer price index
None of above
Question # 6 of 15 ( Start time: 05:28:34 AM ) Total Marks: 1
Come & Join Us at www.vustudents.netSum of all the probabilities should be equal to which one of the following?
Select correct option:
Zero
One
Two
Three
Question # 7 of 15 ( Start time: 05:28:59 AM ) Total Marks: 1
Financial instruments are evolved just as __________.
Select correct option:
Currency
Stock
Bond
Commodity
Question # 8 of 15 ( Start time: 05:29:54 AM ) Total Marks: 1
Which of the following is NOT included in the definition of M1?
Select correct option:
Traveler’s checks
Demand deposits
Currency
Gold coins issued by treasury
Question # 9 of 15 ( Start time: 05:30:23 AM ) Total Marks: 1
An increase in the expected inflation shifts the bond supply to the _______.
Select correct option:
Right
Left
No change
All of the given options
Question # 10 of 15 ( Start time: 05:30:54 AM ) Total Marks: 1
According to the rule of 72 for reasonable rates of return, the time it takes to ________
the money will be t =72/i%
Select correct option:
Doubles
Triples
halves
3/4
Question # 11 of 15 ( Start time: 05:31:14 AM ) Total Marks: 1
Previously financial markets are located in which of the following?
Select correct option:
Coffee houses or Taverns
Stock exchanges
Bazaar
Coffee houses and Stock exchanges
Question # 12 of 15 ( Start time: 05:31:32 AM ) Total Marks: 1
Come & Join Us at www.vustudents.netFinancial development measured by
Select correct option:
M1/GDP
M2/GDP
M3/DGP
All of above
Question # 13 of 15 ( Start time: 05:32:02 AM ) Total Marks: 1
A zero coupon bond:
Select correct option:
Does not pay any coupon payments because the issuer is in default
Pays coupons only once a year versus the usual twice a year
Promises a single future payment
Pays coupons only if the bond price is below face value
Question # 14 of 15 ( Start time: 05:32:30 AM ) Total Marks: 1
A risk-averse investor will:
Select correct option:
Always prefer an investment with a lower expected return
Always prefer an investment with a certain return to one with the same expected
return but any amount of uncertainty
Always require a certain return
Always focus exclusively on the expected return
Question # 15 of 15 ( Start time: 05:33:32 AM ) Total Marks: 1
Which of the following institution take direct deposit from customer and give loan to
customer directly?
Select correct option:
Zarai Tarkaytee Bank LTD
Soneri Bank
Khushali Bank
Credit union
Question # 1 of 15 ( Start time: 05:36:19 AM ) Total Marks: 1
Financial instruments are evolved just as __________.
Select correct option:
Currency
Stock
Bond
Commodity
Question # 2 of 15 ( Start time: 05:36:39 AM ) Total Marks: 1
A ________ is a promise to make a series of payments on specific future date.
Select correct option:
Stock
Bond
Loan
Cheque
Come & Join Us at www.vustudents.netQuestion # 3 of 15 ( Start time: 05:37:03 AM ) Total Marks: 1
If bond’s rating is lower, what will be its price?
Select correct option:
Higher
Lower
Equal to
No change
Question # 4 of 15 ( Start time: 05:37:31 AM ) Total Marks: 1
The Financial Systems makes it easier to trade because it:
Select correct option:
Facilitate Payments
Channels Funds from Savers to Borrowers
Enables Risk Sharing
All of the given options
Question # 5 of 15 ( Start time: 05:37:50 AM ) Total Marks: 1
Debt instruments is categorized on the basis of which one of the following?
Select correct option:
Loan maturity period
Interest rates
Mode of payment of interest
Amount of the debt taken
Question # 6 of 15 ( Start time: 05:38:02 AM ) Total Marks: 1
What is difference between warrant and check?
Select correct option:
Check is cleared from bank but warrant is not cleared by bank
Check is not necessarily pay able on demand but warrant is payable on demand
Warrant is not necessarily pay able on demand but check is payable on demand
None of above
Question # 7 of 15 ( Start time: 05:38:34 AM ) Total Marks: 1
If YTM equals the coupon rate the price of the bond is ________.
Select correct option:
Greater than its face value
Lower than its face value
Equals to its face value
Insufficient information
Question # 8 of 15 ( Start time: 05:38:52 AM ) Total Marks: 1
What is true relationship between return and risk?
Select correct option:
Lower the risk greater the return
Greater the risk greater the return
Greater the risk the return will remain constant
No relationship between them
Come & Join Us at www.vustudents.netQuestion # 9 of 15 ( Start time: 05:39:27 AM ) Total Marks: 1
Which of the following is the least liquid of all?
Select correct option:
Money
Bonds & stocks
Lands & buildings
None of the given options
Question # 10 of 15 ( Start time: 05:39:44 AM ) Total Marks: 1
Consumer Price Index (CPI) measures the:
Select correct option:
Changes in the quantity
Changes in the prices
Changes in the cost
Changes in the profit
Question # 11 of 15 ( Start time: 05:40:12 AM ) Total Marks: 1
There is no guarantee that a bond issuer will make the promised payments is known as
which one of the following?
Select correct option:
Default risk
Inflation risk
Interest rate risk
Systematic risk
Question # 12 of 15 ( Start time: 05:40:43 AM ) Total Marks: 1
Which one of the following is the narrowest definition of money?
Select correct option:
C
M1
M2
M3
Question # 13 of 15 ( Start time: 05:41:54 AM ) Total Marks: 1
Which is broadly used as money aggregate?
Select correct option:
M1
M2
M3
None of Above
Question # 14 of 15 ( Start time: 05:42:23 AM ) Total Marks: 1
What is the true relationship that exists between default risk and yield?
Select correct option:
Higher the default risk, higher the yield
Lower the default risk, higher the yield
Higher the default risk yield will remain constant
Lower the default risk yield will remain constant
Come & Join Us at www.vustudents.netQuestion # 15 of 15 ( Start time: 05:42:49 AM ) Total Marks: 1
If YTM is less than the coupon rate the price of the bond is ________.
Select correct option:
Greater than its face value
Lower than its face value
Equals to its face value
All of the given options
Question # 1 of 15 ( Start time: 05:54:15 AM ) Total Marks: 1
Home loans and car loans are the example of which one of the following?
Select correct option:
Mortgage loans
Pledge
Fixed Payment Loans
Ordinary loan
Question # 2 of 15 ( Start time: 05:54:49 AM ) Total Marks: 1
What is the true relationship that exists between default risk and yield?
Select correct option:
Higher the default risk, higher the yield
Lower the default risk, higher the yield
Higher the default risk yield will remain constant
Lower the default risk yield will remain constant
Question # 3 of 15 ( Start time: 05:56:09 AM ) Total Marks: 1
Bonds without maturity dates are which of the followings?
Select correct option:
Zero coupon bonds
Coupon securities
Consols
Preferred Bonds
Question # 4 of 15 ( Start time: 05:56:45 AM ) Total Marks: 1
If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value
would be:
Select correct option:
$94.00
$94.33
$95.25
$96.10
Question # 5 of 15 ( Start time: 05:57:31 AM ) Total Marks: 1
Sum of all the probabilities should be equal to which one of the following?
Select correct option:
Zero
One
Two
Three
Come & Join Us at www.vustudents.netQuestion # 6 of 15 ( Start time: 05:57:45 AM ) Total Marks: 1
________ is the interest rate at which the present value annual reveneu equals the cost of
the investment.
Select correct option:
Fixed rate of interest
Internal rate of return
Variable rate of interest
Nominal rate of interest
Question # 7 of 15 ( Start time: 05:58:24 AM ) Total Marks: 1
The return on the bond is equal to which of the following?
Select correct option:
Coupon rate + rate of capital gains
Current yield + rate of capital gains
Coupon rate - rate of capital gains
Current yield - rate of capital gains
Question # 8 of 15 ( Start time: 05:59:02 AM ) Total Marks: 1
Which of the following is NOT a depository financial institution?
Select correct option:
Credit Union
Savings and Loan
Commercial bank
Life Insurance Company
Question # 9 of 15 ( Start time: 05:59:39 AM ) Total Marks: 1
The current yield on a $10,000, 5% coupon bond selling for $8,000 is:
Select correct option:
5.00%
6.25%
7.50%
8.00%
Question # 10 of 15 ( Start time: 06:00:23 AM ) Total Marks: 1
A risk-averse investor will:
Select correct option:
Always prefer an investment with a lower expected return
Always prefer an investment with a certain return to one with the same expected
return but any amount of uncertainty
Always require a certain return
Always focus exclusively on the expected return
Question # 11 of 15 ( Start time: 06:00:38 AM ) Total Marks: 1
Which is broadly used as money aggregate?
Select correct option:
M1
M2
M3
Come & Join Us at www.vustudents.netNone of above
Question # 12 of 15 ( Start time: 06:00:58 AM ) Total Marks: 1
Which of the following best describes the relationship between Bond prices and yields?
Select correct option:
Move together inversely
Bond yields do not change since the coupon is fixed
Move together directly
Are independent of each other
Question # 13 of 15 ( Start time: 06:01:27 AM ) Total Marks: 1
When the auto manufacturing industry does poorly due to a recession this is an example
of:
Select correct option:
Idiosyncratic risk
Systematic risk
Risk premium
Unique risk
Question # 14 of 15 ( Start time: 06:01:57 AM ) Total Marks: 1
Consumer Price Index (CPI) measures the:
Select correct option:
Changes in the quantity
Changes in the prices
Changes in the cost
Changes in the profit
Question # 15 of 15 ( Start time: 06:02:09 AM ) Total Marks: 1
The Financial Systems makes it easier to trade because it:
Select correct option:
Facilitate Payments
Channels Funds from Savers to Borrowers
Enables Risk Sharing
All of the given options
Question # 1 of 15 ( Start time: 06:03:35 AM ) Total Marks: 1
Which one of the following is the procedure of finding out the Present Value (PV)?
Select correct option:
Discounting
Compounding
Time value of money
Bond pricing
Question # 2 of 15 ( Start time: 06:04:23 AM ) Total Marks: 1
The money aggregate M2 includes each of the following EXCEPT:
Select correct option:
Small denomination time deposits.
Retail Money Market Mutual fund shares
U.S. Treasury bills
M1
Come & Join Us at www.vustudents.netQuestion # 3 of 15 ( Start time: 06:05:13 AM ) Total Marks: 1
The Financial Systems makes it easier to trade because it:
Select correct option:
Facilitate Payments
Channels Funds from Savers to Borrowers
Enables Risk Sharing
All of the given options
Question # 4 of 15 ( Start time: 06:05:30 AM ) Total Marks: 1
You receive a check for $100 two years from today. The discounted present value of this
$100 is:
Select correct option:
$100/(1+i)
$100*(1+i)2
$100*(1+i)
$100/(1+i)2
Question # 5 of 15 ( Start time: 06:06:37 AM ) Total Marks: 1
Which one of the following is the narrowest definition of money?
Select correct option:
C
M1
M2
M3
Question # 6 of 15 ( Start time: 06:07:20 AM ) Total Marks: 1
In which of the following bonds we may ignore the default risk?
Select correct option:
Privately issued bonds
Government issued bonds
Bonds issued by Corporate
All of the given options
Question # 7 of 15 ( Start time: 06:07:47 AM ) Total Marks: 1
What characteristic of money is not included in securities characteristics
Select correct option:
Mean of payment
Unit of account
Store of value
Transfer of risk
Question # 8 of 15 ( Start time: 06:08:38 AM ) Total Marks: 1
An increase in wealth shifts the demand for bonds to the ________.
Select correct option:
Left
Right
No change
All of the given options
Come & Join Us at www.vustudents.netQuestion # 9 of 15 ( Start time: 06:09:00 AM ) Total Marks: 1
Which of the following expresses 6.5%?
Select correct option:
0.0065
6.50
0.650
0.0650
Question # 10 of 15 ( Start time: 06:09:19 AM ) Total Marks: 1
If YTM equals the coupon rate the price of the bond is ________.
Select correct option:
Greater than its face value
Lower than its face value
Equals to its face value
Insufficient information
Question # 11 of 15 ( Start time: 06:09:34 AM ) Total Marks: 1
Coupon bonds make the annual payments which are called as _________.
Select correct option:
Annual payments
Fixed payments
Coupon payments
Maturity payment
Question # 12 of 15 ( Start time: 06:09:52 AM ) Total Marks: 1
The bond rating of a security refers to which of the followings?
Select correct option:
The size of the coupon payment relative to the face value
The return a holder is likely to receive
The likelihood the lender/borrower will be repaid by the borrower/issuer
The years until the bond matures
Question # 13 of 15 ( Start time: 06:10:17 AM ) Total Marks: 1
The price of a coupon bond can best be described as:
Select correct option:
The present value of the face value
The future value of the coupon payments and the face value
The present value of the coupon payments
Both The present value of the face value and of the coupon payments
Question # 14 of 15 ( Start time: 06:10:49 AM ) Total Marks: 1
What is true about the relationship between standard deviation and risk?
Select correct option:
Greater the standard deviation greater will be the risk
Greater the standard deviation lower will be the risk
Greater the standard deviation risk remains the same
No relation between them
Come & Join Us at www.vustudents.netQuestion # 15 of 15 ( Start time: 06:11:20 AM ) Total Marks: 1
________ is the interest rate at which the present value annual reveneu equals the cost of
the investment.
Select correct option:
Fixed rate of interest
Internal rate of return
Variable rate of interest
Nominal rate of interest
Question # 1 of 15 ( Start time: 06:13:57 AM ) Total Marks: 1
The lowest rating for an investment grade bond assigned by Moody's is:
Select correct option:
BBB
ABB
Baa
Aaa
Question # 2 of 15 ( Start time: 06:14:23 AM ) Total Marks: 1
What is difference between warrant and check?
Select correct option:
Check is cleared from bank but warrant is not cleared by bank
Check is not necessarily pay able on demand but warrant is payable on demand
Warrant is not necessarily pay able on demand but check is payable on demand
None of above
Question # 3 of 15 ( Start time: 06:14:44 AM ) Total Marks: 1
Which one of the following is a component of wealth that is held in a readily spendable
form?
Select correct option:
Money
Bonds
Stocks
Income
Question # 4 of 15 ( Start time: 06:15:14 AM ) Total Marks: 1
Which of the following is the measure of likelihood that an event will occur?
Select correct option:
Risk
Probability
Frequency
Outcom
Question # 5 of 15 ( Start time: 06:15:43 AM ) Total Marks: 1
The price of a coupon bond can best be described as:
Select correct option:
The present value of the face value
The future value of the coupon payments and the face value
The present value of the coupon payments
Come & Join Us at www.vustudents.netBoth The present value of the face value and of the coupon payments
Question # 6 of 15 ( Start time: 06:16:12 AM ) Total Marks: 1
The interest rate that is involved in ___________ calculation is referred to as discount
rate
Select correct option:
Present value
Future value
Intrinsic value
Discount value
Question # 8 of 15 ( Start time: 06:17:04 AM ) Total Marks: 1
Which of the following is NOT a depository financial institution?
Select correct option:
Credit Union
Savings and Loan
Commercial bank
Life Insurance Company
Question # 9 of 15 ( Start time: 06:17:32 AM ) Total Marks: 1
What is true relationship between return and risk?
Select correct option:
Lower the risk greater the return
Greater the risk greater the return
Greater the risk the return will remain constant
No relationship between them
Question # 10 of 15 ( Start time: 06:18:17 AM ) Total Marks: 1
Which of the following best describes the relationship between Bond prices and yields?
Select correct option:
Move together inversely
Bond yields do not change since the coupon is fixed
Move together directly
Are independent of each other
Question # 11 of 15 ( Start time: 06:18:48 AM ) Total Marks: 1
The GDP deflator is calculated as_________.
Select correct option:
Nominal GDP/Real GDP *100
Real GDP/Nominal GDP
Nominal GDP – Real GDP
Real GDP – Nominal GDP
Question # 12 of 15 ( Start time: 06:19:29 AM ) Total Marks: 1
Which one of the following is the strategy of reducing overall risk by making two
investments which are totally independent of each other?
Select correct option:
Spreading the risk
Standard deviation
Hedging the risk
Come & Join Us at www.vustudents.netVariance
Question # 13 of 15 ( Start time: 06:20:10 AM ) Total Marks: 1
Diversification is the principle of:
Select correct option:
Holding more than one risk at a time
Reducing the risks we carry to just two
Creating risk to increase returns
Eliminating investments from our portfolio that have idiosyncratic risk
Question # 14 of 15 ( Start time: 06:20:57 AM ) Total Marks: 1
Coupon bonds make the annual payments which are called as _________.
Select correct option:
Annual payments
Fixed payments
Coupon payments
Maturity payment
Question # 15 of 15 ( Start time: 06:21:20 AM ) Total Marks: 1
There is no guarantee that a bond issuer will make the promised payments is known as
which one of the following?
Select correct option:
Default risk
Inflation risk
Question # 1 of 15 ( Start time: 06:25:11 AM ) Total Marks: 1
Which one of the following is the procedure of finding out the Present Value (PV)?
Select correct option:
Discounting
Compounding
Time value of money
Bond pricing
Question # 2 of 15 ( Start time: 06:25:27 AM ) Total Marks: 1
Financial instruments are evolved just as __________.
Select correct option:
Currency
Stock
Bond
Commodity
Question # 3 of 15 ( Start time: 06:25:40 AM ) Total Marks: 1
An increase in the expected inflation shifts the bond supply to the _______.
Select correct option:
Right
Left
No change
All of the given options
Come & Join Us at www.vustudents.netQuestion # 4 of 15 ( Start time: 06:26:00 AM ) Total Marks: 1
There is no guarantee that a bond issuer will make the promised payments is known as
which one of the following?
Select correct option:
Default risk
Inflation risk
Interest rate risk
Systematic risk
Question # 5 of 15 ( Start time: 06:26:22 AM ) Total Marks: 1
Which one of the following is true for financial intermediaries?
Select correct option:
Channel funds from savers to borrowers
Greatly enhance economic efficiency
Have been an source of many financial innovations
All of the given options
Question # 6 of 15 ( Start time: 06:26:51 AM ) Total Marks: 1
Most of the people among us are _________.
Select correct option:
Risk lovers
Risk enhancers
Risk averse
Risk tolerating
Question # 7 of 15 ( Start time: 06:27:22 AM ) Total Marks: 1
Which of the following is the measure of likelihood that an event will occur?
Select correct option:
Risk
Probability
Frequency
Outcom
Question # 8 of 15 ( Start time: 06:27:33 AM ) Total Marks: 1
Which of the following expresses 6.5%?
Select correct option:
0.0065
6.50
0.650
0.0650
Question # 9 of 15 ( Start time: 06:27:48 AM ) Total Marks: 1
According to the rule of 72 for reasonable rates of return, the time it takes to ________
the money will be t =72/i%
Select correct option:
Doubles
Triples
halves
Come & Join Us at www.vustudents.net3/4
Question # 10 of 15 ( Start time: 06:28:00 AM ) Total Marks: 1
Time affects the value of which of the following?
Select correct option:
Financial Instruments
Financial Markets
Financial Institutions
Central Banks
Question # 11 of 15 ( Start time: 06:28:20 AM ) Total Marks: 1
An increase in wealth shifts the demand for bonds to the ________.
Select correct option:
Left
Right
No change
All of the given options
Question # 12 of 15 ( Start time: 06:28:55 AM ) Total Marks: 1
A business cycle downturn shifts the bond supply to the:
Select correct option:
Right
Left
No change
None of the given options
Question # 13 of 15 ( Start time: 06:29:17 AM ) Total Marks: 1
Stock exchange is an example of:
Select correct option:
Financial company
Financial institution
Financial market
Bank
Question # 14 of 15 ( Start time: 06:29:44 AM ) Total Marks: 1
If YTM is greater than the coupon rate the price of the bond is ________.
Select correct option:
Greater than its face value
Lower than its face value
Equals to its face value
All of the given options
Question # 15 of 15 ( Start time: 06:30:28 AM ) Total Marks: 1
Saving occurs normally in ……….
Select correct option:
Early age
Middle age
Old age
Come & Join Us at www.vustudents.netQuestion # 1 of 15 ( Start time: 09:09:04 PM ) Total Marks: 1
Which of the following best describes default risk?
Select correct option:
The chance the issuer will be unable to make interest payments or repay principal
The chance the issuer will retire the debt early
The chance the issuing firm will be sold to another firm
The chance the issuer will sell more debt
Question # 2 of 15 ( Start time: 09:09:26 PM ) Total Marks: 1
Which of the following institution take direct deposit from customer and give loan to
customer directly?
Select correct option:
Zarai Tarkaytee Bank LTD
Soneri Bank
Khushali Bank
Credit union
Question # 3 of 15 ( Start time: 09:09:42 PM ) Total Marks: 1
_____________ are organized to eliminate the need of costly information gathering.
Select correct option:
Central bank
Commercial banks
Stock exchanges
Insurance companies
Question # 4 of 15 ( Start time: 09:09:51 PM ) Total Marks: 1
What characteristic of money is not included in securities characteristics
Select correct option:
Mean of payment
Unit of account
Store of value
Transfer of risk
Question # 5 of 15 ( Start time: 09:09:57 PM ) Total Marks: 1
The risk premium for an investment:
Select correct option:
Increases with risk
Is a fixed amount added to the risk free return
Is negative for U.S. Treasury Securities
Is negative for risk averse investors
Question # 6 of 15 ( Start time: 09:10:13 PM ) Total Marks: 1
Which of the following is NOT a depository financial institution?
Select correct option:
Credit Union
Savings and Loan
Commercial bank
Life Insurance Company
Come & Join Us at www.vustudents.netQuestion # 7 of 15 ( Start time: 09:10:21 PM ) Total Marks: 1
Economic development measured by
Select correct option:
Real GDP/population
Real GDP/ nominal GDP
Real GDP/Real GNP
None of above
Question # 8 of 15 ( Start time: 09:10:46 PM ) Total Marks: 1
The bond rating of a security refers to which of the followings?
Select correct option:
The size of the coupon payment relative to the face value
The return a holder is likely to receive
The likelihood the lender/borrower will be repaid by the borrower/issuer
The years until the bond matures
Question # 9 of 15 ( Start time: 09:10:52 PM ) Total Marks: 1
The default premium:
Select correct option:
Is positive for a U.S. Treasury bond
Must always be less than 0 (zero)
Is also known as the risk spread
Is assigned by a bond rating agency
Question # 10 of 15 ( Start time: 09:11:07 PM ) Total Marks: 1
Consumer Price Index (CPI) measures the:
Select correct option:
Changes in the quantity
Changes in the prices
Changes in the cost
Changes in the profit
Question # 11 of 15 ( Start time: 09:11:13 PM ) Total Marks: 1
Which one of the following is the narrowest definition of money?
Select correct option:
C
M1
M2
M3
Question # 12 of 15 ( Start time: 09:11:37 PM ) Total Marks: 1
An increase in the expected inflation shifts the bond demand to the _________.
Select correct option:
Right
Left
No change
All of the given options
Come & Join Us at www.vustudents.netQuestion # 13 of 15 ( Start time: 09:11:58 PM ) Total Marks: 1
Which of the following is the least liquid of all?
Select correct option:
Money
Bonds & stocks
Lands & buildings
None of the given options
Question # 14 of 15 ( Start time: 09:12:05 PM ) Total Marks: 1
When a bond becomes more liquid relative to its alternatives, the demand curve for bonds
shifts to the:
Select correct option:
Right
Left
No change
None of the given options
Question # 15 of 15 ( Start time: 09:12:23 PM ) Total Marks: 1
Which of the following best expresses the proceeds a lender receives from a simple loan?
Select correct option:
PV(1 + i)
FV/i
PV + i
MGT411-Money & Banking
MIDTERM EXAMINATION
Spring 2010
MGT411- Money & Banking (Session - 5)
Question No: 1 ( Marks: 1 ) - Please choose one
Core principles of Money and Banking include each of the following Except?
► All people act rationally
► Time has value
► Information is the basis for decisions
► Risk requires compensation
ANS: All people act rationally
Question No: 2 ( Marks: 1 ) - Please choose one
Debit card works in the same way as which one of the following?
► Cheque
► Credit card
► Store value card
► Pay order
ANS: Cheque
Question No: 3 ( Marks: 1 ) - Please choose one
The one that you get from bank when you open your checking account is __________.
► Debit card
Come & Join Us at www.vustudents.net► Credit card
► Store value card
► Customer card
ANS: Debit card
Question No: 4 ( Marks: 1 ) - Please choose one
The Consumer Price Index (CPI):
► Tends to overstate inflation due to substitution bias
► Tends to understate actual inflation
► Is more accurate than the GDP deflator
► Is based on basket of goods that changes monthly with consumer expenditures
ANS: Is based on basket of goods that changes monthly with consumer expenditures
Question No: 5 ( Marks: 1 ) - Please choose one
The process of financial intermediation:
► Creates a net cost to an economy but is unavoidable
► Is used primarily in underdeveloped countries
► Is always used when a borrower needs to obtain funds
► Increases the economy's ability to produce
ANS: Is always used when a borrower needs to obtain funds
Question No: 6 ( Marks: 1 ) - Please choose one
Which of the following is NOT a function of financial markets?
► Relaying and reacting information
► Used as a mean of payment
► Allocating resources
► Setting prices
ANS: Used as a mean of payment
Question No: 7 ( Marks: 1 ) - Please choose one
Which of the following market allowed networks of dealers that are connected
electronically?
► New York Stock Exchange
► NASDAQ
► Large exchanges in London
► Large exchanges in Tokyo
ANS: NASDAQ
Question No: 8 ( Marks: 1 ) - Please choose one
Which of the following is the difference that lies between the options and futures?
► Options is not binding whereas future is binding
► Futures carry risks but Options didn’t carry risk
► Centralized clearinghouses guarantee futures but not options contracts
► There is no difference between options and futures
ANS: Futures carry risks but Options didn’t carry risk
Question No: 9 ( Marks: 1 ) - Please choose one
The future value of $200 at a 5% per year interest rate at the end of one year is:
► $195.00
Come & Join Us at www.vustudents.net► $210.00
► $197.50
► $100
ANS: $210.00
Question No: 10 ( Marks: 1 ) - Please choose one
___________ is the today's value of a payment that is promised to be made in the future.
► None of the given options
► Future value
► Present value
► Agreed value
ANS: Present value
Question No: 11 ( Marks: 1 ) - Please choose one
You receive a check for $500 three years from today. The discounted present value of
this $500 is ___________.
► $500/(1+i)
► $500*(1+i)
► $500/(1+i)3
► $500*(1+i)3
ANS: $500*(1+i)3
Question No: 12 ( Marks: 1 ) - Please choose one
Suppose there are two investments, A and B, investment A has low standard deviation
where as investment B has high standard deviation. What would you think that most
people will choose?
► Investment A
► Investment B
► Indifference between them
► Insufficient information to decide
ANS: Investment A
Question No: 13 ( Marks: 1 ) - Please choose one
The risk premium for an investment:
► Increases with risk
► Is a fixed amount added to the risk free return
► Is negative for U.S. Treasury Securities
► Is negative for risk averse investors
ANS: Increases with risk
Question No: 14 ( Marks: 1 ) - Please choose one
Mr. A has a Treasury bill with a maturity period of 6 months where as Mr. B has a bond
with a maturity period of 1 year. Which of the following statement is NOT true for this
situation?
► Mr. A has paid less price for his bond than Mr. B
► Mr. A and Mr. B is a holder of zero coupon bond
► Mr. A will receive payment at the end of the maturity period
► Mr. B will receive the payment at the end of the maturity period
ANS: Mr. A has paid less price for his bond than Mr. B
Question No: 15 ( Marks: 1 ) - Please choose one
Come & Join Us at www.vustudents.netWhich of the following best describes the relationship between Bond prices and yields?
► Move together directly
► Independent of each other
► Move together inversely
► Bond yields do not change since the coupon is fixed
ANS: Move together inversely
Question No: 16 ( Marks: 1 ) - Please choose one
Treasury bonds & corporate bonds are the examples of__________ bonds.
► Zero-coupon bonds
► Coupon bonds
► Consols
► Fixed payment
ANS: Coupon bonds
Question No: 17 ( Marks: 1 ) - Please choose one
The____________ are an assessment of the creditworthiness of the corporate issuer.
► Bond yield
► Bond ratings
► Bond risk
► Bond price
ANS: Bond ratings
Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following statement is true for the given sentence, "that tax affects the bond
return"?
► Because only interest income they receive from bond is taxable
► Because principal amount and interest income they receive from bond is taxable
► Because bond holders are taxpayers
► Because all bond is sold with a condition that tax will be deducted from its return
ANS: Because only interest income they receive from bond is taxable
Question No: 19 ( Marks: 1 ) - Please choose one
Which one of the following is true for the relationship between the yield of taxable and
tax exempt bond?
► Higher the tax rate wider the gap between the yield of taxable and tax exempt
bond
► Taxable bond yield is always greater than tax exempt bond
► Higher the tax rate shorter the gap between yield of taxable and tax exempt bond
► Lower the tax rate wider the gap between yield of taxable and tax exempt bond
ANS: Higher the tax rate wider the gap between the yield of taxable and tax exempt
bond
Question No: 20 ( Marks: 1 ) - Please choose one
If the tax rate is higher than gap between yield on taxable and tax exempt bond?
► Shorter
► Wider
► No gap
► Any thing can be possible
ANS: Wider
Question No: 21 ( Marks: 1 ) - Please choose one
Which one of the following is NOT true for the expectation hypothesis?
► Risk free interest rate can be computed
► There is uncertainty in the future
Come & Join Us at www.vustudents.net► Identifying yield of bond today that will be available next year
► It focuses on risk free interest rate and the risk premium
ANS: There is uncertainty in the future
Question No: 22 ( Marks: 1 ) - Please choose one
According to the liquidity premium theory of the term structure, when the yield curve
has its usual slope, the market expects
► Short-term interest rates to rise sharply
► Short-term interest rates to stay near their current levels
► Short-term interest rates to drop sharply
► Short-term interest rates does not change
ANS: Short-term interest rates to stay near their current levels
Question No: 23 ( Marks: 1 ) - Please choose one
Other things remaining equal, the liquidity premium theory is based upon the idea that
 .____________
► Investors prefer long-term bonds
► Investors prefer short-term bonds
► Investors are indifferent between short-term and long-term bonds
► Investors prefer intermediate-term bonds
ANS: Investors prefer short-term bonds
Question No: 24 ( Marks: 1 ) - Please choose one
Common stocks (or corporate stocks):
► Are short term debt instruments
► Entitle the holder to contractual payments
► Were poor investments over the period 1982-1996
► Allows the holder to share in the earnings of the firm
ANS: Allows the holder to share in the earnings of the firm
Question No: 25 ( Marks: 1 ) - Please choose one
Which of the following allows us to buy and sell financial instruments quickly and
cheaply?
► Financial institution
► Financial market
► Central Bank
► Federal Reserve System
ANS: Financial market
Question No: 26 ( Marks: 1 ) - Please choose one
Which of the following is NOT an example of financial institutions?
► Bank
► Securities firm
► Stock exchange
► Insurance company
Question No: 27 ( Marks: 1 ) - Please choose one
Which of the following institution takes direct deposit from customer and gives loan to
customer directly?
► Zarai Tarkaytee Bank LTD
► Soneri Bank
► Khushali Bank
► Credit union
ANS: Soneri Bank
Question No: 28 ( Marks: 1 ) - Please choose one
Come & Join Us at www.vustudents.netIf there is a decrease in the expected future interest rate, what will be its affect on bond?
► Bond will be less attractive
► Bond will be more attractive
► Bond will be less expensive
► Bond will be more expensive
ANS: Bond will be more attractive
Question No: 29 ( Marks: 3 )
Find out YTM of 1 year 7% coupon bond selling at $90. (Face value of bond = $100).
ANS:
YTM = $100 /$90 – 1 = 0.11 or 11.11%
Question No: 30 ( Marks: 3 )
“Stock market plays a crucial role in every modern capitalist economy”. Discuss.
Question No: 31 ( Marks: 5 )
“People differ in their opinions of how stocks should be valued”. Discuss it.
Question No: 32 ( Marks: 5 )
Briefly explain the factors which shift the bond demand.
ANS: The following factors those shift the bond demand are following
1- Wealth
2- Expected inflation
3- Expected return on stocks and other assets
4- Risk relative to alternatives
5- Liquidity of bonds relative to alternatives
Wealth : an increase in wealth shifts the demand for bond to the right as wealthier
peoples invest more. This will happen as the economy grows during an expansion. This
will increase bond prices and lower yields.
Expected inflation: a fall in expected inflation shifts the bond demand curve to the right,
increasing demand at each price and lowering the yield and increasing the bonds price.
MIDTERM EXAMINATION
Spring 2010
MGT411- Money & Banking (Session - 6)
Time: 60 min
Marks: 44
Question No: 1 ( Marks: 1 ) - Please choose one
Price of 100 goods under the barter system would be _________.
► 5050
► 19800
► 4950
► 20200
Question No: 2 ( Marks: 1 ) - Please choose one
In electronic transfer the most common method is to send money through a system
maintained by Federal reserve called __________.
► Fedex
► Fedwire
► Fedtransfer
► Fedmoney
Question No: 3 ( Marks: 1 ) - Please choose one
Which one of the following is the primary cause of inflation?
► Decreased money supply
► Increased money supply
Come & Join Us at www.vustudents.net► Decreased interest rates
► Increased purchasing power
Question No: 4 ( Marks: 1 ) - Please choose one
Which of the following is true for direct finance?
► Individuals (or firms) borrow directly from banks
► Individuals deposit savings directly in banks
► Firms deposit savings directly in banks
► Individuals (or firms) borrow directly from the savers
Question No: 5 ( Marks: 1 ) - Please choose one
What will be the Future Value (FV) of $1000 in 5 years at 5% interest rate?
► $1300.00
► $1276.28
► $1999.99
► $1500.52
Question No: 6 ( Marks: 1 ) - Please choose one
Which one of the following is the procedure of finding out the Present Value (PV)?
► Discounting
► Compounding
► Time value of money
► Bond pricing
Question No: 7 ( Marks: 1 ) - Please choose one
You receive a check for $100 two years from today. The discounted present value of this
$100 is:
► $100/(1+i)
► $100*(1+i)2
► $100*(1+i)
► $100/(1+i)2
Question No: 8 ( Marks: 1 ) - Please choose one
Which of the following represents the fisher’s equation?
► Nominal interest rate = real interest rate + inflation
► Nominal interest rate + inflation = real interest rate
► Nominal interest rate = real interest rate - inflation
► Nominal interest rate = real interest rate / inflation
Question No: 9 ( Marks: 1 ) - Please choose one
What will be the result of the difference of real and nominal interest rate?
► The cost of borrowing
► The effect of inflation
► The price of bonds
► The return of bonds
Question No: 10 ( Marks: 1 ) - Please choose one
Sum of all the probabilities should be equal to which one of the following?
► Zero
► One
► Two
► Three
Question No: 11 ( Marks: 1 ) - Please choose one
The coupon rate of bond:
► Is another term for the current yield
► Is another term for the yield to maturity
Come & Join Us at www.vustudents.net► Could not be calculated for a zero-coupon bond
► None of the given options
Question No: 12 ( Marks: 1 ) - Please choose one
Current yield did NOT measure which of the following?
► Return arises from coupon payment
► Capital gain and loss
► Return arises from bond holding till maturity
► All of the given options
Question No: 13 ( Marks: 1 ) - Please choose one
An increase in the expected inflation shifts the bond supply to the _________
► Right
► Left
► No change
► None of the given options
Question No: 14 ( Marks: 1 ) - Please choose one
The lowest rating for an investment grade bond assigned by Moody's is:
► BBB
► ABB
► Baa
► Aaa
Question No: 15 ( Marks: 1 ) - Please choose one
In the long run, the yield curve tends to be which of the following?
► Upward sloping
► Downward sloping
► Nearly vertical
► Nearly horizontal
Question No: 16 ( Marks: 1 ) - Please choose one
Common stocks (or corporate stocks):
► Are short term debt instruments
► Entitle the holder to contractual payments
► Were poor investments over the period 1982-1996
► Allows the holder to share in the earnings of the firm
Question No: 17 ( Marks: 1 ) - Please choose one
A bank can usually offer a saver a higher return for the same risk because:
► The bank can usually purchase assets at a higher cost than any one saver
► The bank can pool the resources of larger savers and purchase lower denominated
assets
► Economies of scale can be applied by the bank in its purchase of assets
► None of the given options
Question No: 18 ( Marks: 1 ) - Please choose one
If information in a financial market is asymmetric, this means:
► Borrowers and lenders have the same information
► Lenders lack any information
► Borrowers and lenders have perfect information
► Borrowers would have more information than lenders
Question No: 19 ( Marks: 1 ) - Please choose one
Which of the following is true of a nation's central bank?
► It makes important decisions about the nation's tax and public spending policies
► It lends only to the nation's largest and most important business firms
Come & Join Us at www.vustudents.net► It has many interactions with the nation's citizens and businesses
► It is responsible for conducting the nation's monetary policy
Question No: 20 ( Marks: 1 ) - Please choose one
Requiring a large deductible on the part of an insured is one way insurers treat the
problem of:
► Free-riding
► Moral hazard
► Adverse selection
► The Lemons market
Question No: 21 ( Marks: 1 ) - Please choose one
Often a bank will require a loan officer to make personal visits on customers with loans
outstanding. This is encouraged because:
► The bank worries about competitors trying to steal their customers
► The bank wants to make sure the business is still there
► The bank likely has excess funds available and hopes to make another loan to the
business
► This is an effective monitoring technique and should reduce moral hazard
Question No: 22 ( Marks: 1 ) - Please choose one
Which of the following represents the history of money uptill the modern age?
► Gold/silver coins____ Paper Currency____Electronic Fund Transfer
► Paper Currency_____Gold/Silver coins_____Electronic Fund Transfer
► Electronic Fund Transfer_____Paper Currency _____Gold/silver coins
► Gold/silver coins_____Electronic Fund Transfer_____Paper currency
Question No: 23 ( Marks: 1 ) - Please choose one
Mr. A makes payment to Mr. B in exchange of household furniture in the form of
cheques.Which of the following is true for this situation?
► It is final payment made by Mr. A
► It’s not a final payment
► It may not be accepted as payment
► Cheques are not form of money
Question No: 24 ( Marks: 1 ) - Please choose one
Components of M1 DO NOT include which one of the following?
► Currency in the hands of public
► Demand deposits
► Small denominations time deposit
► Checkable deposits
Question No: 25 ( Marks: 1 ) - Please choose one
A change in the interest rate:
► Has a larger impact on the present value of a payment to be made far into the
future than one to be made sooner
► Will not have a difference on the present value of two equal payments to be made
at different times
► Has a smaller impact on the present value of a payment to be made far into the
future than one to be made sooner
► None of the given options
Question No: 26 ( Marks: 1 ) - Please choose one
Which of the following statement is true about the relationship between bond ,coupon
payment and interest?
► Coupon payments fall, the interest rate falls, and Bond price will rise
Come & Join Us at www.vustudents.net► Coupon payments rise, the interest rate falls, and Bond price will rise
► Coupon payments fall, the interest rate falls, and Bond price will fall
► Coupon payments rise, the interest rate falls, and Bond price will fall
Question No: 27 ( Marks: 1 ) - Please choose one
Which of the following are without maturity dates?
► Zero coupon bonds
► Coupon securities
► Consols
► Preferred Bonds
Question No: 28 ( Marks: 1 ) - Please choose one
Zero-Coupon Bonds are pure discount bonds since they sell at a price __________.
► Equal their face value
► Below their face value
► Above their face value
► None of the given options
Question No: 29 ( Marks: 3 )
Differentiate between yield to maturity and current yield.
Yield To Maturity
The most useful measure of the return on holding a bond is called the yield to maturity
(YTM).
This is the yield bondholders receive if they hold the bond to its maturity when the final
principal payment is made
It can be calculated from the present value formula.
The value of i that solves this equation is the yield to maturity
If the price of the bond is $100, then the yield to maturity equals the coupon rate.
Since the price rises as the yield falls, when the price is above $100, the yield to maturity
must be below the coupon rate.
Current yield
Current yield is a commonly used, easy-to-compute measure of the proceeds the
bondholder receives for making a loan.
It is the yearly coupon payment divided by the price
The current yield measures that part of the return from buying the bond that arises solely
from the coupon payments
Question No: 30 ( Marks: 3 )
Discuss briefly the facts about term Structure.
Facts of Term Structure
Interest Rates of different maturities tend to move together
Yields on short-term bond are more volatile than yields on long-term bonds
Long-term yields tend to be higher than short-term yields.
Question No: 31 ( Marks: 5 )
Briefly discuss short term ratings by Pakistan Credit Rating Agency.
Pakistan Credit Rating Agency.
A1+: highest capacity for timely repayment
A1: Strong capacity for timely repayment
A2: satisfactory capacity for timely repayment may be susceptible to adverse economic
conditions
A3: an adequate capacity for timely repayment. More susceptible to adverse economic
condition
B: timely repayment is susceptible to adverse changes in business, economic, or financial
Come & Join Us at www.vustudents.netconditions
C: an inadequate capacity to ensure timely repayment
D: high risk of default or which are currently in default
Question No: 32 ( Marks: 5 )
Define stock and also discuss its important characteristics.
Stock & its importance
Stocks provide a key instrument for holding personal wealth as well as a way to diversify,
spreading and reducing the risks that we face. For companies, they are one of several
ways to obtain financing. Additionally, Stocks and stock markets are one of the central
links between the financial world and the real economy.
Common Stock
Valuing Stock
Stocks, also known as common stock or equity, are shares in a firm’s ownership
From their early days, stocks had two important characteristics that today are taken for
granted:
The shares are issued in small denominations and the shares are transferable
Until recently, stockowners received a certificate from the issuing company, but now it is
a computerized process where the shares are registered in the names of brokerage firms
that hold them on the owner’s behalf.
The ownership of common stock conveys a number of rights
A stockholder is entitled to participate in the shares of the enterprise, but this is a residual
claim meaning the leftovers after all other creditors have been paid
MIDTERM EXAMINATION
Spring 2010
MGT411- Money & Banking (Session - 3)
Question No: 1 ( Marks: 1 ) - Please choose one
Financial instruments are evolved just as ___________.
► Currency
► Stock
► Bond
► Commodity
Question No: 2 ( Marks: 1 ) - Please choose one
Price of 100 goods under the barter system would be _________.
► 5050
► 19800
► 4950
► 20200
Reference:
=n(n-1)/2
=100(100-1)/2
=100(99)/2
=9900/2
=4950
Question No: 3 ( Marks: 1 ) - Please choose one
Wealth can be held in number of other forms but we use to hold money because of which
one of the following reason?
► It is the only mode of payment
► It is an asset
Come & Join Us at www.vustudents.net► It is most liquid
► It is the only store of value
Question No: 4 ( Marks: 1 ) - Please choose one
A decrease in the number of credit cards issued:
► Has the same impact on the economy as the Federal Reserve supplying less
money
► Reduces the money supply since credit cards act like money
► Would probably lower the amount in M3 but likely not M1
► None of the given options
Question No: 5 ( Marks: 1 ) - Please choose one
Risk sharing is the characteristic of which one of the following?
► Checks
► Checking accounts
► Money
► Bonds
Question No: 6 ( Marks: 1 ) - Please choose one
___________ is the today's value of a payment that is promised to be made in the future.
► None of the given options
► Future value
► Present value
► Agreed value
Question No: 7 ( Marks: 1 ) - Please choose one
Which one of the following is the procedure of finding out the Present Value (PV)?
► Discounting
► Compounding
► Time value of money
► Bond pricing
Question No: 8 ( Marks: 1 ) - Please choose one
Asma deposits funds into a CD account at her bank. The CD account has an annual
interest of 4.0%. If Asma leaves the funds in the CD account for entire two years she will
have $1081.60. What amount is Asma depositing?
► $960.60
► $900.00
► $1005.00
► $1000.00
Question No: 9 ( Marks: 1 ) - Please choose one
You receive a check for $500 three years from today. The discounted present value of
this $500 is ___________.
► $500/(1+i)
► $500*(1+i)
► $500/(1+i)3
► $500*(1+i)3
Question No: 10 ( Marks: 1 ) - Please choose one
What will be the effect on the present value if we double the future value of the
payment?
► It will decrease the value by one-half
► It will increase the value by one-half
► It will equally increase the value i.e. doubles the value
Come & Join Us at www.vustudents.net► It will have no effect on the value
Question No: 11 ( Marks: 1 ) - Please choose one
The variance is generally less useful than the standard deviation on which of the
following reasons?
► Variance is easier to calculate
► Variance is a measure of risk, whereas standard deviation is a measure of return
► Variance isn't calculated in the same units as payoffs where as standarad deviation
is
► Both are equally useful
Question No: 12 ( Marks: 1 ) - Please choose one
A risk-averse investor will:
► Always prefer an investment with a lower expected return
► Always prefer an investment with a certain return to one with the same expected
return but any amount of uncertainty
► Always require a certain return
► Always focus exclusively on the expected return
Question No: 13 ( Marks: 1 ) - Please choose one
The return on the bond is equal to which of the following?
► Coupon rate + rate of capital gains
► Current yield + rate of capital gains
► Coupon rate - rate of capital gains
► Current yield - rate of capital gains
Question No: 14 ( Marks: 1 ) - Please choose one
An increase in the expected inflation shifts the bond demand to the _________
► Right
► Left
► No change
► None of the given options
Question No: 15 ( Marks: 1 ) - Please choose one
The bond rating of a security refers to which of the followings?
► The size of the coupon payment relative to the face value
► The return a holder is likely to receive
► The likelihood the lender/borrower will be repaid by the borrower/issuer
► The years until the bond matures
Question No: 16 ( Marks: 1 ) - Please choose one
The____________ are an assessment of the creditworthiness of the corporate issuer.
► Bond yield
► Bond ratings
► Bond risk
► Bond price
Question No: 17 ( Marks: 1 ) - Please choose one
Which of the following statement is true for the given sentence, "that tax affects the bond
return"?
► Because only interest income they receive from bond is taxable
► Because principal amount and interest income they receive from bond is taxable
► Because bond holders are taxpayers
► Because all bond is sold with a condition that tax will be deducted from its return
Question No: 18 ( Marks: 1 ) - Please choose one
Come & Join Us at www.vustudents.netWhich one of the following is true for the relationship between the yield of taxable and
tax exempt bond?
► Higher the tax rate wider the gap between the yield of taxable and tax exempt
bond
► Taxable bond yield is always greater than tax exempt bond
► Higher the tax rate shorter the gap between yield of taxable and tax exempt bond
► Lower the tax rate wider the gap between yield of taxable and tax exempt bond
Question No: 19 ( Marks: 1 ) - Please choose one
If the tax rate is higher than gap between yield on taxable and tax exempt bond?
► Shorter
► Wider
► No gap
► Any thing can be possible
Question No: 20 ( Marks: 1 ) - Please choose one
The liquidity premium theory suggests that yield curves should usually be:
► Up-sloping
► Inverted
► Flat
► Up-sloping through year 1, then flat thereafter
Question No: 21 ( Marks: 1 ) - Please choose one
A share of common stock represents ___________.
► A claim from a lender to a borrower
► A share in the company's assets
► A share of ownership of the company
► An unlimited liability to the owner of the stock
Question No: 22 ( Marks: 1 ) - Please choose one
You start with a $1000 portfolio; it loses 40% over the next year, the following year it
gains 50% in value; At the end of two years the worth of your portfolio will be:
► $900
► $600
► $1000
► $1100
Question No: 23 ( Marks: 1 ) - Please choose one
If information in a financial market is asymmetric, this means:
► Borrowers and lenders have the same information
► Lenders lack any information
► Borrowers and lenders have perfect information
► Borrowers would have more information than lenders
Question No: 24 ( Marks: 1 ) - Please choose one
Which of the following is NOT an example of financial institutions?
► Bank
► Securities firm
► Stock exchange
► Insurance company
Question No: 25 ( Marks: 1 ) - Please choose one
Components of M1 DO NOT include which one of the following?
► Currency in the hands of public
► Demand deposits
Come & Join Us at www.vustudents.net► Small denominations time deposit
► Checkable deposits
Question No: 26 ( Marks: 1 ) - Please choose one
Mr. Ghazanfar obtains a home improvement loan from Allied Bank.This loan is:
► Mr. Ghazanfar’s asset and the bank's liability
► Mr. Ghazanfar 's asset, but the liability belongs to the bank's depositors
► Mr. Ghazanfar 's liability and an asset for the bank
► Both Mr. Ghazanfar's and bank's liability
Question No: 27 ( Marks: 1 ) - Please choose one
The interest rate used in the present value calculation is often referred as:
► Discount rate
► Inflation rate
► Nominal rate
► Deflation rate
Question No: 28 ( Marks: 1 ) - Please choose one
If there is a decrease in the expected future interest rate, what will be its affect on bond?
► Bond will be less attractive
► Bond will be more attractive
► Bond will be less expensive
► Bond will be more expensive
Question No: 29 ( Marks: 3 )
Find out YTM of 1 year 10% coupon bond selling at $120. (Face value of bond = $100).
Question No: 30 ( Marks: 3 )
Discuss briefly the facts about term Structure.
Question No: 31 ( Marks: 5 )
You are the founder of an automobile company. Describe the idiosyncratic & systematic
risks that your company faces.
Question No: 32 ( Marks: 5 )
Discuss bubbles in your own word.
Question No: 1 ( Marks: 1 ) - Please choose one
Financial instruments are evolved just as ___________.
► Currency
► Stock
► Bond
► Commodity
Question No: 2 ( Marks: 1 ) - Please choose one
Core principles of Money and Banking include each of the following Except?
► All people act rationally
► Time has value
► Information is the basis for decisions
► Risk requires compensation
Question No: 3 ( Marks: 1 ) - Please choose one
Which of the following is a drawback of Fiat money?
► Fewer resources are used to produce money
► The quantity of money can be determined by rational human judgment
► A corrupt Government might issue excessive amount of money thus causing
inflation
► Fiat money doesn’t have any drawback
Come & Join Us at www.vustudents.netQuestion No: 4 ( Marks: 1 ) - Please choose one
Which one of the following is NOT true for money?
► Money is an asset
► Money is a standard mode of payment
► Money is same as wealth
► Money is readily spend able asset
Question No: 5 ( Marks: 1 ) - Please choose one
A derivative instrument:
► Gets its value and payoff from the performance of the underlying instrument
► Is a high risk financial instrument used by highly risk averse savers
► Comes into existence after the underlying instrument is in default
► Should be purchased prior to purchasing the underlying security
Question No: 6 ( Marks: 1 ) - Please choose one
Financial intermediaries provide small lender-savers all of the following advantages
EXCEPT:
► Greater liquidity
► Lower transaction cost
► Lower risk
► Higher return
Question No: 7 ( Marks: 1 ) - Please choose one
The future value of $100 left in a savings account earning 4.5% for two and a half years
is best expressed by:
► $100(1.045)3/2
► $100( 0.45)2.5
► $100(1.045)2.5
► 100 x 2.5 x (1.045)
Question No: 8 ( Marks: 1 ) - Please choose one
___________ is the today's value of a payment that is promised to be made in the future.
► None of the given options
► Future value
► Present value
► Agreed value
Question No: 9 ( Marks: 1 ) - Please choose one
You receive a check for $500 three years from today. The discounted present value of
this $500 is ___________.
► $500/(1+i)
► $500*(1+i)
► $500/(1+i)3
► $500*(1+i)3
Question No: 10 ( Marks: 1 ) - Please choose one
If the internal rate of return from an investment is less than the opportunity cost of funds:
► Firm should make the investment
► Firm should not make the investment
► Firm should only make the investment using retained earnings
► None of the given options
Question No: 11 ( Marks: 1 ) - Please choose one
An investment carrying a current cost of $130,000 is going to generate $70,000 of
revenue for each of the next three years. To calculate the internal rate of return we need
to:
Come & Join Us at www.vustudents.net► Calculate the present value of each of the $70,000 payments and multiply these
and set this equal to $130,000
► Take the present value of $210,000 for three years from now and set this equal to
$130,000
► Set the sum of the present value of $70,000 for each of the next three years
equal to $130,000
► Subtract $130,000 from $210,000 and set this difference equal to the interest rate
Question No: 12 ( Marks: 1 ) - Please choose one
The real interest rate is:
► The nominal rate plus the expected inflation rate
► The nominal rate minus the expected inflation rate
► The nominal interest rate divided by the Consumer Price Index
► The product of the nominal rate and the Consumer Price Index
Question No: 13 ( Marks: 1 ) - Please choose one
What is true about the relationship between standard deviation and risk?
► Greater the standard deviation greater will be the risk
► Greater the standard deviation lower will be the risk
► Greater the standard deviation risk will be remained the same
► No relation between them
Question No: 14 ( Marks: 1 ) - Please choose one
Most of the people among us are ___________.
► Risk lovers
► Risk enhancers
► Risk averse
► Risk tolerating
Question No: 15 ( Marks: 1 ) - Please choose one
Mr. A has a Treasury bill with a maturity period of 6 months where as Mr. B has a bond
with a maturity period of 1 year. Which of the following statement is NOT true for this
situation?
► Mr. A has paid less price for his bond than Mr. B
► Mr. A and Mr. B is a holder of zero coupon bond
► Mr. A will receive payment at the end of the maturity period
► Mr. B will receive the payment at the end of the maturity period
Question No: 16 ( Marks: 1 ) - Please choose one
For a $1000 one year discount bond with a price of $975, the yield to maturity is which
of the following?
► $975/$1000
► ($1000 – $975)/$975
► ($1000 – $975)/($1000)
► $1000/$975
Question No: 17 ( Marks: 1 ) - Please choose one
Current yield is equal to which of the following?
► Price paid / yearly coupon payment
► Price paid *yearly coupon payment
► Yearly coupon payment / face value of bond
► Yearly coupon payment / price paid
Question No: 18 ( Marks: 1 ) - Please choose one
The return on the bond is equal to which of the following?
► Coupon rate + rate of capital gains
Come & Join Us at www.vustudents.net► Current yield + rate of capital gains
► Coupon rate - rate of capital gains
► Current yield - rate of capital gains
Question No: 19 ( Marks: 1 ) - Please choose one
An increase in the expected inflation shifts the bond demand to the _________
► Right
► Left
► No change
► None of the given options
Question No: 20 ( Marks: 1 ) - Please choose one
Calculate tax implication on Bond yields. Consider a one year bond face value Rs.100
(issued by Government) with coupon rate of 6%.What is the income of bond that is
received at maturity? (Tax rate is 30%).
► Rs.6
► Rs.1.80
► Rs.4.20
► Rs.7.80
Question No: 21 ( Marks: 1 ) - Please choose one
If the tax rate is higher than gap between yield on taxable and tax exempt bond?
► Shorter
► Wider
► No gap
► Any thing can be possible
Question No: 22 ( Marks: 1 ) - Please choose one
Expectation hypothesis focuses on which one of the following?
► Risk premium
► Risk free interest rate
► Yield to maturity
► None of the given options
Question No: 23 ( Marks: 1 ) - Please choose one
Stock market bubbles can lead to:
► An inefficient allocation of resources
► Stock market crashes
► Patterns of volatile returns from the stock market
► All of the given options
Question No: 24 ( Marks: 1 ) - Please choose one
Without the ability of financial intermediaries to pool the resources of small savers:
► Borrowers needing large amounts of money would find it less costly to obtain the
funds
► The economy would likely grow faster
► People would likely save more
► The risk associated with lending would increase
Question No: 25 ( Marks: 1 ) - Please choose one
The fact that a financial intermediary can use the same contract for many customers is an
example of:
► Economies of Scope
► The Law of Diminishing Marginal Returns
► The Law of Increasing Opportunity Cost
► Economies of Scale
Come & Join Us at www.vustudents.netQuestion No: 26 ( Marks: 1 ) - Please choose one
Requiring a large deductible on the part of an insured is one way insurers treat the
problem of:
► Free-riding
► Moral hazard
► Adverse selection
► The Lemons market
Question No: 27 ( Marks: 1 ) - Please choose one
Financial instruments are used to transfer which of the following?
► Both Risk and Resources
► Risk
► Resources
► Mortgages
Question No: 28 ( Marks: 1 ) - Please choose one
A change in the interest rate:
► Has a larger impact on the present value of a payment to be made far into
the future than one to be made sooner
► Will not have a difference on the present value of two equal payments to be made
at different times
► Has a smaller impact on the present value of a payment to be made far into the
future than one to be made sooner
► None of the given options
Question No: 29 ( Marks: 3 )
Find out YTM of 1 year 10% coupon bond selling at $120. (Face value of bond = $100).
Answer:
solution:
according to the formula
YTM = yearly coupon payment /price paid
So
$10/(1 i) $100 /(1 i)=
$10%/120
= 8.333
Question No: 30 ( Marks: 3 )
“Financial intermediary reduce costs”. How?
Financial intermediary is naturally an foundations that make easy the control of funds
between lenders and borrowers not directly that acts as the middle man between investors
and firms raising fund is called financial intermediary.
Financial intermediary will reduce transaction cost because they are specializing in the
issuance of standardized securities.
Question No: 31 ( Marks: 5 )
Define financial intermediaries. What functions the financial intermediaries performs
regarding savings?
Answer: Financial intermediary is naturally an foundations that make easy the control
of funds between lenders and borrowers not directly that acts as the middle man
between investors and firms raising fund is called financial intermediary.
Financial intermediary will reduce transaction cost because they are specializing in the
issuance of standardized securities
1. Maturity transformation
Converting short-term liabilities to long term assets just like banks deal with large
Come & Join Us at www.vustudents.netnumber of lenders and borrowers, and settle their conflicting needs
2. Risk transformation
Converting risky investments into relatively risk-free ones For example ending to
multiple borrowers to spread the risk
3. Convenience
Matching small deposits with large loans and large deposits with small loans
Question No: 32 ( Marks: 5 )
Briefly explain the factors which shift the bond demand.
Answer: Factors that shift Bond Demand
• Expected inflation
If expected inflation fall then demand for bond increases, curve of bond demand shift to
right.
• Expected return on bonds
If the expected return on bonds rise then people will invest money more ,as result demand
for bond will rise
• Risk relative to alternatives
If other stocks are more risky then demand for bonds increases then shift the demand
curve bond
Liquidity of bonds
If liquidity of bonds becomes more than other stocks or investments then shift the
demand curve bond
• Wealth
As the consumer received more wealth their demands for good raise. They will invest
their money in market result will be economy grows and bond prices will increase.
Question # 1
Wider the range of outcome wider will be the _________.
Select correct option:
Risk
Profit
Probability
Lose
Question # 2
The interest rate that is involved in ___________ calculation is referred to as discount
rate
Select correct option:
Present value
Future value
Intrinsic value
Discount value
Question # 3
The return on holding a bond till its maturity is called:
Select correct option:
Coupon rate
Yield to maturity
Current yield
Internal rate of return
Question # 4
following represents the fisher’s equation?
Select correct option:
Come & Join Us at www.vustudents.netNominal interest rate = real interest rate + inflation
Nominal interest rate + inflation = real interest rate
Nominal interest rate = real interest rate - inflation
Nominal interest rate = real interest rate / inflation
Question # 5
Bonds without maturity dates are which of the followings?
Select correct option:
Zero coupon bonds
Coupon securities
Consols
Preferred Bonds
Question # 6
A risk-averse investor will:
Select correct option:
Always prefer an investment with a lower expected return
Always prefer an investment with a certain return to one with the same expected return
but any amount of uncertainty
Always require a certain return
Always focus exclusively on the expected return
Question # 7
GDP deflator is called
Select correct option:
Retailer price index
Consumer price index
Producer price index
None of above
Question # 8
What will be the effect on the present value if we double the future value of the payment?
Select correct option:
It will decrease the value by one-half
It will increase the value by one-half
It will equally increase the value i.e. doubles the value
It will have no effect on the value
Question # 9
Government bonds called …….. Where as corporate bonds are called ……
Select correct option:
Zero coupon bond, coupon bond
Risky bond. Risk free bond
T bill, corporate bond
Console bond, junk bonds
Question # 10
Beside default risk which one if the following factor affects the return on bond?
Select correct option:
Taxes
Monetary policy
Junk bonds
Debt
Question # 11
Which of the following are used to monitor and stabilize the economy?
Come & Join Us at www.vustudents.netSelect correct option:
Stock exchanges
Commercial Banks
Central Banks
Financial institutions
Question # 12
What will be the result of the difference of real and nominal interest rate?
Select correct option:
The cost of borrowing
The effect of inflation
The price of bonds
The return of bonds
Question # 13
Which of the following expresses 6.5%?
Select correct option:
0.0065
6.50
0.650
0.0650
Question # 14
Diversification is the principle of:
Select correct option:
Holding more than one risk at a time
Reducing the risks we carry to just two
Creating risk to increase returns
Eliminating investments from our portfolio that have idiosyncratic risk
Question # 15
Current accounts of commercial bank lies in which money aggregate definition?
Select correct option:
Currency
M1
M2
M3
Question # 16
Which of the following would be considered characteristic of money?
Select correct option:
It is store of value
It pays a higher return than most assets
It is in fixed supply
It is legal tender everywhere in the world
Question # 17
When the price of a bond is above face value:
Select correct option:
The yield to maturity will be above the coupon rate
The yield to maturity is below the coupon rate
The yield to maturity will equal zero
The yield to maturity will equal the coupon rate
Question # 19
___________ is the value today of a payment that is promised to be made in the future.
Come & Join Us at www.vustudents.netSelect correct option:
Future value
Present value
Agreed value
None of the given options
Question # 20
Which of the following best describes default risk?
Select correct option:
The chance the issuer will be unable to make interest payments or repay principal
The chance the issuer will retire the debt early
The chance the issuing firm will be sold to another firm
The chance the issuer will sell more debt
Question # 21
Considering the Liquidity Premium Theory, if investors expect short term interest rates to
decrease:
Select correct option:
The yield curve must have a positive slope
The yield curve must be inverted
The yield curve could be flat
The slope of the yield curve should actually increase
Question # 23
Which of the following would probably NOT earn an A rating from Standard & Poor's:
Select correct option:
30 years bond issued by the U.S. Treasury
New vegetarian fast-food chain
90 days T-Bills issued by the U.S. Treasury
Both 30 years bond and 90 days T-Bills issued by U.S. Treasury
Question # 24
If YTM is greater than the coupon rate the price of the bond is __________.
Select correct option:
Greater than its face value
Lower than its face value
Equals to its face value
All of the given options
Question # 25
If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value
would be:
Select correct option:
$94.00
$94.33
$95.25
$96.10
Question # 26
Time affects the value of which of the following?
Select correct option:
Financial Instruments
Financial Markets
Financial Institutions
Central Banks
Come & Join Us at www.vustudents.netQuestion # 27
A risk-averse investor will:
Select correct option:
Always prefer an investment with a lower expected return
Always prefer an investment with a certain return to one with the same expected
return but any amount of uncertainty
Always require a certain return
Always focus exclusively on the expected return
Question # 28
Investors will hold higher compensation for the __________ investment.
Select correct option:
More risky
Less risky
Fixed return
Less dividend
Question # 29
An increase in the expected inflation shifts the bond demand to the _________.
Select correct option:
Right
Left
No change
All of the given options
Question # 30
You receive a check for $100 two years from today. The discounted present value of this
$100 is:
Select correct option:
$100/(1+i)
$100*(1+i)2
$100*(1+i)
$100/(1+i)2
Question # 31
Which of the following is NOT an example of financial institutions?
Select correct option:
Banks
Securities firms
Stock exchanges
Insurance companies
Question # 32
The bond rating of a security refers to which of the followings?
Select correct option:
The size of the coupon payment relative to the face value
The return a holder is likely to receive
The likelihood the lender/borrower will be repaid by the borrower/issuer
The years until the bond matures
Question # 33
Yield curves show which of the followings?
Select correct option:
The relationship between bond interest rates (yields) and bond prices
The relationship between liquidity and bond interest rates (yields)
Come & Join Us at www.vustudents.netThe relationship between risk and bond interest rates (yields)
The relationship between time to maturity and bond interest rates (yields)
Question # 34
Which of the following best expresses the proceeds a lender receives from a simple loan?
Select correct option:
PV(1 + i)
FV/i
PV + i
PV/i
Question # 35
When the price of a bond is above face value:
Select correct option:
The yield to maturity will be above the coupon rate
The yield to maturity is below the coupon rate
The yield to maturity will equal zero
The yield to maturity will equal the coupon rate
Question # 36
What will the yield curve look like if future short-term interest rates are expected to rise
sharply?
Select correct option:
It will steeply slope upward
It will be horizontal
It will slightly slope upward
It will slope downward
Question # 37
When a bond becomes more liquid relative to its alternatives, the demand curve for bonds
shifts to the:
Select correct option:
Right
Left
No change
None of the given options
Question # 38
Debt instruments is categorized on the basis of which one of the following?
Select correct option:
Loan maturity period
Interest rates
Mode of payment of interest
Amount of the debt taken
Question # 39
Expectation hypothesis focuses on which one of the following?
Select correct option:
Risk premium
Risk free interest rate
Yield to maturity
None of the given options
Reference:
Expectations Hypothesis
The risk-free interest rate can be computed, assuming that there is no uncertainty about
Come & Join Us at www.vustudents.netthe future
Question # 40
What characteristic of money is not included in securities characteristics
Select correct option:
Mean of payment
Unit of account
Store of value
Transfer of risk
Question # 41
Which one of the following is the narrowest definition of money?
Select correct option:
C
M1
M2
M3
Question # 42
Which one of the following is a component of wealth that is held in a readily spendable
form?
Select correct option:
Money
Bonds
Stocks
Income
Question # 43
A loan that is used to purchase the real estate is known as:
Select correct option:
Real estate loan
Home mortgages
Fixed payment loan
Home loan
Question # 44
The default premium:
Select correct option:
Is positive for a U.S. Treasury bond
Must always be less than 0 (zero)
Is also known as the risk spread
Is assigned by a bond rating agency
Question # 45
A graph of the term structure with YTM on Y-axis and time to maturity on X-axis is
called:
Select correct option:
Demand curve
Supply curve
Yield curve
Leffer curve
Question # 46
Which of the following best describes checks?
Select correct option:
A means of payment
Come & Join Us at www.vustudents.netMoney
Not a promise of any kind
Not acceptable by the U.S. Government for payment of taxes.
Question # 47
With direct finance we mean which of the following?
Select correct option:
Individuals (or firms) borrow directly from the savers
Individuals (or firms) borrow directly from banks.
Individuals deposit savings directly in banks.
Firms deposit savings directly in banks.
Question # 48
Which of the following best expresses the payment a lender receives for lending their
money for four years?
Select correct option:
PV(1+i)4
PV/(1 + i)4
4PV
PV/(1 - i)4
Question # 49
Which one of the following is true for the relationship between the yield of taxable and
tax exempt bond?
Select correct option:
Higher the tax rate wider the gap between the yield of taxable and tax exempt bond
Taxable bond yield is always greater than tax exempt bond
Higher the tax rate shorter the gap between yield of taxable and tax exempt bond
Lower the tax rate wider the gap between yield of taxable and tax exempt bond
Question # 50
In which of the following bonds we may ignore the default risk?
Select correct option:
Privately issued bonds
Government issued bonds
Bonds issued by Corporate
All of the given options
Question # 51
Which of the following is the least liquid of all?
Select correct option:
Money
Bonds & stocks
Lands & buildings
None of the given options
Question # 52
What is primary cause of inflation?
Select correct option:
Energy crises
Gold reserve shortage
Issue excessive currency
Rising cost of input
Question # 53
The risk premium for an investment:
Come & Join Us at www.vustudents.netSelect correct option:
Increases with risk
Is a fixed amount added to the risk free return
Is negative for U.S. Treasury Securities
Is negative for risk averse investors
Reference:
Page 35
Question # 54
Which of the following is the measure of likelihood that an event will occur?
Select correct option:
Risk
Probability
Frequency
Outcom
Question # 55
Which of the following is NOT included in the definition of M1?
Select correct option:
Traveler’s checks
Demand deposits
Currency
Gold coins issued by treasury
Question # 56
The liquidity premium theory suggests that yield curves should usually be:
Select correct option:
Up-sloping
Inverted
Flat
Up-sloping through year 1, then flat thereafter
Question # 57
If the tax rate is higher than gap between yield on taxable and tax exempt bond?
Select correct option:
Shorter
Wider
No gap
Any thing can be possible
Question # 58
The reason for the government to get involved in the financial system is to:
Select correct option:
Protect investors
Ensure the stability of the financial system
Protect bank customers from monopolistic exploitation
All of the given options
Reference:
Page92
Question # 59
Financial instruments are evolved just as __________.
Select correct option:
Currency
Stock
Come & Join Us at www.vustudents.netBond
Commodity
Question # 60
The longer the time (n) until the payment:
Select correct option:
The lower the present value
The higher the present value because time is valuable
The lower must be the interest rate
Time has no effect on present value
Question # 61
Core principles of Money and Banking include each of the following except?
Select correct option:
People act rationally
Time has value
Information is the basis for decisions
Risk requires compensation
Question # 62
Which of the following would be included in a definition of risk?
Select correct option:
Risk is a not measure of uncertainty
Risk is unavoidable
Risk doesn't have a time horizon
Risk seldom involves some future payoff
Question # 63
The lowest rating for an investment grade bond assigned by Moody's is:
Select correct option:
BBB
ABB
Baa
Aaa
Question # 64
The concept of limited liability says a stockholder of a corporation:
Select correct option:
Is liable for the corporation's liabilities, but nothing more
Cannot receive dividends that exceed their investment
Cannot own more than fiver percent of any public corporation
Cannot lose more than their investment
Question # 65
Coupon bonds make the annual payments which are called as _________.
Select correct option:
Annual payments
Fixed payments
Coupon payments
Maturity payment
Question # 66
The current yield on a $10,000, 5% coupon bond selling for $8,000 is:
Select correct option:
5.00%
6.25%
Come & Join Us at www.vustudents.net7.50%
8.00%
Question # 67
Home loans and car loans are the example of which one of the following?
Select correct option:
Mortgage loans
Pledge
Fixed Payment Loans
Ordinary loan
Question # 68
What is difference between warrant and check?
Select correct option:
Check is cleared from bank but warrant is not cleared by bank
Check is not necessarily pay able on demand but warrant is payable on demand
Warrant is not necessarily pay able on demand but check is payable on demand
None of above
Question # 69
The slope of the yield curve seems to predict the performance of the economy with:
Select correct option:
Usually 3 months lag
Usually two years lag
Usually within few weeks
Usually one year lag
Question # 70
What is true about the relationship between standard deviation and risk?
Select correct option:
Greater the standard deviation greater will be the risk
Greater the standard deviation lower will be the risk
Greater the standard deviation risk remains the same
No relation between them
Question # 71
If YTM equals the coupon rate the price of the bond is ________.
Select correct option:
Greater than its face value
Lower than its face value
Equals to its face value
Insufficient information
Question # 72
The Financial Systems makes it easier to trade because it:
Select correct option:
Facilitate Payments
Channels Funds from Savers to Borrowers
Enables Risk Sharing
All of the given options
Question # 73
Spreading involves:
Select correct option:
Finding assets whose returns are perfectly negatively correlated
Building a portfolio of assets whose returns move together
Come & Join Us at www.vustudents.netInvesting in bonds and avoiding stocks during bad times
Adding assets to a portfolio that move independently
Question # 74
________ is the interest rate at which the present value annual reveneu equals the cost of
the investment.
Select correct option:
Fixed rate of interest
Internal rate of return
Variable rate of interest
Nominal rate of interest
Question # 75
The GDP deflator is calculated as_________.
Select correct option:
Nominal GDP/Real GDP *100
Real GDP/Nominal GDP
Nominal GDP – Real GDP
Real GDP – Nominal GDP
Question # 76
_________ is the strategy of reducing overall risk by making two investments with
opposing risks.
Select correct option:
Spreading the risk
Standard deviation
Hedging the risk
Variance
Question # 77
A ________ is a promise to make a series of payments on specific future date.
Select correct option:
Stock
Bond
Loan
Cheque
Question # 78
Which one of the following is true for financial intermediaries?
Select correct option:
Channel funds from savers to borrowers
Greatly enhance economic efficiency
Have been an source of many financial innovations
All of the given options
Question # 79
There is no guarantee that a bond issuer will make the promised payments is known as
which one of the following?
Select correct option:
Default risk
Inflation risk
Interest rate risk
Systematic risk
Question # 80
If a bond sells at a premium, where price exceeds face value, then we would expect to
Come & Join Us at www.vustudents.netsee:
Select correct option:
Market interest rate the same as the coupon rate
Market interest rates above the coupon rate
Market interest rates below the coupon rate
All of the given options
Question # 81
One of major disadvantage of fiat money is
Select correct option:
Only few resources are needed
It may be theft easily
Normally it is obsolete quickly
Pressure or corrupt government may print excessive money
Question # 82
The price of a coupon bond can best be described as:
Select correct option:
The present value of the face value
The future value of the coupon payments and the face value
The present value of the coupon payments
Both The present value of the face value and of the coupon payments
Question # 83
The Segmented Markets Theory of term structure suggests that:
Select correct option:
Investors have strong preferences for bonds of a particular maturity
Investors have no preference for short-term bonds over long-term bonds, or vice versa
Interest rates on long-term bonds strongly influence the demand for short-term bonds
Bonds of different maturities are perfect substitutes for each other
Question # 84
Which of the following patterns of term structure occur most frequently?
Select correct option:
Ascending yield curve
Descending yield curve
Flat yield curve
Humped yield curve
Question # 85
Economic development measured by
Select correct option:
Real GDP/population
Real GDP/ nominal GDP
Real GDP/Real GNP
None of above
Reference:
Financial Development is measured by the commonly used ratio of broadly defined
money to GDP. Economic development is measured by the real GDP per capita.
Question # 86
Sum of all the probabilities should be equal to which one of the following?
Select correct option:
Zero
One
Come & Join Us at www.vustudents.netTwo
Three
Question # 87
A financial instrumnet in which a borrower obtains resources from a lender immediately
in exchange for a promised set of payments in the future is called as _________.
Select correct option:
Bond
Bank Loan
Home Mortgage
Futures Contract
Question # 88
A brilliant example of risk require compensation
Select correct option:
Taking a safe debt
Insurance policy
A person work in office
None of above
Question # 89
An increase in wealth shifts the demand for bonds to the ________.
Select correct option:
Left
Right
No change
All of the given options
Question # 90
Internal Rate of Return is _______.
Select correct option:
Present value of investment
Future value of its investment +Cost of investment
Cost of investment
Present value of investment + cost of investment
Question # 91
Previously financial markets are located in which of the following?
Select correct option:
Coffee houses or Taverns
Stock exchanges
Bazaar
Coffee houses and Stock exchanges
Question # 92
At which money aggregate definitions relation is stronger with inflation and growth
Select correct option:
M1
M2
M3
None of above
Question # 93
The shape of the yield curve is usually:
Select correct option:
Upward sloping
Come & Join Us at www.vustudents.netDownward sloping
Upward sloping for shorter maturities and downward sloping for longer maturities
Flat
Question # 94
When the auto manufacturing industry does poorly due to a recession this is an example
of:
Select correct option:
Idiosyncratic risk
Systematic risk
Risk premium
Unique risk
Question # 95
Mr A need 1000000 to buy a car for his personal use he contact with bank that give his
loan this would be called
Select correct option:
Direct finance
Indirect finance
Facilitate payment
All of above
Question # 96
Which one of the following is NOT true for the expectation hypothesis?
Select correct option:
Risk free interest rate can be computed
There is uncertainty in the future
Identifying yield of bond today that will be available next year
It focuses on risk free interest rate and the risk premium
Question # 97
Mark borrows $8,000 and then repays $8,600 to ABC bank. What is the amount of
interest in this payment?
Select correct option:
$600
$500
$400
$100
Question # 98
In the long run, the yield curve tends to be which of the following?
Select correct option:
Upward sloping
Downward sloping
Nearly vertical
Nearly horizontal
Question # 99
Which of the following is NOT a depository financial institution?
Select correct option:
Credit Union
Savings and Loan
Commercial bank
Life Insurance Company
Question # 100
Come & Join Us at www.vustudents.netWhich of the following best describes the relationship between Bond prices and yields?
Select correct option:
Move together inversely
Bond yields do not change since the coupon is fixed
Move together directly
Are independent of each other
Question # 101
According to the rule of 72 for reasonable rates of return, the time it takes to ________
the money will be t =72/i%
Select correct option:
Doubles
Triples
halves
 ¾
Question # 102
Which one of the following agencies assesses the default risk of different issuers?
Select correct option:
Insurance companies
Bond issuing
Credit rating
Recruitment agencies
Question # 103
The risk premium of a bond will:
Select correct option:
Higher for investment-grade bonds than for high-yield bonds
Positive but small if the risk of default is zero
Decrease when the default risk rises
Increase when the risk of default rises
Question # 104
The relationship between the price and the interest rate for a zero coupon bond is best
described as:
Select correct option:
Volatile
Stable
Non-existent
Inverse
Question # 105
Which is broadly used as money aggregate?
Select correct option:
M1
M2
M3
None of above
Question # 106
Which characteristic are common both in money and securities
Select correct option:
Transfer of risk, store of value
Unit of account, mean of payment
Mean of payment, transfer of risk
Come & Join Us at www.vustudents.netStore of value, mean of payment
Question # 107
According to the liquidity premium theory of the term structure, when the yield curve has
its usual slope, the market expects
Select correct option:
Short-term interest rates to rise sharply
Short-term interest rates to stay near their current levels
Short-term interest rates to drop sharply
Short-term interest rates does not change
Question # 108
What is the true relationship that exists between default risk and yield?
Select correct option:
Higher the default risk, higher the yield
Lower the default risk, higher the yield
Higher the default risk yield will remain constant
Lower the default risk yield will remain constant
Question # 109
Which of the following financial instruments NOT used primarily as store of value?
Select correct option:
Options
Stocks
Home mortgage
Bonds
Question # 110
Which of the variable measured in point of time?
Select correct option:
Flow variable
Stock variable
Both flow variable and stock variable
None of above
Question # 111
A business cycle downturn shifts the bond supply to the:
Select correct option:
Right
Left
No change
None of the given options
Question # 1
Wider the range of outcome wider will be the _________.
Select Correct Option:
Risk
Profit
Probability
Lose
Question # 2
The interest rate that is involved in ___________ calculation is referred to as discount
rate
Select Correct Option:
Present value
Come & Join Us at www.vustudents.netFuture value
Intrinsic value
Discount value
Question # 3
The return on holding a bond till its maturity is called:
Select Correct Option:
Coupon rate
Yield to maturity
Current yield
Internal rate of return
Question # 4
following represents the fisher’s equation?
Select Correct Option:
Nominal interest rate = real interest rate + inflation
Nominal interest rate + inflation = real interest rate
Nominal interest rate = real interest rate - inflation
Nominal interest rate = real interest rate / inflation
Question # 5
Bonds without maturity dates are which of the followings?
Select Correct Option:
Zero coupon bonds
Coupon securities
Consols
Preferred Bonds
Question # 6
A risk-averse investor will:
Select Correct Option:
Always prefer an investment with a lower expected return
Always prefer an investment with a certain return to one with the same expected return
but any amount of uncertainty
Always require a certain return
Always focus exclusively on the expected return
Question # 7
GDP deflator is called
Select Correct Option:
Retailer price index
Consumer price index
Producer price index
None of above
Question # 8
What will be the effect on the present value if we double the future value of the payment?
Select Correct Option:
It will decrease the value by one-half
It will increase the value by one-half
It will equally increase the value i.e. doubles the value
It will have no effect on the value
Question # 9
Government bonds called …….. Where as corporate bonds are called ……
Select Correct Option:
Come & Join Us at www.vustudents.netZero coupon bond, coupon bond
Risky bond. Risk free bond
T bill, corporate bond
Console bond, junk bonds
Question # 10
Beside default risk which one if the following factor affects the return on bond?
Select Correct Option:
Taxes
Monetary policy
Junk bonds
Debt
Question # 11
Which of the following are used to monitor and stabilize the economy?
Select Correct Option:
Stock exchanges
Commercial Banks
Central Banks
Financial institutions
Question # 12
What will be the result of the difference of real and nominal interest rate?
Select Correct Option:
The cost of borrowing
The effect of inflation
The price of bonds
The return of bonds
Question # 13
Which of the following expresses 6.5%?
Select Correct Option:
0.0065
6.50
0.650
0.0650
Question # 14
Diversification is the principle of:
Select Correct Option:
Holding more than one risk at a time
Reducing the risks we carry to just two
Creating risk to increase returns
Eliminating investments from our portfolio that have idiosyncratic risk
Question # 15
Current accounts of commercial bank lies in which money aggregate definition?
Select Correct Option:
Currency
M1
M2
M3
Question # 16
Which of the following would be considered characteristic of money?
Select Correct Option:
Come & Join Us at www.vustudents.netIt is store of value
It pays a higher return than most assets
It is in fixed supply
It is legal tender everywhere in the world
Question # 17
When the price of a bond is above face value:
Select Correct Option:
The yield to maturity will be above the coupon rate
The yield to maturity is below the coupon rate
The yield to maturity will equal zero
The yield to maturity will equal the coupon rate
Question # 19
___________ is the value today of a payment that is promised to be made in the future.
Select Correct Option:
Future value
Present value
Agreed value
None of the given options
Question # 20
Which of the following best describes default risk?
Select Correct Option:
The chance the issuer will be unable to make interest payments or repay principal
The chance the issuer will retire the debt early
The chance the issuing firm will be sold to another firm
The chance the issuer will sell more debt
Question # 21
Considering the Liquidity Premium Theory, if investors expect short term interest rates to
decrease:
Select Correct Option:
The yield curve must have a positive slope
The yield curve must be inverted
The yield curve could be flat
The slope of the yield curve should actually increase
Question # 23
Which of the following would probably NOT earn an A rating from Standard & Poor's:
Select Correct Option:
30 years bond issued by the U.S. Treasury
New vegetarian fast-food chain
90 days T-Bills issued by the U.S. Treasury
Both 30 years bond and 90 days T-Bills issued by U.S. Treasury
Question # 24
If YTM is greater than the coupon rate the price of the bond is __________.
Select Correct Option:
Greater than its face value
Lower than its face value
Equals to its face value
All of the given options
Question # 25
If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value
Come & Join Us at www.vustudents.netwould be:
Select Correct Option:
$94.00
$94.33
$95.25
$96.10
Question # 26
Time affects the value of which of the following?
Select Correct Option:
Financial Instruments
Financial Markets
Financial Institutions
Central Banks
Question # 27
A risk-averse investor will:
Select Correct Option:
Always prefer an investment with a lower expected return
Always prefer an investment with a certain return to one with the same expected
return but any amount of uncertainty
Always require a certain return
Always focus exclusively on the expected return
Question # 28
Investors will hold higher compensation for the __________ investment.
Select Correct Option:
More risky
Less risky
Fixed return
Less dividend
Question # 29
An increase in the expected inflation shifts the bond demand to the _________.
Select Correct Option:
Right
Left
No change
All of the given options
Question # 30
You receive a check for $100 two years from today. The discounted present value of this
$100 is:
Select Correct Option:
$100/(1+i)
$100*(1+i)2
$100*(1+i)
$100/(1+i)2
Question # 31
Which of the following is NOT an example of financial institutions?
Select Correct Option:
Banks
Securities firms
Stock exchanges
Come & Join Us at www.vustudents.netInsurance companies
Question # 32
The bond rating of a security refers to which of the followings?
Select Correct Option:
The size of the coupon payment relative to the face value
The return a holder is likely to receive
The likelihood the lender/borrower will be repaid by the borrower/issuer
The years until the bond matures
Question # 33
Yield curves show which of the followings?
Select Correct Option:
The relationship between bond interest rates (yields) and bond prices
The relationship between liquidity and bond interest rates (yields)
The relationship between risk and bond interest rates (yields)
The relationship between time to maturity and bond interest rates (yields)
Question # 34
Which of the following best expresses the proceeds a lender receives from a simple loan?
Select Correct Option:
PV(1 + i)
FV/i
PV + i
PV/i
Question # 35
When the price of a bond is above face value:
Select Correct Option:
The yield to maturity will be above the coupon rate
The yield to maturity is below the coupon rate
The yield to maturity will equal zero
The yield to maturity will equal the coupon rate
Question # 36
What will the yield curve look like if future short-term interest rates are expected to rise
sharply?
Select Correct Option:
It will steeply slope upward
It will be horizontal
It will slightly slope upward
It will slope downward
Question # 37
When a bond becomes more liquid relative to its alternatives, the demand curve for bonds
shifts to the:
Select Correct Option:
Right
Left
No change
None of the given options
Question # 38
Debt instruments is categorized on the basis of which one of the following?
Select Correct Option:
Loan maturity period
Come & Join Us at www.vustudents.netInterest rates
Mode of payment of interest
Amount of the debt taken
Question # 39
Expectation hypothesis focuses on which one of the following?
Select Correct Option:
Risk premium
Risk free interest rate
Yield to maturity
None of the given options
Reference:
Expectations Hypothesis
The risk-free interest rate can be computed, assuming that there is no uncertainty about
the future
Question # 40
What characteristic of money is not included in securities characteristics
Select Correct Option:
Mean of payment
Unit of account
Store of value
Transfer of risk
Question # 41
Which one of the following is the narrowest definition of money?
Select Correct Option:
C
M1
M2
M3
Question # 42
Which one of the following is a component of wealth that is held in a readily spendable
form?
Select Correct Option:
Money
Bonds
Stocks
Income
Question # 43
A loan that is used to purchase the real estate is known as:
Select Correct Option:
Real estate loan
Home mortgages
Fixed payment loan
Home loan
Question # 44
The default premium:
Select Correct Option:
Is positive for a U.S. Treasury bond
Must always be less than 0 (zero)
Is also known as the risk spread
Come & Join Us at www.vustudents.netIs assigned by a bond rating agency
Question # 45
A graph of the term structure with YTM on Y-axis and time to maturity on X-axis is
called:
Select Correct Option:
Demand curve
Supply curve
Yield curve
Leffer curve
Question # 46
Which of the following best describes checks?
Select Correct Option:
A means of payment
Money
Not a promise of any kind
Not acceptable by the U.S. Government for payment of taxes.
Question # 47
With direct finance we mean which of the following?
Select Correct Option:
Individuals (or firms) borrow directly from the savers
Individuals (or firms) borrow directly from banks.
Individuals deposit savings directly in banks.
Firms deposit savings directly in banks.
Question # 48
Which of the following best expresses the payment a lender receives for lending their
money for four years?
Select Correct Option:
PV(1+i)4
PV/(1 + i)4
4PV
PV/(1 - i)4
Question # 49
Which one of the following is true for the relationship between the yield of taxable and
tax exempt bond?
Select Correct Option:
Higher the tax rate wider the gap between the yield of taxable and tax exempt bond
Taxable bond yield is always greater than tax exempt bond
Higher the tax rate shorter the gap between yield of taxable and tax exempt bond
Lower the tax rate wider the gap between yield of taxable and tax exempt bond
Question # 50
In which of the following bonds we may ignore the default risk?
Select Correct Option:
Privately issued bonds
Government issued bonds
Bonds issued by Corporate
All of the given options
Question # 51
Which of the following is the least liquid of all?
Select Correct Option:
Come & Join Us at www.vustudents.netMoney
Bonds & stocks
Lands & buildings
None of the given options
Question # 52
What is primary cause of inflation?
Select Correct Option:
Energy crises
Gold reserve shortage
Issue excessive currency
Rising cost of input
Question # 53
The risk premium for an investment:
Select Correct Option:
Increases with risk
Is a fixed amount added to the risk free return
Is negative for U.S. Treasury Securities
Is negative for risk averse investors
Reference:
Page 35
Question # 54
Which of the following is the measure of likelihood that an event will occur?
Select Correct Option:
Risk
Probability
Frequency
Outcom
Question # 55
Which of the following is NOT included in the definition of M1?
Select Correct Option:
Traveler’s checks
Demand deposits
Currency
Gold coins issued by treasury
Question # 56
The liquidity premium theory suggests that yield curves should usually be:
Select Correct Option:
Up-sloping
Inverted
Flat
Up-sloping through year 1, then flat thereafter
Question # 57
If the tax rate is higher than gap between yield on taxable and tax exempt bond?
Select Correct Option:
Shorter
Wider
No gap
Any thing can be possible
Question # 58
Come & Join Us at www.vustudents.netThe reason for the government to get involved in the financial system is to:
Select Correct Option:
Protect investors
Ensure the stability of the financial system
Protect bank customers from monopolistic exploitation
All of the given options
Reference:
Page92
Question # 59
Financial instruments are evolved just as __________.
Select Correct Option:
Currency
Stock
Bond
Commodity
Question # 60
The longer the time (n) until the payment:
Select Correct Option:
The lower the present value
The higher the present value because time is valuable
The lower must be the interest rate
Time has no effect on present value
Question # 61
Core principles of Money and Banking include each of the following except?
Select Correct Option:
People act rationally
Time has value
Information is the basis for decisions
Risk requires compensation
Question # 62
Which of the following would be included in a definition of risk?
Select Correct Option:
Risk is a not measure of uncertainty
Risk is unavoidable
Risk doesn't have a time horizon
Risk seldom involves some future payoff
Question # 63
The lowest rating for an investment grade bond assigned by Moody's is:
Select Correct Option:
BBB
ABB
Baa
Aaa
Question # 64
The concept of limited liability says a stockholder of a corporation:
Select Correct Option:
Is liable for the corporation's liabilities, but nothing more
Cannot receive dividends that exceed their investment
Cannot own more than fiver percent of any public corporation
Come & Join Us at www.vustudents.netCannot lose more than their investment
Question # 65
Coupon bonds make the annual payments which are called as _________.
Select Correct Option:
Annual payments
Fixed payments
Coupon payments
Maturity payment
Question # 66
The current yield on a $10,000, 5% coupon bond selling for $8,000 is:
Select Correct Option:
5.00%
6.25%
7.50%
8.00%
Question # 67
Home loans and car loans are the example of which one of the following?
Select Correct Option:
Mortgage loans
Pledge
Fixed Payment Loans
Ordinary loan
Question # 68
What is difference between warrant and check?
Select Correct Option:
Check is cleared from bank but warrant is not cleared by bank
Check is not necessarily pay able on demand but warrant is payable on demand
Warrant is not necessarily pay able on demand but check is payable on demand
None of above
Question # 69
The slope of the yield curve seems to predict the performance of the economy with:
Select Correct Option:
Usually 3 months lag
Usually two years lag
Usually within few weeks
Usually one year lag
Question # 70
What is true about the relationship between standard deviation and risk?
Select Correct Option:
Greater the standard deviation greater will be the risk
Greater the standard deviation lower will be the risk
Greater the standard deviation risk remains the same
No relation between them
Question # 71
If YTM equals the coupon rate the price of the bond is ________.
Select Correct Option:
Greater than its face value
Lower than its face value
Equals to its face value
Come & Join Us at www.vustudents.netInsufficient information
Question # 72
The Financial Systems makes it easier to trade because it:
Select Correct Option:
Facilitate Payments
Channels Funds from Savers to Borrowers
Enables Risk Sharing
All of the given options
Question # 73
Spreading involves:
Select Correct Option:
Finding assets whose returns are perfectly negatively correlated
Building a portfolio of assets whose returns move together
Investing in bonds and avoiding stocks during bad times
Adding assets to a portfolio that move independently
Question # 74
________ is the interest rate at which the present value annual reveneu equals the cost of
the investment.
Select Correct Option:
Fixed rate of interest
Internal rate of return
Variable rate of interest
Nominal rate of interest
Question # 75
The GDP deflator is calculated as_________.
Select Correct Option:
Nominal GDP/Real GDP *100
Real GDP/Nominal GDP
Nominal GDP – Real GDP
Real GDP – Nominal GDP
Question # 76
_________ is the strategy of reducing overall risk by making two investments with
opposing risks.
Select Correct Option:
Spreading the risk
Standard deviation
Hedging the risk
Variance
Question # 77
A ________ is a promise to make a series of payments on specific future date.
Select Correct Option:
Stock
Bond
Loan
Cheque
Question # 78
Which one of the following is true for financial intermediaries?
Select Correct Option:
Channel funds from savers to borrowers
Come & Join Us at www.vustudents.netGreatly enhance economic efficiency
Have been an source of many financial innovations
All of the given options
Question # 79
There is no guarantee that a bond issuer will make the promised payments is known as
which one of the following?
Select Correct Option:
Default risk
Inflation risk
Interest rate risk
Systematic risk
Question # 80
If a bond sells at a premium, where price exceeds face value, then we would expect to
see:
Select Correct Option:
Market interest rate the same as the coupon rate
Market interest rates above the coupon rate
Market interest rates below the coupon rate
All of the given options
Question # 81
One of major disadvantage of fiat money is
Select Correct Option:
Only few resources are needed
It may be theft easily
Normally it is obsolete quickly
Pressure or corrupt government may print excessive money
Question # 82
The price of a coupon bond can best be described as:
Select Correct Option:
The present value of the face value
The future value of the coupon payments and the face value
The present value of the coupon payments
Both The present value of the face value and of the coupon payments
Question # 83
The Segmented Markets Theory of term structure suggests that:
Select Correct Option:
Investors have strong pReferences for bonds of a particular maturity
Investors have no pReference for short-term bonds over long-term bonds, or vice versa
Interest rates on long-term bonds strongly influence the demand for short-term bonds
Bonds of different maturities are perfect substitutes for each other
Question # 84
Which of the following patterns of term structure occur most frequently?
Select Correct Option:
Ascending yield curve
Descending yield curve
Flat yield curve
Humped yield curve
Question # 85
Economic development measured by
Come & Join Us at www.vustudents.netSelect Correct Option:
Real GDP/population
Real GDP/ nominal GDP
Real GDP/Real GNP
None of above
Reference:
Financial Development is measured by the commonly used ratio of broadly defined
money to GDP. Economic development is measured by the real GDP per capita.
Question # 86
Sum of all the probabilities should be equal to which one of the following?
Select Correct Option:
Zero
One
Two
Three
Question # 87
A financial instrumnet in which a borrower obtains resources from a lender immediately
in exchange for a promised set of payments in the future is called as _________.
Select Correct Option:
Bond
Bank Loan
Home Mortgage
Futures Contract
Question # 88
A brilliant example of risk require compensation
Select Correct Option:
Taking a safe debt
Insurance policy
A person work in office
None of above
Question # 89
An increase in wealth shifts the demand for bonds to the ________.
Select Correct Option:
Left
Right
No change
All of the given options
Question # 90
Internal Rate of Return is _______.
Select Correct Option:
Present value of investment
Future value of its investment +Cost of investment
Cost of investment
Present value of investment + cost of investment
Question # 91
Previously financial markets are located in which of the following?
Select Correct Option:
Coffee houses or Taverns
Stock exchanges
Come & Join Us at www.vustudents.netBazaar
Coffee houses and Stock exchanges
Question # 92
At which money aggregate definitions relation is stronger with inflation and growth
Select Correct Option:
M1
M2
M3
None of above
Question # 93
The shape of the yield curve is usually:
Select Correct Option:
Upward sloping
Downward sloping
Upward sloping for shorter maturities and downward sloping for longer maturities
Flat
Question # 94
When the auto manufacturing industry does poorly due to a recession this is an example
of:
Select Correct Option:
Idiosyncratic risk
Systematic risk
Risk premium
Unique risk
Question # 95
Mr A need 1000000 to buy a car for his personal use he contact with bank that give his
loan this would be called
Select Correct Option:
Direct finance
Indirect finance
Facilitate payment
All of above
Question # 96
Which one of the following is NOT true for the expectation hypothesis?
Select Correct Option:
Risk free interest rate can be computed
There is uncertainty in the future
Identifying yield of bond today that will be available next year
It focuses on risk free interest rate and the risk premium
Question # 97
Mark borrows $8,000 and then repays $8,600 to ABC bank. What is the amount of
interest in this payment?
Select Correct Option:
$600
$500
$400
$100
Question # 98
In the long run, the yield curve tends to be which of the following?
Come & Join Us at www.vustudents.netSelect Correct Option:
Upward sloping
Downward sloping
Nearly vertical
Nearly horizontal
Question # 99
Which of the following is NOT a depository financial institution?
Select Correct Option:
Credit Union
Savings and Loan
Commercial bank
Life Insurance Company
Question # 100
Which of the following best describes the relationship between Bond prices and yields?
Select Correct Option:
Move together inversely
Bond yields do not change since the coupon is fixed
Move together directly
Are independent of each other
Question # 101
According to the rule of 72 for reasonable rates of return, the time it takes to ________
the money will be t =72/i%
Select Correct Option:
Doubles
Triples
halves
 ¾
Question # 102
Which one of the following agencies assesses the default risk of different issuers?
Select Correct Option:
Insurance companies
Bond issuing
Credit rating
Recruitment agencies
Question # 103
The risk premium of a bond will:
Select Correct Option:
Higher for investment-grade bonds than for high-yield bonds
Positive but small if the risk of default is zero
Decrease when the default risk rises
Increase when the risk of default rises
Question # 104
The relationship between the price and the interest rate for a zero coupon bond is best
described as:
Select Correct Option:
Volatile
Stable
Non-existent
Inverse
Come & Join Us at www.vustudents.netQuestion # 105
Which is broadly used as money aggregate?
Select Correct Option:
M1
M2
M3
None of above
Question # 106
Which characteristic are common both in money and securities
Select Correct Option:
Transfer of risk, store of value
Unit of account, mean of payment
Mean of payment, transfer of risk
Store of value, mean of payment
Question # 107
According to the liquidity premium theory of the term structure, when the yield curve has
its usual slope, the market expects
Select Correct Option:
Short-term interest rates to rise sharply
Short-term interest rates to stay near their current levels
Short-term interest rates to drop sharply
Short-term interest rates does not change
Question # 108
What is the true relationship that exists between default risk and yield?
Select Correct Option:
Higher the default risk, higher the yield
Lower the default risk, higher the yield
Higher the default risk yield will remain constant
Lower the default risk yield will remain constant
Question # 109
Which of the following financial instruments NOT used primarily as store of value?
Select Correct Option:
Options
Stocks
Home mortgage
Bonds
Question # 110
Which of the variable measured in point of time?
Select Correct Option:
Flow variable
Stock variable
Both flow variable and stock variable
None of above
Question # 111
A business cycle downturn shifts the bond supply to the:
Select Correct Option:
Right
Left
No change
Come & Join Us at www.vustudents.netNone of the given options
MIDTERM EXAMINATION
Spring 2009
MGT411- Money & Banking
Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following are without maturity dates?
► Zero coupon bonds
► Coupon securities
► Consols
► Preferred Bonds
Question No: 2 ( Marks: 1 ) - Please choose one
Which of the following institution takes direct deposit from customer and gives loan to
customer directly?
► Zarai Tarkaytee Bank LTD
► Soneri Bank
► Khushali Bank
► Credit union
Question No: 3 ( Marks: 1 ) - Please choose one
Mr. Ghazanfar obtains a home improvement loan from Allied Bank.This loan is:
► Mr. Ghazanfar’s asset and the bank's liability
► Mr. Ghazanfar 's asset, but the liability belongs to the bank's depositors
► Mr. Ghazanfar 's liability and an asset for the bank
► Both Mr. Ghazanfar's and bank's liability
Question No: 4 ( Marks: 1 ) - Please choose one
Components of M1 DO NOT include which one of the following?
► Currency in the hands of public
► Demand deposits
► Small denominations time deposit
► Checkable deposits
Question No: 5 ( Marks: 1 ) - Please choose one
Which of the following has created an opportunity for small investors to participate in
economic activity?
► Mutual funds
► Small corporations
► Stock brokers
► Small investors cannot take part in economic activity
Question No: 6 ( Marks: 1 ) - Please choose one
Which of the following is NOT an example of financial institutions?
► Bank
► Securities firm
► Stock exchange
► Insurance company
Question No: 7 ( Marks: 1 ) - Please choose one
Requiring a large deductible on the part of an insured is one way insurers treat the
problem of:
► Free-riding
► Moral hazard
► Adverse selection
Come & Join Us at www.vustudents.net► The Lemons market
Question No: 8 ( Marks: 1 ) - Please choose one
In a financial market where information is symmetric:
► The same information would be known by both parties in a transaction
► One party to a transaction knows information the other party does not
► The ability to obtain information is available to only one party
► All of the given options
Question No: 9 ( Marks: 1 ) - Please choose one
When stock prices reflect fundamental values:
► All investors will experience capital gains
► All companies will have an easier task of obtaining financing for investment
projects
► The allocation of resources will be more efficient
► The overall level of the stock market should move higher continuously
Question No: 10 ( Marks: 1 ) - Please choose one
An index number is a valuable tool because:
► The number by itself provides all of the useful information needed
► The index provides a meaningful measurement scale to calculate percentage
changes
► The index is more stable than the data it reflects
► It does not require any calculations to compute percentage changes
Question No: 11 ( Marks: 1 ) - Please choose one
The concept of limited liability says a stockholder of a corporation:
► Is liable for the corporation's liabilities, but nothing more
► Cannot receive dividends that exceed their investment
► Cannot own more than fiver percent of any public corporation
► Cannot lose more than their investment
Question No: 12 ( Marks: 1 ) - Please choose one
Other things remaining equal, the liquidity premium theory is based upon the idea that
 .____________
► Investors prefer long-term bonds
► Investors prefer short-term bonds
► Investors are indifferent between short-term and long-term bonds
► Investors prefer intermediate-term bonds
Question No: 13 ( Marks: 1 ) - Please choose one
Which one of the following is NOT true for the expectation hypothesis?
► Risk free interest rate can be computed
► There is uncertainty in the future
► Identifying yield of bond today that will be available next year
► It focuses on risk free interest rate and the risk premium
Question No: 14 ( Marks: 1 ) - Please choose one
A graph of the term structure with YTM on Y-axis and time to maturity on X-axis is
called:
► Demand curve
► Supply curve
► Yield curve
► Leffer curve
Question No: 15 ( Marks: 1 ) - Please choose one
Come & Join Us at www.vustudents.netBond A Bond B
Maturity 5 years 10 years
Default risk 5% 5%
Tax rate 30% 30%
Yield ? ?
See the above table and choose the one option which is NOT correct about the yield of
Bond A and Bond B?
► Bond tax status and default rate are not the only factors that affect the yield
of the two bonds
► Bond A has different yield from that of Bond B because of change in maturity
period
► Yields of both the bonds are not disturbed by maturity period
► Yield of Bond B depends on what people expect to happen in years to come
Question No: 16 ( Marks: 1 ) - Please choose one
The____________ are an assessment of the creditworthiness of the corporate issuer.
► Bond yield
► Bond ratings
► Bond risk
► Bond price
Question No: 17 ( Marks: 1 ) - Please choose one
The bond rating of a security refers to which of the followings?
► The size of the coupon payment relative to the face value
► The return a holder is likely to receive
► The likelihood the lender/borrower will be repaid by the borrower/issuer
► The years until the bond matures
Question No: 18 ( Marks: 1 ) - Please choose one
An increase in the expected inflation shifts the bond demand to the _________
► Right
► Left
► No change
► None of the given options
Question No: 19 ( Marks: 1 ) - Please choose one
The current yield on a $10,000, 5% coupon bond selling for $8,000 is:
► 6.25%
► 7.50%
► 8.00%
► 5.00%
Question No: 20 ( Marks: 1 ) - Please choose one
If the annual interest rate is 6% (.06); the price of a one year Treasury bill would be:
► $94.00
► $94.33
► $95.25
► $96.10
Question No: 21 ( Marks: 1 ) - Please choose one
The return on holding a bond till its maturity is called:
► Coupon rate
► Yield to maturity
► Current yield
Come & Join Us at www.vustudents.net► Fixed return
Question No: 22 ( Marks: 1 ) - Please choose one
Which of the following best describes the relationship between Bond prices and yields?
► Move together directly
► Independent of each other
► Move together inversely
► Bond yields do not change since the coupon is fixed
Question No: 23 ( Marks: 1 ) - Please choose one
Mr. A has a Treasury bill with a maturity period of 6 months where as Mr. B has a bond
with a maturity period of 1 year. Which of the following statement is NOT true for this
situation?
► Mr. A has paid less price for his bond than Mr. B
► Mr. A and Mr. B is a holder of zero coupon bond
► Mr. A will receive payment at the end of the maturity period
► Mr. B will receive the payment at the end of the maturity period
Question No: 24 ( Marks: 1 ) - Please choose one
What is true relationship between return and risk?
► Lower the risk greater the return
► Greater the risk greater the return
► Greater the risk no change in return
► No relationship between them
Question No: 25 ( Marks: 1 ) - Please choose one
Sum of all the probabilities should be equal to which one of the following?
► Zero
► One
► Two
► Three
Question No: 26 ( Marks: 1 ) - Please choose one
_________ measures the probability of worst outcome in any investment project.
► Variance
► Standard deviation
► Value at risk
► Hedging
Question No: 27 ( Marks: 1 ) - Please choose one
The variance is generally less useful than the standard deviation on which of the
following reasons?
► Variance is easier to calculate
► Variance is a measure of risk, whereas standard deviation is a measure of return
► Variance isn't calculated in the same units as payoffs where as standard
deviation is
► Both are equally useful
Question No: 28 ( Marks: 1 ) - Please choose one
A credit market instrument that pays the owner a fixed coupon payment every year until
the maturity date and then repays the face value is called:
► Simple loan
► Fixed-payment loan
► Coupon bond
► Discount bond
Come & Join Us at www.vustudents.netQuestion No: 29 ( Marks: 1 ) - Please choose one
Which of the following provides the greatest incentive to borrow?
► A high real interest rate
► A low real interest rate
► A high nominal interest rate
► A low nominal interest rate
Question No: 30 ( Marks: 1 ) - Please choose one
An investment carrying a current cost of $130,000 is going to generate $70,000 of
revenue for each of the next three years. To calculate the internal rate of return we need
to:
► Calculate the present value of each of the $70,000 payments and multiply these
and set this equal to $130,000
► Take the present value of $210,000 for three years from now and set this equal to
$130,000
► Set the sum of the present value of $70,000 for each of the next three years
equal to $130,000
► Subtract $130,000 from $210,000 and set this difference equal to the interest rate
Question No: 31 ( Marks: 1 ) - Please choose one
A borrower is promised a $100 payment (including interest) one year from today. If the
lender has an 8% opportunity cost of money, he should be willing to accept what amount
today?
► Rs.100.00
► Rs.108.20
► Rs.92.59
► Rs.96.40
Question No: 32 ( Marks: 1 ) - Please choose one
Which one of the following is NOT an example of Centralized exchange?
► New York Stock Exchange
► NASDAQ
► Large exchanges in London
► Large exchanges in Tokyo
Question No: 33 ( Marks: 1 ) - Please choose one
Financial intermediaries provide small lender-savers all of the following advantages
EXCEPT:
► Greater liquidity
► Lower transaction cost
► Lower risk
► Higher return
Question No: 34 ( Marks: 1 ) - Please choose one
The shares of McDonald Corporation stock are examples of:
► A standardized financial instrument
► A standardized financial liability instrument
► A non-standardized financial instrument
► A means of payment
Question No: 35 ( Marks: 1 ) - Please choose one
Which of the following statements is NOT correct?
► Banks are financial intermediaries
► Financial intermediary involves in giving loan and accepting deposit
Come & Join Us at www.vustudents.net► All financial intermediaries are insurance companies
► Financial intermediaries increase the efficiency of the economy
Question No: 36 ( Marks: 1 ) - Please choose one
Economic research shows:
► There is a strong inverse correlation between financial market development and
economic growth
► There is weak relation between financial market development and economic
growth around 0.25
► There is a relatively strong positive correlation between financial market
development and economic growth
► There isn't any correlation between financial market development and economic
growth
Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following statements is correct?
► If you can buy the same goods this year as you bought last year with less money
the money supply decreased.
► To purchase the same goods today that were purchased one year ago
requires more money, there must have been inflation
► To purchase the same goods today as one year ago requires less money, the
money supply must have increased
► To purchase the same goods today that were purchased one year ago requires the
same amount of money, there must have been inflation
Question No: 38 ( Marks: 1 ) - Please choose one
The one that you get from bank when you open your checking account is __________.
► Debit card
► Credit card
► Store value card
► Customer card
Question No: 39 ( Marks: 1 ) - Please choose one
Wealth can be held in number of other forms but we use to hold money because of which
one of the following reason?
► It is the only mode of payment
► It is an asset
► It is most liquid
► It is the only store of value
Question No: 40 ( Marks: 1 ) - Please choose one
Which of the following are used to monitor and stabilize the economy?
► Stock exchanges
► Commercial Banks
► Central Banks
► Financial institutions
Question No: 41 ( Marks: 10 )
“A financial instrument is a real or virtual document representing a legal agreement
involving some sort of monetary value.” Discuss further on financial instruments by
giving examples. Point out some of its uses and important characteristics.
ANSWER: Financial Instrument: Financial instrument is a written obligation of one
party to transfer something of value to anther party at a future date under certain
conditions.
Come & Join Us at www.vustudents.net• By written obligation we mean that it is enforced by the government and this
obligation is an important feature of a financial instrument.
• The party here can be an individual, company or a government
• Future date can be specified or when some event occurs.
Examples: Stocks, bonds, insurance etc are examples of financial instruments.
Characteristics of Financial Instruments: There are certain characteristics of financial
instruments.
1. Standardization: It is a standardized agreement which enables reduction in costs
of complexity. So because of this most financial instruments today are similar.
2. Communicate Information: Provide certain important information about the
issuer which otherwise would have been difficult to gather for the lenders.
Value of Financial Instruments: The value of financial instruments depends on various
factors.
• Size: Larger the promised payment more valuable is the financial instrument.
• Timing: The sooner the payment is made increases the value of financial
instrument.
• Risk: A financial instrument is more valuable if there are greater possibilities
that payment will be made.
• Circumstances: Payments made when needed the most makes the financial
instrument more valuable.
Uses of Financial Instruments:
• Store Of Value:
Stocks: The stock holder is a part owner of the firm and receives
part of its profits.
Bonds: A form of loan which promises to make repayment in
future dates.
Bank loans: Borrowers obtains resources from lenders in
exchange of promised payments.
• Transfer of Risk:
Insurance: Takes premium to assure payment under particular
conditions (accident, death etc)
Future contracts: It is an agreement to exchange fixed quantity
of a commodity or an asset at a fixed price. Transfer risk of price
fluctuations.
Options: Gives holder the right to purchase fixed quantity of an
underlying asset at predetermined price within a specific period.
Question # 1 of 15
Saving occurs normally in ……….
Select correct option:
Early age
Middle age
Old age
None of above
Question # 2 of
What will be the result of the difference of real and nominal interest rate?
Select correct option:
The cost of borrowing
The effect of inflation
Come & Join Us at www.vustudents.netThe price of bonds
The return of bonds
Question # 3 of 15
Sum of all the probabilities should be equal to which one of the following?
Select correct option:
Zero
One
Two
Three
Question # 4 of 15
Bonds that are issued by Government are called _______.
Select correct option:
Government bond
Treasury bond
Corporate bond
Callable Bonds
Question # 5 of 15
A ________ is a promise to make a series of payments on specific future date.
Select correct option:
Stock
Bond
Loan
Cheque
Question # 6 of 15
Which of the following is the measure of likelihood that an event will occur?
Select correct option:
Risk
Probability
Frequency
Outcom
Question # 7 of 15
Economic development measured by
Select correct option:
Real GDP/population
Real GDP/ nominal GDP
Real GDP/Real GNP
None of above
Question # 8 of 15
The reason for the government to get involved in the financial system is to:
Select correct option:
Protect investors
Ensure the stability of the financial system
Protect bank customers from monopolistic exploitation
All of the given options
Question # 9 of 15
The interest rate that is involved in ___________ calculation is referred to as discount
rate
Select correct option:
Present value
Come & Join Us at www.vustudents.netFuture value
Intrinsic value
Discount value
Question # 10 of 15
The relationship between the price and the interest rate for a zero coupon bond is best
described as:
Select correct option:
Volatile
Stable
Non-existent
Inverse
Question # 11 of 15
At which money aggregate definitions relation is stronger with inflation and growth
Select correct option:
M1
M2
M3
None of above
Question # 12 of 15 ( Start time: 12:07:59 PM ) Total Marks: 1
________ is the interest rate at which the present value annual reveneu equals the cost of
the investment.
Select correct option:
Fixed rate of interest
Internal rate of return
Variable rate of interest
Nominal rate of interest
Question # 13 of 15
Which of the following is the least liquid of all?
Select correct option:
Money
Bonds & stocks
Lands & buildings
None of the given options
Question # 14 of 15
Time affects the value of which of the following?
Select correct option:
Financial Instruments
Financial Markets
Financial Institutions
Central Banks
Question # 15 of 15
The longer the time (n) until the payment:
Select correct option:
The lower the present value
The higher the present value because time is valuable
The lower must be the interest rate
Time has no effect on present value
2nd One
Question # 1 of 15
Come & Join Us at www.vustudents.netA brilliant example of risk require compensation
Select correct option:
Taking a safe debt
Insurance policy
A person work in office
None of above
Question # 2 of 15
Which of the following best describes the relationship between Bond prices and yields?
Select correct option:
Move together inversely
Bond yields do not change since the coupon is fixed
Move together directly
Are independent of each other
Question # 3 of 15
The relationship between the price and the interest rate for a zero coupon bond is best
described as:
Select correct option:
Volatile
Stable
Non-existent
Inverse
Question # 4 of 15
Which of the following are used to monitor and stabilize the economy?
Select correct option:
Stock exchanges
Commercial Banks
Central Banks
Financial institutions
Question # 5 of 15
What is true relationship between return and risk?
Select correct option:
Lower the risk greater the return
Greater the risk greater the return
Greater the risk the return will remain constant
No relationship between them
Question # 6 of 15
Which of the following would be included in a definition of risk?
Select correct option:
Risk is a not measure of uncertainty
Risk is unavoidable
Risk doesn't have a time horizon
Risk seldom involves some future payoff
Question # 7 of 15
Which of the following best expresses the proceeds a lender receives from a simple loan?
Select correct option:
PV(1 + i)
FV/i
PV + i
PV/i
Come & Join Us at www.vustudents.netQuestion # 8 of 15
Financial development measured by
Select correct option:
M1/GDP
M2/GDP
M3/DGP
All of above
Question # 10 of 15
Financial instruments are evolved just as __________.
Select correct option:
Currency
Stock
Bond
Commodity
Question # 11 of 15
Which one of the following is true for financial intermediaries?
Select correct option:
Channel funds from savers to borrowers
Greatly enhance economic efficiency
Have been a source of many financial innovations
All of the given options
Question # 12 of 15
If YTM is less than the coupon rate the price of the bond is ________.
Select correct option:
Greater than its face value
Lower than its face value
Equals to its face value
All of the given options
Question # 14 of 15
With direct finance we mean which of the following?
Select correct option:
Individuals (or firms) borrow directly from the savers
Individuals (or firms) borrow directly from banks.
Individuals deposit savings directly in banks.
Firms deposit savings directly in banks.
Question # 15 of 15 ( Start time: 12:30:33 PM ) Total Marks: 1
Mr A need 1000000 to buy a car for his personal use he contact with bank that give his
loan this would be called
Select correct option:
Direct finance
Indirect finance
Facilitate payment
All of above
MGT411 Solved MCQ
Question # 1 of 20
Bonds without maturity dates are which of the followings?
Select correct option:
Zero coupon bonds
Coupon securities
Come & Join Us at www.vustudents.netConsols
Preferred Bonds
Question # 4 of 20 ( Start time: 08:02:08 PM )
Total Marks: 1
Which of the following represents the fisher’s equation?
Select correct option:
Nominal interest rate = real interest rate + inflation
Nominal interest rate + inflation = real interest rate
Nominal interest rate = real interest rate - inflation
Nominal interest rate = real interest rate / inflation
Question # 5 of 20 ( Start time: 08:03:08 PM )
Total Marks: 1
The return on holding a bond till its maturity is called:
Select correct option:
Coupon rate
Yield to maturity
Current yield
Internal rate of return
Question # 6 of 20 ( Start time: 08:03:27 PM )
Total Marks: 1
Wider the range of outcome wider will be the ___________.
Select correct option:
Risk
Profit
Probability
Lose
Question # 7 of 20 ( Start time: 08:04:42 PM )
Total Marks: 1
The interest rate that is involved in _____________ calculation is referred to as discount rate
Select correct option:
Present value
Future value
Intrinsic value
Discount value
Question # 8 of 20 ( Start time: 08:06:05 PM )
Total Marks: 1
Bonds that are issued by Government are called _________.
Select correct option:
Government bond
Treasury bond
Corporate bond
Callable Bonds
Question # 13 of 20 ( Start time: 08:13:26 PM )
Total Marks: 1
If a bond sells at a premium, where price exceeds face value, then we would expect to see:
Select correct option:
Market interest rate the same as the coupon rate
Market interest rates above the coupon rate
Market interest rates below the coupon rate
All of the given options
Question # 14 of 20 ( Start time: 08:14:49 PM )
Total Marks: 1
With direct finance we mean which of the following?
Select correct option:
Individuals (or firms) borrow directly from the savers
Individuals (or firms) borrow directly from banks.
Individuals deposit savings directly in banks.
Firms deposit savings directly in banks.
Question # 15 of 20 ( Start time: 08:16:14 PM )
Come & Join Us at www.vustudents.netTotal Marks: 1
Investors will hold higher compensation for the __________ investment.
Select correct option:
More risky
Less risky
Fixed return
Less dividend
Question # 16 of 20 ( Start time: 08:17:16 PM )
Total Marks: 1
Which of the following best expresses the proceeds a lender receives from a simple loan?
Select correct option:
PV(1 + i)
FV/i
PV + i
PV/i
Question # 17 of 20 ( Start time: 08:18:11 PM )
Total Marks: 1
A financial instrument in which a borrower obtains resources from a lender immediately in
exchange for a promised set of payments in the future is called as ___________.
Select correct option:
Bond
Bank Loan
Home Mortgage
Futures Contract
Question # 18 of 20 ( Start time: 08:19:18 PM )
Total Marks: 1
According to the rule of 72 for reasonable rates of return, the time it takes to __________ the
money will be t =72/i%
Select correct option:
Doubles
Triples
halves
3/4
Question # 19 of 20 ( Start time: 08:19:37 PM )
Total Marks: 1
The return on the bond is equal to which of the following?
Select correct option:
Coupon rate + rate of capital gains
Current yield + rate of capital gains
Coupon rate - rate of capital gains
Current yield - rate of capital gains
Question # 20 of 20 ( Start time: 08:21:06 PM )
Total Marks: 1
A loan that is used to purchase the real estate is known as:
Select correct option:
Real estate loan
Home mortgages
Fixed payment loan
Home loan
Question # 2 of 20
When a bond becomes more liquid relative to its alternatives, the demand curve for bonds shifts
to the:
Select correct option:
Right
Left
No change
None of the given options
Question # 4 of 20
Consumer Price Index (CPI) measures the:
Come & Join Us at www.vustudents.netSelect correct option:
Changes in the quantity
Changes in the prices
Changes in the cost
Changes in the profit
Question # 5 of 20
A risk-averse investor will:
Select correct option:
Always prefer an investment with a lower expected return
Always prefer an investment with a certain return to one with the same expected return but
any amount of uncertainty
Always require a certain return
Always focus exclusively on the expected return
Question # 9 of 20
Total Marks: 1
Which of the following best represent the true relationships between interest rates and bond
prices?
Select correct option:
Move in the same direction
Move in opposite direction
Sometimes move in the same direction, some times in opposite direction
Have no relationship with each other (i.e. they are independent)
Question # 10 of 20
Total Marks: 1
Which one of the following is a component of wealth that is held in a readily spendable form?
Select correct option:
Money
Bonds
Stocks
Income
Question # 11 of 20
Total Marks: 1
The return on the bond is equal to which of the following?
Select correct option:
Coupon rate + rate of capital gains
Current yield + rate of capital gains
Coupon rate - rate of capital gains
Current yield - rate of capital gains
Question # 13 of 20 ( Start time: 08:41:14 PM )
Time affects the value of which of the following?
Select correct option:
Financial Instruments
Financial Markets
Financial Institutions
Central Banks
Question # 14 of 20
Total Marks: 1
Which of the following statement is true about the relation ship between bond ,coupon payment
and interest?
Select correct option:
Coupon payments fall, the interest rate falls, and Bond price will rise
Coupon payments rises, the interest rate falls, and Bond price will rise
Coupon payments fall, the interest rate falls, and Bond price will fall
Coupon payments rise, the interest rate falls, and Bond price will fall
Question # 15 of 20
Total Marks: 1
The current yield on a $10,000, 5% coupon bond selling for $8,000 is:
Select correct option:
5.00%
Come & Join Us at www.vustudents.net6.25%
7.50%
8.00%
solution = coupon payment/price (so coupon payment 5%of 10,000 = 500)
= 500/8000 = .0625 *100 = 6.25%
Question # 19 of 20
Total Marks: 1
There is no guarantee that a bond issuer will make the promised payments is known as which
one of the following?
Select correct option:
Default risk
Inflation risk
Interest rate risk
Systematic risk
Question # 20 of 20
Total Marks: 1
What will be the result of the difference of real and nominal interest rate?
Select correct option:
The cost of borrowing
The effect of inflation
The price of bonds
The return of bonds
Question # 1 of 20
The Financial Systems makes it easier to trade because it:
Select correct option: Facilitate Payments
Channels Funds from Savers to Borrowers
Enables Risk Sharing
All of the given options
Question # 2 of 20
The process of financial intermediation:
Select correct option:
Creates a net cost to an economy but is unavoidable
Is used primarily in underdeveloped countries
Is always used when a borrower needs to obtain funds
Increases the economy's ability to produce
Question # 3 of 20
What is true relationship between return and risk?
Select correct option:
Lower the risk greater the return
Greater the risk greater the return
Greater the risk the return will remain constant
Question # 4 of 20
Financial instruments are evolved just as ____________.
Select correct option:
Currency
Stock
Bond
Commodity
Question # 5 of 20
Beside default risk which one if the following factor affects the return on bond?
Select correct option:
Taxes
Come & Join Us at www.vustudents.netMonetary policy
Junk bonds
Debt
The second important factor that affects the return on a bond is taxes
Question # 7 of 20 ( Start time: 06:31:33 PM ) Total Marks: 1
Which of the following is the measure of likelihood that an event will occur?
Select correct option:
Risk
Probability
Frequency
Question # 8 of 20
According to the liquidity premium theory of the term structure, when the yield
curve has its usual slope, the market expects
Select correct option:
Short-term interest rates to rise sharply
Short-term interest rates to stay near their current levels
Short-term interest rates to drop sharply
Short-term interest rates does not change
Question # 9 of 20 Home loans and car loans are the example of which one of
the following?
Select correct option:
Mortgage loans
Pledge
Fixed Payment Loans
Fixed Payment Loans
They promise a fixed number of equal payments at regular intervals
Home mortgages and car loans are examples of fixed payment loans
Question # 10 of 20
Which one of the following is the procedure of finding out the Present Value
(PV)?
Select correct option:
Discounting
Compounding
Time value of money
Bond pricing
Question # 12 of 20
Considering the Liquidity Premium Theory, if investors expect short term interest
rates to decrease:
Select correct option:
The yield curve must have a positive slope
The yield curve must be inverted
The yield curve could be flat
The slope of the yield curve should actually increase
Question # 14 of 20
Most of the people among us are ___________.
Select correct option:
Risk lovers
Risk enhancers
Risk averse
Come & Join Us at www.vustudents.netRisk tolerating
Question # 15 of 20
A risk-averse investor will:
Select correct option:
Always prefer an investment with a lower expected return
Always prefer an investment with a certain return to one with the same
expected return but any amount of uncertainty
Always require a certain return
Always focus exclusively on the expected return
Question # 16 of 20
The liquidity premium theory suggests that yield curves should usually be:
Select correct option:
Up-sloping
Inverted
Flat
Up-sloping through year 1, then flat thereafter
Wider the range of outcome wider will be the ___________.
Select correct option:
Risk
Profit
Probability
Measuring Risk
Most of us have an intuitive sense for risk and its measurement;
The wider the range of outcomes the greater the risk
The return on holding a bond till its maturity is called:
Coupon rate
Yield to maturity
Current yield
Fixed return
Question # 20 of 20
If information in a financial market is asymmetric, this means:
Select correct option:
Borrowers and lenders have perfect information
Borrowers would have more information than lenders
Borrowers and lenders have the same information
Lenders lack any information
According to the rule of 72 for reasonable rates of return, the time it takes to __________ the
money will be t =72/i%
Select correct option:
Doubles
Triples
Halves
3/4
Stock market bubbles can lead to:
Select correct option:
An inefficient allocation of resources
Stock market crashes
Patterns of volatile returns from the stock market
All of the given options
Which one of the following is true for the relationship between the yield of taxable and tax exempt
bond?
Come & Join Us at www.vustudents.netSelect correct option:
Higher the tax rate wider the gap between the yield of taxable and tax exempt bond
Taxable bond yield is always greater than tax exempt bond
Higher the tax rate shorter the gap between yield of taxable and tax exempt bond
Lower the tax rate wider the gap between yield of taxable and tax exempt bond
change
The Dividend-Discount Model of stock valuation:
Select correct option:
Takes the annual dividend, adds it to the expected future selling price and divides by the number
of years to get the current price
Takes the net present value of expected dividends and add it to the future sale price of the stock
Takes the net present value of the expected future price of the stock and add the annual dividend
Is an application of the net present value formula
In which of the following bonds we may ignore the default risk?
Select correct option:
Privately issued bonds
Government issued bonds
Bonds issued by Corporate
All of the given options
The slope of the yield curve seems to predict the performance of the economy with:
Select correct option:
Usually 3 months lag
Usually two years lag
Usually within few weeks
Usually one year lag
The GDP deflator is calculated as___________.
Select correct option:
Nominal GDP/Real GDP *100
Real GDP/Nominal GDP
Nominal GDP – Real GDP
Real GDP – Nominal GDP
What is true about the relationship between standard deviation and risk?
Select correct option:
Greater the standard deviation greater will be the risk
Greater the standard deviation lower will be the risk
Greater the standard deviation risk remains the same
No relation between them
The concept of limited liability says a stockholder of a corporation:
Select correct option:
Is liable for the corporation's liabilities, but nothing more
Cannot receive dividends that exceed their investment
Cannot own more than fiver percent of any public corporation
Cannot lose more than their investment
Which of the following best describes the relationship between Bond prices and yields?
Select correct option:
Move together inversely
Bond yields do not change since the coupon is fixed
Move together directly
Are independent of each other
Which of the following best expresses the payment a lender receives for lending their money for
four years?
Select correct option:
PV(1+i)4
PV/(1 + i)4
4PV
PV/(1 - i)4
If YTM is greater than the coupon rate the price of the bond is __________.
Select correct option:
Greater than its face value
Come & Join Us at www.vustudents.netLower than its face value
Equals to its face value
All of the given options
Bond Price < Face Value:
Coupon Rate < Current Yield < Yield to Maturity
Question # 1
The____________ are an assessment of the creditworthiness of the corporate
issuer.
Select correct option:
Bond yield
Bond price
Bond risk
Bond ratings
Bond price
Question # 2
Which of the following statement is true for the given sentence, "that tax affects
the bond return"?
Select correct option:
Because only interest income they receive from bond is taxable
Because principal amount and interest income they receive from bond is taxable
Because bond holders are taxpayers
Because all bond is sold with a condition that tax will be deducted from its return
The second important factor that affects the return on a bond is taxes
Bondholders must pay income tax on the interest income they receive from
privately issued
Question # 3
The relationship between the price and the interest rate for a zero coupon bond
is best described as:
Select correct option:
Volatile
Stable
Non-existent
Inverse
Question # 4
When stock prices reflect fundamental values:
Select correct option:
All investors will experience capital gains
All companies will have an easier task of obtaining financing for investment
projects
The allocation of resources will be more efficient
The overall level of the stock market should move higher continuously
Question # 5
Coupon bonds make the annual payments which are called as ___________.
Select correct option:
Annual payments
Fixed payments
Coupon payments
Maturity payment
Question # 6
Come & Join Us at www.vustudents.netIf information in a financial market is asymmetric, this means:
Select correct option:
Borrowers and lenders have perfect information
Borrowers would have more information than lenders
Borrowers and lenders have the same information
Lenders lack any information
Question # 7
If YTM equals the coupon rate the price of the bond is __________.
Select correct option:
Greater than its face value
Lower than its face value
Equals to its face value
Insufficient information
Question # 8
The Financial Systems makes it easier to trade because it:
Select correct option:
Facilitate Payments
Channels Funds from Savers to Borrowers
Enables Risk Sharing
All of the given options
Question # 9 of
Debt instruments is categorized on the basis of which one of the following?
Select correct option:
Loan maturity period
Interest rates
Mode of payment of interest
Amount of the debt taken
Question # 10
The return on holding a bond till its maturity is called:
Select correct option:
Coupon rate
Yield to maturity
Current yield
Internal rate of return
Question # 11
Which of the following are used to monitor and stabilize the economy?
Select correct option:
Stock exchanges
Commercial Banks
Central Banks
Financial institutions
Question # 12
Previously financial markets are located in which of the following?
Select correct option:
Coffee houses or Taverns .
Stock exchanges
Bazaar
Coffee houses and Stock exchanges
Financial Markets
Come & Join Us at www.vustudents.netTo buy and sell financial instruments quickly and cheaply
Evolved from coffeehouses to trading places (Stock exchanges) to electronic
networks
Transactions are much more cheaper now
Markets offer a broader array of financial instruments than were available even
50 years ago
Question # 13
Requiring a large deductible on the part of an insured is one way insurers treat
the problem of:
Select correct option:
Free-riding
Moral hazard
Adverse selection
The Lemons market
Question # 14
Which one of the following is the procedure of finding out the Present Value
(PV)?
Select correct option:
Discounting
Compounding
Time value of money
Bond pricing
Question # 15
_____________ are organized to eliminate the need of costly information
gathering.
Select correct option:
Central bank
Commercial banks
Stock exchanges
Insurance companies
Question # 16
With direct finance we mean which of the following?
Select correct option:
Individuals (or firms) borrow directly from the savers
Individuals (or firms) borrow directly from banks.
Individuals deposit savings directly in banks.
Firms deposit savings directly in banks.
Question # 17
Yield curves show which of the followings?
Select correct option:
The relationship between bond interest rates (yields) and bond prices
The relationship between liquidity and bond interest rates (yields)
The relationship between risk and bond interest rates (yields)
The relationship between time to maturity and bond interest rates (yields)
Question # 18
In a financial market where information is symmetric:
Select correct option:
The same information would be known by both parties in a transaction
One party to a transaction knows information the other party does not
Come & Join Us at www.vustudents.netThe ability to obtain information is available to only one party
All of the given options
Question # 19
Other things remaining equal, the liquidity premium theory is based upon the idea
that ____________.
Select correct option:
Investors prefer long-term bonds
Investors prefer short-term bonds
Investors are indifferent between short-term and long-term bonds
Investors prefer intermediate-term bonds
Question # 20
Spreading involves:
Select correct option:
Finding assets whose returns are perfectly negatively correlated
Building a portfolio of assets whose returns move together
Investing in bonds and avoiding stocks during bad times
Adding assets to a portfolio that move independently
Question # 1 of 20 ( Start time: 05:44:09 PM ) Total Marks: 1
___________ is the strategy of reducing overall risk by making two investments
with opposing risks.
Select correct option:
Spreading the risk
Standard deviation
Hedging the risk
Variance
Question # 2 of 20 ( Start time: 05:44:45 PM ) Total Marks: 1
The lowest rating for an investment grade bond assigned by Moody's is:
Select correct option:
BBB
ABB
Baa
Aaa
Which one of the following is the narrowest definition of money?
Select correct option:
C
M1
M2
M3
Question # 4 of 20 ( Start time: 05:46:15 PM ) Total Marks: 1
The price of a coupon bond can best be described as:
Select correct option:
The present value of the face value
The future value of the coupon payments and the face value
The present value of the coupon payments
Both The present value of the face value and of the coupon payments
Question # 5 of 20 ( Start time: 05:46:53 PM ) Total Marks: 1
We need __________ to carry out day to day transactions.
Select correct option:
Money
Come & Join Us at www.vustudents.netBonds
Stocks
Loans
Question # 6 of 20 ( Start time: 05:47:16 PM ) Total Marks: 1
The process of financial intermediation:
Select correct option:
Creates a net cost to an economy but is unavoidable
Is used primarily in underdeveloped countries
Is always used when a borrower needs to obtain funds
Increases the economy's ability to produce
Question # 7 of 20 ( Start time: 05:47:51 PM ) Total Marks: 1
Considering the Liquidity Premium Theory, if investors expect short term interest
rates to decrease:
Select correct option:
The yield curve must have a positive slope
The yield curve must be inverted
The yield curve could be flat
The slope of the yield curve should actually increase
Question # 8 of 20 ( Start time: 05:48:41 PM ) Total Marks: 1
Which one of the following is true for the relationship between the yield of taxable
and tax exempt bond?
Select correct option:
Higher the tax rate wider the gap between the yield of taxable and tax
exempt bond
Taxable bond yield is always greater than tax exempt bond
Higher the tax rate shorter the gap between yield of taxable and tax exempt bond
Lower the tax rate wider the gap between yield of taxable and tax exempt bond
Question # 9 of 20 ( Start time: 05:49:13 PM ) Total Marks: 1
Which of the following expresses 6.5%?
Select correct option:
0.0065
6.50
0.650
0.0650
Question # 10 of 20 ( Start time: 05:50:19 PM ) Total Marks: 1
What will be the result of the difference of real and nominal interest rate?
Select correct option:
The cost of borrowing
The effect of inflation
The price of bonds
The return of bonds
Question # 11 of 20 ( Start time: 05:50:40 PM ) Total Marks: 1
Other things remaining equal, the liquidity premium theory is based upon the idea
that ____________.
Select correct option:
Investors prefer long-term bonds
Investors prefer short-term bonds
Investors are indifferent between short-term and long-term bonds
Investors prefer intermediate-term bonds
Come & Join Us at www.vustudents.netQuestion # 12 of 20 ( Start time: 05:51:25 PM ) Total Marks: 1
The Segmented Markets Theory of term structure suggests that:
Select correct option:
Investors have strong preferences for bonds of a particular maturity
Investors have no preference for short-term bonds over long-term bonds, or vice
versa
Interest rates on long-term bonds strongly influence the demand for short-term
bonds
Bonds of different maturities are perfect substitutes for each other
Question # 13 of 20 ( Start time: 05:52:23 PM ) Total Marks: 1
Often a bank will require a loan officer to make personal visits on customers with
loans outstanding. This is encouraged because:
Select correct option:
The bank worries about competitors trying to steal their customers
The bank wants to make sure the business is still there
The bank likely has excess funds available and hopes to make another loan to
the business
This is an effective monitoring technique and should reduce moral hazard
Question # 14 of 20 ( Start time: 05:53:10 PM ) Total Marks: 1
If the tax rate is higher than gap between yield on taxable and tax exempt bond?
Select correct option:
Shorter
Wider
No gap
Any thing can be possible
Question # 15 of 20 ( Start time: 05:53:46 PM ) Total Marks: 1
Investors will hold higher compensation for the __________ investment.
Select correct option:
More risky
Less risky
Fixed return
Less dividend
Question # 16 of 20 ( Start time: 05:54:14 PM ) Total Marks: 1
Which of the following are used to monitor and stabilize the economy?
Select correct option:
Stock exchanges
Commercial Banks
Central Banks
Financial institutions
Question # 17 of 20 ( Start time: 05:54:38 PM ) Total Marks: 1
The theory of efficient market states that prices of financial instruments reflect:
Select correct option:
All available information
Some of the information
No information
Imperfect information
Question # 18 of 20 ( Start time: 05:55:37 PM ) Total Marks: 1
With direct finance we mean which of the following?
Select correct option:
Come & Join Us at www.vustudents.netIndividuals (or firms) borrow directly from the savers
Individuals (or firms) borrow directly from banks.
Individuals deposit savings directly in banks.
Firms deposit savings directly in banks.
Question # 19 of 20 ( Start time: 05:56:08 PM ) Total Marks: 1
Which of the following best describes the relationship between Bond prices and
yields?
Select correct option:
Move together inversely
Bond yields do not change since the coupon is fixed
Move together directly
Are independent of each other
Question # 20 of 20 ( Start time: 05:56:35 PM ) Total Marks: 1
The fact that common stockholders are residual claimants means:
Select correct option:
The stockholders receive their dividends before any other residuals are paid
The stockholders receive the remains after everyone else is paid
The stockholders are paid any past due dividends before other claims are paid
The common stockholders are responsible for all corporate debts
Question # 1 of 20 ( Start time: 08:59:18 PM ) Total Marks: 1
Which of the following best expresses the payment a lender receives for lending
their money for four years?
Select correct option:
PV(1+i)4
PV/(1 + i)4
4PV
PV/(1 - i)4
Question # 2 of 20 ( Start time: 08:59:55 PM ) Total Marks: 1
Bonds that are issued by Government are called _________.
Select correct option:
Government bond
Treasury bond
Corporate bond
Callable Bonds
Question # 3 of 20 ( Start time: 09:00:14 PM ) Total Marks: 1
__________ is the interest rate at which the present value annual reveneu
equals the cost of the investment.
Select correct option:
Fixed rate of interest
Internal rate of return
Variable rate of interest
Nominal rate of interest
Question # 4 of 20 ( Start time: 09:00:38 PM ) Total Marks: 1
In which of the following bonds we may ignore the default risk?
Select correct option:
Privately issued bonds
Government issued bonds
Bonds issued by Corporate
All of the given options
Come & Join Us at www.vustudents.netQuestion # 5 of 20 ( Start time: 09:00:53 PM ) Total Marks: 1
Most of the people among us are ___________.
Select correct option:
Risk lovers
Risk enhancers
Risk averse
Risk tolerating
Question # 7 of 20 ( Start time: 09:01:26 PM ) Total Marks: 1
A risk-averse investor will:
Select correct option:
Always prefer an investment with a lower expected return
Always prefer an investment with a certain return to one with the same
expected return but any amount of uncertainty
Always require a certain return
Always focus exclusively on the expected return
Question # 8 of 20 ( Start time: 09:01:51 PM ) Total Marks: 1
Which of the following is NOT included in the definition of M1?
Select correct option:
Traveler’s checks
Demand deposits
Currency
Gold coins issued by treasury
Question # 9 of 20 ( Start time: 09:02:04 PM ) Total Marks: 1
Which one of the following is true for financial intermediaries?
Select correct option:
Channel funds from savers to borrowers
Greatly enhance economic efficiency
Have been an source of many financial innovations
All of the given options
Question # 10 of 20 ( Start time: 09:02:32 PM ) Total Marks: 1
The lowest rating for an investment grade bond assigned by Moody's is:
Select correct option:
BBB
ABB
Baa
Aaa
Question # 11 of 20 ( Start time: 09:03:58 PM ) Total Marks: 1
If YTM is less than the coupon rate the price of the bond is __________.
Select correct option:
Greater than its face value
Lower than its face value
Equals to its face value
All of the given options
Question # 12 of 20 ( Start time: 09:05:29 PM ) Total Marks: 1
What will be the effect on the present value if we double the future value of the
payment?
Select correct option:
It will decrease the value by one-half
It will increase the value by one-half
Come & Join Us at www.vustudents.netIt will equally increase the value i.e. doubles the value
It will have no effect on the value
Question # 13 of 20 ( Start time: 09:06:06 PM ) Total Marks: 1
Which one of the following is the narrowest definition of money?
Select correct option:
C
M1
M2
M3
Question # 14 of 20 ( Start time: 09:06:50 PM ) Total Marks: 1
We need __________ to carry out day to day transactions.
Select correct option:
Money
Bonds
Stocks
Loans
Question # 15 of 20 ( Start time: 09:07:01 PM ) Total Marks: 1
Which one of the following is the strategy of reducing overall risk by making two
investments which are totally independent of each other?
Select correct option:
Spreading the risk
Standard deviation
Hedging the risk
Variance
Question # 16 of 20 ( Start time: 09:08:07 PM ) Total Marks: 1
The Segmented Markets Theory of term structure suggests that:
Select correct option:
Investors have strong preferences for bonds of a particular maturity (This
is correct)
Investors have no preference for short-term bonds over long-term bonds, or vice
versa
Interest rates on long-term bonds strongly influence the demand for short-term
bonds
Bonds of different maturities are perfect substitutes for each other
Question # 17 of 20 ( Start time: 09:09:36 PM ) Total Marks: 1
The process of financial intermediation:
Select correct option:
Creates a net cost to an economy but is unavoidable
Is used primarily in underdeveloped countries
Is always used when a borrower needs to obtain funds
Increases the economy's ability to produce
Question # 18 of 20 ( Start time: 09:09:56 PM ) Total Marks: 1
What will the yield curve look like if future short-term interest rates are expected
to rise sharply?
Select correct option:
It will steeply slope upward
It will be horizontal
It will slightly slope upward
It will slope downward
Come & Join Us at www.vustudents.netQuestion # 19 of 20 ( Start time: 09:10:37 PM ) Total Marks: 1
Sum of all the probabilities should be equal to which one of the following?
Select correct option:
Zero
One
Two
Three
Spreading involves:
Select correct option:
Finding assets whose returns are perfectly negatively correlated
Building a portfolio of assets whose returns move together
Investing in bonds and avoiding stocks during bad times
Adding assets to a portfolio that move independently
Internal Rate of Return is _________.
Select correct option:
Present value of investment
Future value of its investment +Cost of investment
Cost of investment
Present value of investment + cost of investment
Which of the following best describes checks?
Select correct option:
A means of payment
Money
Not a promise of any kind
Not acceptable by the U.S. Government for payment of taxes.
A business cycle downturn shifts the bond supply to the:
Select correct option:
Right
Left
No change
None of the given options
According to the liquidity premium theory of the term structure, when the yield curve has its usual
slope, the market expects
Select correct option:
Short-term interest rates to rise sharply
Short-term interest rates to stay near their current levels
Short-term interest rates to drop sharply
Short-term interest rates does not change
Which of the following represents the fisher’s equation?
Select correct option:
Nominal interest rate = real interest rate + inflation
Nominal interest rate + inflation = real interest rate
Nominal interest rate = real interest rate - inflation
Nominal interest rate = real interest rate / inflation
Bonds that are issued by Government are called _________.
Select correct option:
Government bond
Treasury bond
Corporate bond
Callable Bonds
What will the yield curve look like if future short-term interest rates are expected to rise sharply?
Select correct option:
It will steeply slope upward
It will be horizontal
It will slightly slope upward
It will slope downward
The interest rate that is involved in _____________ calculation is referred to as discount rate
Come & Join Us at www.vustudents.netSelect correct option:
Present value
Future value
Intrinsic value
Discount value
Which one of the following is true for the relationship between the yield of taxable and tax exempt
bond?
Select correct option:
Higher the tax rate wider the gap between the yield of taxable and tax exempt bond
Taxable bond yield is always greater than tax exempt bond
Higher the tax rate shorter the gap between yield of taxable and tax exempt bond
Lower the tax rate wider the gap between yield of taxable and tax exempt bond
You start with a $1000 portfolio; it loses 40% over the next year, the following year it gains 50% in
value; At the end of two years the worth of your portfolio will be:
Select correct option:
$900
$600
$1000
$1100
first year gain = 1000*.40 = 400
second year loss = 1000*.5 = 500
Total gain or loss after two year = 400-500 = -100
1000-100 = 900
 .
What is true relationship between return and risk?
Select correct option:
Lower the risk greater the return
Greater the risk greater the return
Greater the risk the return will remain constant
No relationship between them
Which of the following is NOT included in the definition of M1?
Select correct option:
Traveler’s checks
Demand deposits
Currency
Gold coins issued by treasury
The Financial Systems makes it easier to trade because it:
Select correct option:
Facilitate Payments
Channels Funds from Savers to Borrowers
Enables Risk Sharing
All of the given options
Which one of the following agencies assesses the default risk of different issuers?
Select correct option:
Insurance companies
Bond issuing
Credit rating
Recruitment agencies
In which of the following bonds we may ignore the default risk?
Select correct option:
Privately issued bonds
Government issued bonds
Bonds issued by Corporate
All of the given options
Which of the following best describes default risk?
Select correct option:
The chance the issuer will be unable to make interest payments or repay principal
The chance the issuer will retire the debt early
The chance the issuing firm will be sold to another firm
Come & Join Us at www.vustudents.netThe chance the issuer will sell more debt
Coupon bonds make the annual payments which are called as ___________.
Select correct option:
Annual payments
Fixed payments
Coupon payments
Maturity payment
Q 1: Investors will hold higher compensation for the __________ investment.
Select correct option:
More risky
Less risky
Fixed return
Less dividend
Q 2: Which of the following is true of a nation's central bank?
Select correct option:
It makes important decisions about the nation's tax and public spending policies
It lends only to the nations largest and most important business firms
It has many interactions with the nation's citizens and businesses
It is responsible for conducting the nation's monetary policy
Q 3: A financial instrument in which a borrower obtains resources from a lender
immediately in exchange for a promised set of payments in the future is called as
.___________
Select correct option:
Bond
Bank Loan
Home Mortgage
Futures Contract
Q 4: An increase in wealth shifts the demand for bonds to the __________.
Select correct option:
Left
Right
No change
All of the given options
Q 5: The slope of the yield curve seems to predict the performance of the
economy with:
Select correct option:
Usually 3 months lag
Usually two years lag
Usually within few weeks
Usually one year lag
Q 6: If YTM equals the coupon rate the price of the bond is __________.
Select correct option:
Greater than its face value
Lower than its face value
Equals to its face value
Insufficient information
Q 7: An increase in the expected inflation shifts the bond demand to the
_________. Select correct option:
Right
Left
Come & Join Us at www.vustudents.netNo change
All of the given options
Q 8: Which of the following would be considered characteristic of money?
It is store of value
It pays a higher return than most assets
It is in fixed supply
It is legal tender everywhere in the world
Q 9: The interest rate that is involved in _____________ calculation is referred to
as discount rate
Select correct option:
Present value
Future value
Intrinsic value
Discount value
Q 10: Debt instruments are categorized on the basis of which one of the
following?
Select correct option:
Loan maturity period
Interest rates
Mode of payment of interest
Amount of the debt taken
Q 11: Which of the following is NOT an example of financial institutions? Select
correct option:
Banks
Securities firms
Stock exchanges
Insurance companies
Q 12: When stock prices reflect fundamental values:
All investors will experience capital gains
All companies will have an easier task of obtaining financing for investment
projects
The allocation of resources will be more efficient
The overall level of the stock market should move higher continuously
Q 13: If YTM is greater than the coupon rate the price of the bond is
__________. Select correct option:
Greater than its face value
Lower than its face value
Equals to its face value
All of the given options
Q 14: A __________ is a promise to make a series of payments on specific
future date.
Select correct option:
Stock
Bond
Loan
Cheque
Q 15: Without the ability of financial intermediaries to pool the resources of small
savers: Select correct option:
Borrowers needing large amounts of money would find it less costly to obtain the
Come & Join Us at www.vustudents.netfunds
The economy would likely grow faster
People would likely save more
The risk associated with lending would increase
Q 16: A bank can usually offer a saver a higher return for the same risk because:
Select correct option:
The bank can usually purchase assets at a higher cost than any one saver
The bank can pool the resources of larger savers and purchase lower
denominated assets NOT SURE
Economies of scale can be applied by the bank in its purchase of assets None of
the given options
Q 17: The fact that a financial intermediary can use the same contract for many
customers is an example of: Select correct option:
Economies of Scope
The Law of Diminishing Marginal Returns
The Law of Increasing Opportunity Cost
Economies of Scale
Q 18: ____________ are organized to eliminate the need of costly information
gathering. Select correct option:
Central bank
Commercial banks
Stock exchanges
Insurance companies
Q 19: What will be the effect on the present value if we double the future value of
the payment? Select correct option:
It will decrease the value by one-half
It will increase the value by one-half
It will equally increase the value i.e. doubles the value NOT SURE
It will have no effect on the value
Q 20: Which one of the following is the narrowest definition of money? Select
correct option:
C
M1
M2
M3
MGT411 – Money & Banking
Online Quiz # 2
December 26, 2009
Question # 1 of 20 ( Start time: 02:24:40 AM ) Total Marks: 1
Core principles of Money and Banking include each of the following except?
Select correct option:
People act rationally
Time has value
Information is the basis for decisions
Risk requires compensation
Question # 2 of 20 ( Start time: 02:25:14 AM )
Internal Rate of Return is _________.
Select correct option:
Present value of investment
Come & Join Us at www.vustudents.netFuture value of its investment +Cost of investment
Cost of investment
Present value of investment + cost of investment
Question # 3 of 20 ( Start time: 02:26:35 AM ) Total Marks: 1
The relationship between the price and the interest rate for a zero coupon bond
is best described as:
Select correct option:
Volatile
Stable
Non-existent
Inverse (see page # 43 of handouts)
Question # 4 of 20 ( Start time: 02:27:03 AM ) Total Marks: 1
Which one of the following is the narrowest definition of money?
Select correct option:
C
M1 (see page # 12)
M2
M3
Question # 5 of 20 ( Start time: 02:27:13 AM ) Total Marks: 1
Investors will hold higher compensation for the __________ investment.
Select correct option:
More risky
Less risky
Fixed return
Less dividend
Question # 6 of 20 ( Start time: 02:27:47 AM ) Total Marks: 1
What is the true relationship that exists between default risk and yield?
Select correct option:
Higher the default risk, higher the yield (see page # 53)
Lower the default risk, higher the yield
Higher the default risk yield will remain constant
Lower the default risk yield will remain constant
Question # 7 of 20 ( Start time: 02:28:19 AM ) Total Marks: 1
Without the ability of financial intermediaries to pool the resources of small
savers:
Select correct option:
Borrowers needing large amounts of money would find it less costly to obtain the
funds
The economy would likely grow faster
People would likely save more
The risk associated with lending would increase
Question # 8 of 20 ( Start time: 02:29:10 AM ) Total Marks: 1
When a bond becomes more liquid relative to its alternatives, the demand curve
for bonds shifts to the:
Select correct option:
Right (see page # 49)
Left
No change
None of the given options
Come & Join Us at www.vustudents.netQuestion # 9 of 20 ( Start time: 02:29:40 AM ) Total Marks: 1
In a financial market where information is symmetric:
Select correct option:
The same information would be known by both parties in a transaction
One party to a transaction knows information the other party does not
The ability to obtain information is available to only one party
All of the given options
Question # 10 of 20 ( Start time: 02:30:07 AM ) Total Marks: 1
The____________ are an assessment of the creditworthiness of the corporate
issuer.
Select correct option:
Bond yield
Bond ratings (see page # 54)
Bond risk
Bond price
Question # 11 of 20 ( Start time: 02:30:25 AM ) Total Marks: 1
An increase in the expected inflation shifts the bond demand to the _________.
Select correct option:
Right
Left
No change
All of the given options
Question # 12 of 20 ( Start time: 02:31:19 AM ) Total Marks: 1
Which of the following is NOT included in the definition of M1?
Select correct option:
Traveler’s checks
Demand deposits
Currency
Gold coins issued by treasury (see page # 12)
Question # 13 of 20 ( Start time: 02:32:21 AM ) Total Marks: 1
Bonds without maturity dates are which of the followings?
Select correct option:
Zero coupon bonds
Coupon securities
Consols
Preferred Bonds
Question # 14 of 20 ( Start time: 02:33:14 AM ) Total Marks: 1
Debt instruments is categorized on the basis of which one of the following?
Select correct option:
Loan maturity period (See page # 20)
Interest rates
Mode of payment of interest
Amount of the debt taken
Question # 15 of 20 ( Start time: 02:33:37 AM ) Total Marks: 1
Which of the following institution take direct deposit from customer and give loan
to customer directly?
Select correct option:
Zarai Tarkaytee Bank LTD
Soneri Bank
Come & Join Us at www.vustudents.netKhushali Bank
Credit unions
(not sure, but i selected option # 4, kindly verify it)
Question # 16 of 20 ( Start time: 02:33:53 AM ) Total Marks: 1
If we ignore risk, the dividend discount model says the fundamental price of a
stock is simply:
Select correct option:
The current dividend divided by the interest rate less the dividend growth rate
The annual growth rate of the dividend minus the interest rate divided by the
current dividend
The current dividend divided by the interest rate plus the dividend growth rate
The current dividend divided by the dividend growth rate less the interest rate
Question # 17 of 20 ( Start time: 02:34:59 AM ) Total Marks: 1
Which of the following is true of a nation's central bank?
Select correct option:
It makes important decisions about the nation's tax and public spending policies
It lends only to the nation's largest and most important business firms
It has many interactions with the nation's citizens and businesses
It is responsible for conducting the nation's monetary policy (see page # 96)
Question # 18 of 20 ( Start time: 02:35:56 AM ) Total Marks: 1
If bond’s rating is lower, what will be its price?
Select correct option:
Higher
Lower
Equal to
No change
(not 100% sure, but option # 2 "Lower" seems most appropriate)
Question # 19 of 20 ( Start time: 02:36:57 AM ) Total Marks: 1
The price of a coupon bond can best be described as:
Select correct option:
The present value of the face value
The future value of the coupon payments and the face value
The present value of the coupon payments
Both The present value of the face value and of the coupon payments (see
page # 31 & 32)
Question # 20 of 20 ( Start time: 02:37:36 AM ) Total Marks: 1
Which one of the following is NOT true for the expectation hypothesis?
Select correct option:
Risk free interest rate can be computed
There is uncertainty in the future
Identifying yield of bond today that will be available next year
It focuses on risk free interest rate and the risk premium
(not 100%, but I selected option # 2, see page # 58)
Question # 1 of 20 ( Start time: 12:09:02 AM ) Total Marks: 1
When a bond becomes more liquid relative to its alternatives, the demand curve
for bonds shifts to the:
Select correct option:
Right (page # 49)
Left
Come & Join Us at www.vustudents.netNo change
None of the given options
Question # 2 of 20 ( Start time: 12:09:36 AM ) Total Marks: 1
According to the rule of 72 for reasonable rates of return, the time it takes to
__________ the money will be t =72/i%
Select correct option:
Doubles (page # 27)
Triples
halves
3/4
Question # 3 of 20 ( Start time: 12:10:22 AM ) Total Marks: 1
Which one of the following is the narrowest definition of money?
Select correct option:
C
M1 (see page # 12)
M2
M3
Question # 4 of 20 ( Start time: 12:11:17 AM ) Total Marks: 1
An index number is a valuable tool because:
Select correct option:
The number by itself provides all of the useful information needed
The index provides a meaningful measurement scale to calculate percentage
changes
The index is more stable than the data it reflects
It does not require any calculations to compute percentage changes
(not sure, but I selected option # 2, kindly verify it)
Question # 5 of 20 ( Start time: 12:12:34 AM ) Total Marks: 1
Yield curves show which of the followings?
Select correct option:
The relationship between bond interest rates (yields) and bond prices
The relationship between liquidity and bond interest rates (yields)
The relationship between risk and bond interest rates (yields)
The relationship between time to maturity and bond interest rates
(yields) (see page # 57)
Question # 6 of 20 ( Start time: 12:12:55 AM ) Total Marks: 1
A zero coupon bond:
Select correct option:
Does not pay any coupon payments because the issuer is in default
Pays coupons only once a year versus the usual twice a year
Promises a single future payment (see page # 42)
Pays coupons only if the bond price is below face value
Question # 7 of 20 ( Start time: 12:13:32 AM ) Total Marks: 1
Home loans and car loans are the example of which one of the following?
Select correct option:
Mortgage loans
Pledge
Fixed Payment Loans (see page # 43)
Ordinary loan
Question # 8 of 20 ( Start time: 12:14:45 AM ) Total Marks: 1
Come & Join Us at www.vustudents.netWithout the ability of financial intermediaries to pool the resources of small
savers:
Select correct option:
Borrowers needing large amounts of money would find it less costly to obtain the
funds
The economy would likely grow faster
People would likely save more
The risk associated with lending would increase
Question # 9 of 20 ( Start time: 12:16:11 AM ) Total Marks: 1
What is the true relationship that exists between default risk and yield?
Select correct option:
Higher the default risk, higher the yield (see page # 53)
Lower the default risk, higher the yield
Higher the default risk yield will remain constant
Lower the default risk yield will remain constant
Question # 10 of 20 ( Start time: 12:17:28 AM ) Total Marks: 1
Expectation hypothesis focuses on which one of the following?
Select correct option:
Risk premium
Risk free interest rate
Yield to maturity
None of the given options
(Not sure, but I selected option# 2)
Question # 11 of 20 ( Start time: 12:18:49 AM ) Total Marks: 1
Spreading involves:
Select correct option:
Finding assets whose returns are perfectly negatively correlated
Building a portfolio of assets whose returns move together
Investing in bonds and avoiding stocks during bad times
Adding assets to a portfolio that move independently
(Confused b/w option # 1 & 4, read page # 41)
Question # 12 of 20 ( Start time: 12:19:20 AM ) Total Marks: 1
The____________ are an assessment of the creditworthiness of the corporate
issuer.
Select correct option:
Bond yield
Bond ratings
Bond risk
Bond price
Question # 13 of 20 ( Start time: 12:19:36 AM ) Total Marks: 1
Which one of the following is the procedure of finding out the Present Value
(PV)?
Select correct option:
Discounting
Compounding
Time value of money
Bond pricing
Question # 14 of 20 ( Start time: 12:20:00 AM ) Total Marks: 1
Which of the following best describes the relationship between Bond prices and
Come & Join Us at www.vustudents.netyields?
Select correct option:
Move together inversely
Bond yields do not change since the coupon is fixed
Move together directly
Are independent of each other
Question # 15 of 20 ( Start time: 12:21:08 AM )
Which of the following institution take direct deposit from customer and give loan
to customer directly?
Select correct option:
Zarai Tarkaytee Bank LTD
Soneri Bank
Khushali Bank
Credit union
(I selected "Credit Union", not 100% sure)
Question # 16 of 20 ( Start time: 12:22:32 AM ) Total Marks: 1
When the auto manufacturing industry does poorly due to a recession this is an
example of:
Select correct option:
Idiosyncratic risk
Systematic risk
Risk premium
Unique risk
(It should be "Systematic Risk", but again not 100% sure) see page # 39.
Question # 17 of 20 ( Start time: 12:23:42 AM ) Total Marks: 1
A bank can usually offer a saver a higher return for the same risk because:
Select correct option:
The bank can usually purchase assets at a higher cost than any one saver
The bank can pool the resources of larger savers and purchase lower
denominated assets
Economies of scale can be applied by the bank in its purchase of assets
None of the given options
Question # 18 of 20 ( Start time: 12:24:51 AM ) Total Marks: 1
In a financial market where information is symmetric:
Select correct option:
The same information would be known by both parties in a transaction
One party to a transaction knows information the other party does not
The ability to obtain information is available to only one party
All of the given options
Question # 19 of 20 ( Start time: 12:25:29 AM ) Total Marks: 1
The shape of the yield curve is usually:
Select correct option:
Upward sloping (page # 60)
Downward sloping
Upward sloping for shorter maturities and downward sloping for longer maturities
Flat
Question # 20 of 20 ( Start time: 12:26:38 AM ) Total Marks: 1
Which one of the following is true for financial intermediaries?
Select correct option:
Come & Join Us at www.vustudents.netChannel funds from savers to borrowers
Greatly enhance economic efficiency
Have been an source of many financial innovations
All of the given options
The fact that common stockholders are residual claimants means:
Select correct option:
The stockholders receive the remains after everyone else is paid
The stockholders are paid any past due dividends before other claims are paid
The common stockholders are responsible for all corporate debts
Which one of the following is true for financial intermediaries?
Select correct option:
Channel funds from savers to borrowers
Greatly enhance economic efficiency
Have been an source of many financial innovations
All of the given options
relationship between the price and the interest rate for a zero coupon bond is
best described as:
Select correct option:
Volatile
Stable
Non-existent
Inverse
Reference: The price of a bond and the interest rate move in opposite
directions
Consumer Price Index (CPI) measures the:
Select correct option:
Changes in the quantity
Changes in the prices
Changes in the cost
Changes in the profit
Reference: CPI :Measure of the overall level of prices
Core principles of Money and Banking include each of the following except?
Select correct option:
People act rationally
Time has value
Information is the basis for decisions
Risk requires compensation
The longer the time (n) until the payment:
Select correct option:
The lower the present value
The higher the present value because time is valuable
The lower must be the interest rate
Time has no effect on present value
When stock prices reflect fundamental values:
Select correct option:
All investors will experience capital gains
All companies will have an easier task of obtaining financing for investment
projects
The allocation of resources will be more efficient
Come & Join Us at www.vustudents.netThe overall level of the stock market should move higher continuously
Reference: So long as stock prices accurately reflect fundamental values, this
resource allocation mechanism works well
What will be the result of the difference of real and nominal interest rate?
Select correct option:
The cost of borrowing
The effect of inflation
The price of bonds
The return of bonds
If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face
value would be:
Select correct option:
$94.00
$94.33
$95.25
$96.10
Which of the following would probably NOT earn an A rating from Standard &
Poor's:
Select correct option:
30 years bond issued by the U.S. Treasury
New vegetarian fast-food chain
90 days T-Bills issued by the U.S. Treasury
Both 30 years bond and 90 days T-Bills issued by U.S. Treasury
There is no guarantee that a bond issuer will make the promised payments is
known as which one of the following?
Select correct option:
Default risk
Inflation risk
Interest rate risk
Systematic risk
If a bond sells at a premium, where price exceeds face value, then we would
expect to see:
Select correct option:
Market interest rate the same as the coupon rate
Market interest rates above the coupon rate
Market interest rates below the coupon rate
All of the given options
Reference: So, When Market Interest Rate < Coupon Interest Rate, Market Value
(or Price) of Bond >Par Value. Because when market is offering lower rate of
return then the bond then the bond becomes
valuable. This is known as a Premium Bond. Pg no.68 MGT201 H.outs
Which of the following is a role of a financial institution acting as a financial
intermediary?
Select correct option:
Pooling the resources of small savers
Formulating oversight regulations
Sending out free calendars at the holidays
Lobbying legislators
Reference: The most straightforward economic function of a financial
Come & Join Us at www.vustudents.netintermediary is to pool the resources of many small savers Pg no.71 MGT411
H.outs
Financial Systems makes it easier to trade because it:
Select correct option:
Facilitate Payments
Channels Funds from Savers to Borrowers
Enables Risk Sharing
All of the given options
Which of the following is the measure of likelihood that an event will occur?
Select correct option:
Risk
Probability
Frequency
Outcom
The concept of limited liability says a stockholder of a corporation:
Select correct option:
Is liable for the corporation's liabilities, but nothing more
Cannot receive dividends that exceed their investment
Cannot own more than fiver percent of any public corporation
Cannot lose more than their investment
Reference: Because of limited liability, investor’s losses cannot exceed the price
they paid for the
stock Pg no.63 MGT411 H.outs
The risk premium for an investment:
Select correct option:
Increases with risk
Is a fixed amount added to the risk free return
Is negative for U.S. Treasury Securities
Is negative for risk averse investors
Question No: 1 ( Marks: 1 ) - Please choose one
We need __________ to carry out day to day transactions.
_ Money
_ Bonds
_ Stocks
_ Loans
Question No: 2 ( Marks: 1 ) - Please choose one
The reason for the government to get involved in the financial system is to:
_ Protect investors
_ Ensure the stability of the financial system
_ Protect bank customers from monopolistic exploitation
_ All of the given options
Question No: 3 ( Marks: 1 ) - Please choose one
_____________ are organized to eliminate the need of costly information
gathering.
_ Central banks
_ Commercial banks
_ Stock exchanges
_ Insurance companies
Question No: 4 ( Marks: 1 ) - Please choose one
Come & Join Us at www.vustudents.netAll of the following are the components of M2 EXCEPT?
_ M1
_ Saving deposits
_ Travelers cheques
_ Mutual funds shares
Question No: 5 ( Marks: 1 ) - Please choose one
A Financial Intermediary:
_ Is an agency that guarantees a loan
_ Is involved in direct finance
_ Would be used in indirect finance
_ None of the given options
Question No: 6 ( Marks: 1 ) - Please choose one
Commissions paid to an insurance broker are an example of which of the
following?
_ Risk transfer
_ Information asymmetry
_ Transaction costs
_ All of the given options
Question No: 7 ( Marks: 1 ) - Please choose one
The financial intermediary that obtains funds largely through premium payments
and
uses those funds to purchase corporate bonds and mortgages is:
_ Credit unions
_ Mutual funds
_ Life insurance companies
_ Pension funds
Question No: 8 ( Marks: 1 ) - Please choose one
Risk sharing is the characteristic of which one of the following?
_ Checks
_ Checking accounts
_ Money
_ Bonds
Question No: 9 ( Marks: 1 ) - Please choose one
Bonds that are issued by Government are called _________.
_ Government bonds
_ Treasury bonds
_ Corporate bonds
_ Callable bonds
Question No: 10 ( Marks: 1 ) - Please choose one
Which of the following is the difference that lies between the options and futures?
_ Options is not binding whereas future is binding
_ Futures carry risks but Options didn’t carry risk
_ Centralized clearinghouses guarantee futures but not options contracts
_ There is no difference between options and futures
Question No: 11 ( Marks: 1 ) - Please choose one
Which of the following describes the general formula for the calculation of the
compound
interest?
_ FV = PV/(1+i) n
Come & Join Us at www.vustudents.net_ FV = PV/(1-i) n
_ FV = PV*(1+i) n
_ FV = PV*(1-i) n
Question No: 12 ( Marks: 1 ) - Please choose one
If you put $1,000 per year into bank at 4% interest, how much would you have
saved
after 40 years?
_ $90,000
_ $98,826
_ $82,286
_ $85,880
right option could ($95,025.52)
Question No: 13 ( Marks: 1 ) - Please choose one
Which one of the following is the procedure of finding out the Present Value
(PV)?
_ Discounting
_ Compounding
_ Time value of money
_ Bond pricing
Question No: 14 ( Marks: 1 ) - Please choose one
What is true about the relationship between standard deviation and risk?
_ Greater the standard deviation greater will be the risk
_ Greater the standard deviation lower will be the risk
_ Greater the standard deviation risk will be remained the same
_ No relation between them
Question No: 15 ( Marks: 1 ) - Please choose one
Most of the people among us are ___________.
_ Risk lovers
_ Risk enhancers
_ Risk averse
_ Risk tolerating
Question No: 16 ( Marks: 1 ) - Please choose one
___________ is the strategy of reducing overall risk by making two investments
with
opposing risks.
_ Spreading the risk
_ Standard deviation
_ Hedging the risk
_ Variance
Question No: 17 ( Marks: 1 ) - Please choose one
If ABC Inc. and XYZ Inc. have returns that are perfectly negatively correlated:
_ Adding XYZ Inc. to a portfolio that consists of only ABC Inc. will reduce
risk
_ Adding ABC Inc. to a portfolio that includes only XYZ Inc. will increase risk
_ Adding XYZ Inc. to a portfolio that consists of only ABC Inc. will neither
increase nor decrease the risk of the portfolio
_ Adding XYZ Inc. to a portfolio that consists of only ABC Inc. will lower
systematic risk
Question No: 18 ( Marks: 1 ) - Please choose one
Come & Join Us at www.vustudents.netMr. A has a Treasury bill with a maturity period of 6 months where as Mr. B has a
bond with a maturity period of 1 year. Which of the following statement is NOT
true for this situation?
_ Mr. A has paid less price for his bond than Mr. B
_ Mr. A and Mr. B is a holder of zero coupon bond
_ Mr. A will receive payment at the end of the maturity period
_ Mr. B will receive the payment at the end of the maturity period
Question No: 19 ( Marks: 1 ) - Please choose one
Which of the following statement is true for amortized loan?
_ Payment includes interest and full amount of principal
_ Payment includes only the interest
_ Payment includes both interest and some portion of the principal
_ Principal amount is paid fully in the periodic payments
Question No: 20 ( Marks: 1 ) - Please choose one
Which of the following best describes the relationship between Bond prices and
yields?
_ Move together directly
_ Independent of each other
_ Move together inversely
_ Bond yields do not change since the coupon is fixed
Question No: 21 ( Marks: 1 ) - Please choose one
The relationship between the price and the interest rate for a zero coupon bond
is best
described as _________.
_ Volatile
_ Stable
_ Inverse
_ No relationship
Question No: 22 ( Marks: 1 ) - Please choose one
The price of a 6-month Treasury Bill is_________ the price of a 1-year Treasury
Bill.
_ Lower than
_ Higher than
_ Equal to
_ None of the given options
Question No: 23 ( Marks: 1 ) - Please choose one
If YTM is greater than the coupon rate the price of the bond is __________.
_ Greater than its face value
_ Lower than its face value
_ Equals to its face value
_ Insufficient information is given
Question No: 24 ( Marks: 1 ) - Please choose one
Current yield is equal to which of the following?
_ Price paid / yearly coupon payment
_ Price paid *yearly coupon payment
_ Yearly coupon payment / face value of bond
_ Yearly coupon payment / price paid
Question No: 25 ( Marks: 1 ) - Please choose one
The____________ are an assessment of the creditworthiness of the corporate
Come & Join Us at www.vustudents.netissuer.
_ Bond yield
_ Bond ratings
_ Bond risk
_ Bond price
Question No: 26 ( Marks: 1 ) - Please choose one
Which of the following statement is true for the given sentence, "that tax affects
the bond return"?
_ Because only interest income they receive from bond is taxable
_ Because principal amount and interest income they receive from bond is
taxable
_ Because bond holders are taxpayers
_ Because all bond is sold with a condition that tax will be deducted from its
return
Question No: 27 ( Marks: 1 ) - Please choose one
Which one of the following is true for the relationship between the yield of taxable
and tax exempt bond?
_ Higher the tax rate wider the gap between the yield of taxable and tax
exempt bond
_ Taxable bond yield is always greater than tax exempt bond
_ Higher the tax rate shorter the gap between yield of taxable and tax exempt
bond
_ Lower the tax rate wider the gap between yield of taxable and tax exempt bond
Question No: 28 ( Marks: 1 ) - Please choose one
If the tax rate is higher than gap between yield on taxable and tax exempt bond?
_ Shorter
_ Wider
_ No gap
_ Any thing can be possible
Question No: 29 ( Marks: 1 ) - Please choose one
Which of the following statement is correct about the yield curve?
_ Yield on short term bonds are not more volatile than yield on long term bond
_ Long term yields tend to be higher than short term yield
_ Interest rate of different maturities don’t tend to move together
_ None of the given options
Question No: 30 ( Marks: 1 ) - Please choose one
Which one of the following is NOT true for the expectation hypothesis?
_ Risk free interest rate can be computed
_ There is uncertainty in the future
_ Identifying yield of bond today that will be available next year
_ It focuses on risk free interest rate and the risk premium
Question No: 31 ( Marks: 1 ) - Please choose one
The slope of the yield curve seems to predict the performance of the economy
with:
_ Usually 3 months lag
_ Usually two years lag
_ Usually within few weeks
_ Usually one year lag
Question No: 32 ( Marks: 1 ) - Please choose one
Come & Join Us at www.vustudents.netThe liquidity premium theory suggests that yield curves should usually be:
_ Up-sloping
_ Inverted
_ Flat
_ Up-sloping through year 1, then flat thereafter
Question No: 33 ( Marks: 1 ) - Please choose one
If we ignore risk, the dividend discount model says the fundamental price of a
stock is
simply:
_ The current dividend divided by the interest rate less the dividend growth
rate
_ The annual growth rate of the dividend minus the interest rate divided by the
current dividend
_ The current dividend divided by the interest rate plus the dividend growth rate
_ The current dividend divided by the dividend growth rate less the interest rate
Question No: 34 ( Marks: 1 ) - Please choose one
The theory of efficient market states that prices of financial instruments reflect:
_ All available information
_ Some of the information
_ No information
_ Imperfect information
Question No: 35 ( Marks: 1 ) - Please choose one
Without the ability of financial intermediaries to pool the resources of small
savers:
_ Borrowers needing large amounts of money would find it less costly to obtain
the funds
_ The economy would likely grow faster
_ People would likely save more
_ The risk associated with lending would increase
Question No: 36 ( Marks: 1 ) - Please choose one
If information in a financial market is asymmetric, this means:
_ Borrowers and lenders have the same information
_ Lenders lack any information
_ Borrowers and lenders have perfect information
_ Borrowers would have more information than lenders
Question No: 37 ( Marks: 1 ) - Please choose one
Previously financial markets were located in which one of the following?
_ Coffee houses or Taverns
_ Stock exchanges
_ Bazaar
_ Both Coffee houses and Stock exchanges
Question No: 38 ( Marks: 1 ) - Please choose one
Zero-Coupon Bonds are pure discount bonds since they sell at a price
.__________
_ Equal their face value
_ Below their face value
_ Above their face value
_ None of the given options
Zero coupon bonds are bonds that do not pay interest during the life of the
Come & Join Us at www.vustudents.netbonds.
Instead, investors buy zero coupon bonds at a deep discount from their face
value, which
is the amount a bond will be worth when it "matures" or comes due. When a zero
coupon
bond matures, the investor will receive one lump sum equal to the initial
investment plus
the imputed interest, which is discussed below.
Question No: 39 ( Marks: 3 )
How Financial System promotes economic efficiency? List down points.ple.
1. They provide the channel for transfer of funds between saver and borrowers
2. provide risk sharing like insurance
3. provide payments like bank accounts
4. Help those people which do not have enough capital to use profitable
opportunity.
Question No: 40 ( Marks: 3 )
Briefly discuss different types of speculative grades of Long term ratings be
PACRA.
Sepulative grade means there are possibility of credit risk.
Pacra has B class rating for them
BB shows that there is a possibility of credit risk in making.
B Highly speculative in nature. ‘B’ it shows that that significant credit risk is there,
but a
limited
margin of safety remains.
CCC, C,CC High default risk. Chances of deault is a real possibility.
Question No: 41 ( Marks: 5 )
Suppose that over the past 20 years, the average annual return on investments
has been
12%. For each dollar invested at the beginning of the period,How much money
would
investors have at the end of 20 years?
N= 20
I = 12% or .12
AMT = 1 $
FV = ?
FV = amt * FVIF= [ (1+i)^n-1 ]/i
FVIF = [(1.12)^20 – 1]/.12 = 72.05
FV = 1*72.05 = 72.05
BR>
Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following are used to transfer resources from savers to investors
and to
transfer risk to those who best equipped it?
_ Financial markets
_ Financial instruments
_ Financial institutions
_ Banks
Reference by Stephen G Cecchetti
Come & Join Us at www.vustudents.nettwo ideas are emphasized: that financial instruments transfer resources from
savers to investors, and that in doing so, they transfer risk to those best equipped
to bear it
Question No: 2 ( Marks: 1 ) - Please choose one
Which of the following are used to monitor and stabilize the economy?
_ Stock exchanges
_ Commercial Banks
_ Central Banks
_ Financial institutions
Question No: 3 ( Marks: 1 ) - Please choose one
The reason for the government to get involved in the financial system is to:
_ Protect investors
_ Ensure the stability of the financial system
_ Protect bank customers from monopolistic exploitation
_ All of the given options
Question No: 4 ( Marks: 1 ) - Please choose one
The one that you get from bank when you open your checking account is
.__________
_ Debit card
_ Credit card
_ Store value card
_ Customer card
Question No: 5 ( Marks: 1 ) - Please choose one
E money is really a form of which one of the following?
_ Paper money
_ Fiat money
_ Government money
_ Private money
Question No: 6 ( Marks: 1 ) - Please choose one
All of the following are the components of M2 EXCEPT?
_ M1
_ Saving deposits
_ Travelers cheques
_ Mutual funds shares
M2: Equals M1 + savings deposits, time deposits less than $100,000 and money
market
deposit accounts for individuals.
Travelers cheques are example of M1
Question No: 7 ( Marks: 1 ) - Please choose one
The Consumer Price Index (CPI):
_ Tends to overstate inflation due to substitution bias
_ Tends to understate actual inflation
_ Is more accurate than the GDP deflator
_ Is based on basket of goods that changes monthly with consumer expenditures
Question No: 8 ( Marks: 1 ) - Please choose one
Considering the value of a financial instrument, the longer the time until the
promised payment is made:
_ The less valuable is the promise to make it since time is valuable
_ The greater the risk, therefore the promise has greater value
Come & Join Us at www.vustudents.net_ The more valuable is the promise to make it
_ It has no effect on the value of instrument
Question No: 9 ( Marks: 1 ) - Please choose one
Commissions paid to an insurance broker are an example of which of the
following?
_ Risk transfer
_ Information asymmetry
_ Transaction costs
_ All of the given options
Question No: 10 ( Marks: 1 ) - Please choose one
______________ are the economies central nervous system.
_ Financial Instruments
_ Financial Markets
_ Financial Institutions
_ Financial Companies
Financial markets are like the "central nervous system" of the economy, says
Cecchetti's
textbook.
Question No: 11 ( Marks: 1 ) - Please choose one
Which one of the following is NOT an example of Centralized exchange?
_ New York Stock Exchange
_ NASDAQ
_ Large exchanges in London
_ Large exchanges in Tokyo
Question No: 12 ( Marks: 1 ) - Please choose one
Which of the following market allowed networks of dealers that are connected
electronically?
_ New York Stock Exchange
_ NASDAQ
_ Large exchanges in London
_ Large exchanges in Tokyo
Question No: 13 ( Marks: 1 ) - Please choose one
Bonds that are issued by Government are called _________.
_ Government bonds
_ Treasury bonds
_ Corporate bonds
_ Callable bonds
Question No: 14 ( Marks: 1 ) - Please choose one
What is relationship between interest rate and future value?
_ Lower the interest rate higher will be the future value
_ Higher the interest rate higher will be the future value
_ Higher the interest rate lower will be the future value
_ Interest rate has no effect on future value
Question No: 15 ( Marks: 1 ) - Please choose one
The future value of $100 left in a savings account earning 4.5% for two and a half
years is best expressed by:
_ $100(1.045)3/2
_ $100( 0.45)2.5
_ $100(1.045)2.5
Come & Join Us at www.vustudents.net_ 100 x 2.5 x (1.045)
Question No: 16 ( Marks: 1 ) - Please choose one
If the factor time (n) is longer then:
_ Present value will be lower
_ Present value will be higher
_ Interest rate will be lower
_ Time has no effect on present value
Reference: As we calculate PV through dividing the future value by the discount
factor which is (1+i) n so if we increase the value of ‘n’ It will surely increase the
discount factor which is the denominator and the greater the denominator the
smaller will be the value of the fraction.
Question No: 17 ( Marks: 1 ) - Please choose one
If at 5% interest rate, $100 payment has a PV of $90.70. Then what will be the
PV value of
$200 payment? (Without applying formula).
_ $45.35
_ $272.1
_ $181.4
_ $362.8
Lets see the given is that 5% interest rate, FV= $100, PV = $90.70
Now calculate for ‘n’ that is no of years. As mentioned is that k without using
formula so do not use the compounding formula. Use the simple one
FV=PV*i*n
n=FV / PV*i
n=100 / 90.7*0.05
n=22
We are asked to calculate PV if FV=200
PV=FV / i*n
PV=200 / 1.1
PV=$181.4
Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following provides the greatest incentive to borrow?
_ A high real interest rate
_ A low real interest rate
_ A high nominal interest rate
_ A low nominal interest rate
Question No: 19 ( Marks: 1 ) - Please choose one
Which of the following represents the fisher’s equation?
_ Nominal interest rate = real interest rate + inflation
_ Nominal interest rate + inflation = real interest rate
_ Nominal interest rate = real interest rate - inflation
_ Nominal interest rate = real interest rate / inflation
Question No: 20 ( Marks: 1 ) - Please choose one
What will be the result of the difference of real and nominal interest rate?
_ The cost of borrowing
_ The effect of inflation
_ The price of bonds
_ The return of bonds
nominal interest rate is equal to the real interest rate plus the expected rate of
Come & Join Us at www.vustudents.netinflation
Question No: 21 ( Marks: 1 ) - Please choose one
Which of the following statement is true for amortized loan?
_ Payment includes interest and full amount of principal
_ Payment includes only the interest
_ Payment includes both interest and some portion of the principal
_ Principal amount is paid fully in the periodic payments
These loans are amortized, meaning that the borrower pays off the principal
along with
the interest over the life of the loan. Each payment includes both interest and
some
portion of the principal.
Question No: 22 ( Marks: 1 ) - Please choose one
A zero coupon bond:
_ Does not pay any coupon payments because the issuer is in default
_ Pays coupons only once a year versus the usual twice a year
_ Promises a single future payment
_ Pays coupons only if the bond price is below face value
Question No: 23 ( Marks: 1 ) - Please choose one
Which of the following best expresses the formula for determining the price of a
U.S.
Treasury bill per $100 of face vale?
_ $100(1 + i)
_ $100/ (1 + i) n
_ $100/ (1 + i)
_ 1 + $100/ (1 + i) n
Question No: 24 ( Marks: 1 ) - Please choose one
If YTM equals the coupon rate the price of the bond is __________.
_ Greater than its face value
_ Lower than its face value
_ Equals to its face value
_ Insufficient information is given
Question No: 25 ( Marks: 1 ) - Please choose one
The return on the bond is equal to which of the following?
_ Coupon rate + rate of capital gains
_ Current yield + rate of capital gains
_ Coupon rate - rate of capital gains
_ Current yield - rate of capital gains
Question No: 26 ( Marks: 1 ) - Please choose one
A business cycle downturn shifts the bond supply to the:
_ Right
_ Left
_ No change
_ None of the given options
A business-cycle downturn shifts the bond supply to the left and the bond
demand to the left. In this case the bond price can rise or fall, depending on
which shift is greater. But interest rates tend to fall in recessions, so bond prices
are likely to increase
Question No: 27 ( Marks: 1 ) - Please choose one
Come & Join Us at www.vustudents.netIn the long run, the yield curve tends to be which of the following?
_ Upward sloping
_ Downward sloping
_ Nearly vertical
_ Nearly horizontal
The yield curve’s upward slope is due to long-term bonds being riskier than
shortterm bonds
Question No: 28 ( Marks: 1 ) - Please choose one
Yield curves show which of the followings?
_ The relationship between bond interest rates (yields) and bond prices
_ The relationship between liquidity and bond interest rates (yields)
_ The relationship between risk and bond interest rates (yields)
_ The relationship between time to maturity and bond interest rates (yields)
Question No: 29 ( Marks: 1 ) - Please choose one
Mr. Ghazanfar wants to invest Rs.2,000 in a bond. If this bond is expected to
receive a return of Rs.100 per month and a tax of Rs.3 will be deducted on this
return. Then Mr. Ghazanfar made his decision by considering which of the
following fact?
_ He is attracted by Rs.100 return per month
_ He considers Rs.100 less deduction for tax i.e.Rs.97
_ He takes into consideration only the portion of tax which is deducted
_ His decision will not be affected by any of the given factors
Question No: 30 ( Marks: 1 ) - Please choose one
Mr. Ali has a bond, which is issued by local government of Punjab which is NOT
true for situation?
_ He faces tax affects on return on bond
_ His bond can also be named as municipal bond
_ He receive interest on that bond throughout life period of bond
_ Default risk affects its return on bond
One of the primary reasons municipal bonds are considered separately from
other types of bonds is their special ability to provide tax-exempt income. Interest
paid by the issuer to bond holders is often exempt from all federal taxes, as well
as state or local taxes depending on the state in which the issuer is located
Question No: 31 ( Marks: 1 ) - Please choose one
Which of the following statement is true for the given sentence, "that tax affects
the bond return"?
_ Because only interest income they receive from bond is taxable
_ Because principal amount and interest income they receive from bond is
taxable
_ Because bond holders are taxpayers
_ Because all bond is sold with a condition that tax will be deducted from its
return
Question No: 32 ( Marks: 1 ) - Please choose one
The expectations theory of the term structure assumes:
_ Buyers of bonds consider bonds of different maturities to be perfect
substitutes
_ Markets for different maturity bonds are completely separate
_ Buyers of bonds prefer bonds with shorter maturities
_ Buyers of bonds prefer bonds with longer maturities
Come & Join Us at www.vustudents.netQuestion No: 33 ( Marks: 1 ) - Please choose one
The fact that common stockholders are residual claimants means:
_ The stockholders receive their dividends before any other residuals are paid
_ The stockholders receive the remains after everyone else is paid
_ The stockholders are paid any past due dividends before other claims are paid
_ The common stockholders are responsible for all corporate debts
Question No: 34 ( Marks: 1 ) - Please choose one
An index number is a valuable tool because:
_ The number by itself provides all of the useful information needed
_ The index provides a meaningful measurement scale to calculate
percentage changes
_ The index is more stable than the data it reflects
_ It does not require any calculations to compute percentage changes
Question No: 35 ( Marks: 1 ) - Please choose one
The Theory of Efficient Markets:
_ Allows for higher than average returns if the investor takes higher risk
_ Says Insider-information makes markets less efficient
_ Rules out high returns due to chance
_ Assumes people have equal luck
Question No: 36 ( Marks: 1 ) - Please choose one
In a financial market where information is symmetric:
_ The same information would be known by both parties in a transaction
_ One party to a transaction knows information the other party does not
_ The ability to obtain information is available to only one party
_ All of the given options
Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following has created an opportunity for small investors to
participate in
economic activity?
_ Mutual funds
_ Small corporations
_ Stock brokers
_ Small investors cannot take part in economic activity
Question No: 38 ( Marks: 1 ) - Please choose one
Money once consisted of Gold and silver coins which were eventually replaced
by which of the following?
_ Plastic money
_ Paper money
_ Commodity money
_ E-money
Question No: 39 ( Marks: 3 )
Briefly discuss different types of investment grades of Long term ratings be
PACRA.
Answer : PACRA is the Pakistan Credit rating agency which rates different
companies in Pakistan who offer bonds or stocks to investors. They rate
companies independently to protect investors from companies who might default
and not pay the investors. Based on their ratings given to different companies
people who want to invest will know which companies to go for investment and
which to avoid. The different types of investment grades given of long term
Come & Join Us at www.vustudents.netratings given by them are:
AAA : This is highest credit quality and has lowest expectation of risk
AA : Very high credit quality and very low expectation of risk
A: High credit quality and low expectation of risk
BB : Good credit quality and as of now there is low expectation of credit risk.
Question No: 40 ( Marks: 3 )
Money is accepted in economic exchange. Discuss.
Question No: 41 ( Marks: 5 )
“People differ in their opinions of how stocks should be valued”. Discuss it.
Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following statement is true about the relationship between bond
,coupon payment and interest?
_ Coupon payments fall, the interest rate falls, and Bond price will rise
_ Coupon payments rise, the interest rate falls, and Bond price will rise
_ Coupon payments fall, the interest rate falls, and Bond price will fall
_ Coupon payments rise, the interest rate falls, and Bond price will fall
The value of the coupon bond rises when the yearly coupon payments rise and
when the interest rate falls
ˇ Lower interest rates mean higher bond prices and vice versa.
Question No: 2 ( Marks: 1 ) - Please choose one
Which of the following institution takes direct deposit from customer and gives
loan to customer directly?
_ Zarai Tarkaytee Bank LTD
_ Soneri Bank
_ Khushali Bank
_ Credit union
Question No: 3 ( Marks: 1 ) - Please choose one
Which of the following is NOT true for financial institutions?
_ It reduces the transaction cost
_ It reduces the information cost
_ It reduces the asymmetric information
_ It doesn’t make long term loans
Question No: 4 ( Marks: 1 ) - Please choose one
Often a bank will require a loan officer to make personal visits on customers with
loans outstanding. This is encouraged because:
_ The bank worries about competitors trying to steal their customers
_ The bank wants to make sure the business is still there
_ The bank likely has excess funds available and hopes to make another loan to
the business
_ This is an effective monitoring technique and should reduce moral hazard
Question No: 5 ( Marks: 1 ) - Please choose one
Della's Donut Shop goes out of business due to decreasing sales resulting from
the dramatic increase in people on low carbohydrate diets. The decrease in
business also results in Della's defaulting on the loan they have with the bank.
This is an example of:
_ Asymmetric information in financial markets
_ Lack of perfect information in financial markets
_ Moral hazard in financial markets
_ Adverse selection
Come & Join Us at www.vustudents.netQuestion No: 6 ( Marks: 1 ) - Please choose one
A bank can usually offer a saver a higher return for the same risk because:
_ The bank can usually purchase assets at a higher cost than any one saver
_ The bank can pool the resources of larger savers and purchase lower
denominated assets
_ Economies of scale can be applied by the bank in its purchase of assets
_ None of the given options
Question No: 7 ( Marks: 1 ) - Please choose one
Without the ability of financial intermediaries to pool the resources of small
savers:
_ Borrowers needing large amounts of money would find it less costly to obtain
the funds
_ The economy would likely grow faster
_ People would likely save more
_ The risk associated with lending would increase
Question No: 8 ( Marks: 1 ) - Please choose one
The process of financial intermediation:
_ Creates a net cost to an economy but is unavoidable
_ Is used primarily in underdeveloped countries
_ Is always used when a borrower needs to obtain funds
_ Increases the economy's ability to produce
Question No: 9 ( Marks: 1 ) - Please choose one
The Theory of Efficient Markets:
_ Allows for higher than average returns if the investor takes higher risk
_ Says Insider-information makes markets less efficient
_ Rules out high returns due to chance
_ Assumes people have equal luck
Question No: 10 ( Marks: 1 ) - Please choose one
If we ignore risk, the dividend discount model says the fundamental price of a
stock is simply:
_ The current dividend divided by the interest rate less the dividend growth
rate
_ The annual growth rate of the dividend minus the interest rate divided by the
current dividend
_ The current dividend divided by the interest rate plus the dividend growth rate
_ The current dividend divided by the dividend growth rate less the interest rate
Question No: 11 ( Marks: 1 ) - Please choose one
Which statement shows the major difference between stocks and bonds?
_ Bonds pay their owners dividends while stocks pay interest
_ Bonds pay their owners interest while stocks pay dividends
_ Interest on a bond is not guaranteed while dividends on stock are legally
required
_ Bonds represent ownership while stock represents debt
Question No: 12 ( Marks: 1 ) - Please choose one
The concept of limited liability says a stockholder of a corporation:
_ Is liable for the corporation's liabilities, but nothing more
_ Cannot receive dividends that exceed their investment
_ Cannot own more than fiver percent of any public corporation
_ Cannot lose more than their investment
Come & Join Us at www.vustudents.netQuestion No: 13 ( Marks: 1 ) - Please choose one
The liquidity premium theory suggests that yield curves should usually be:
_ Up-sloping
_ Inverted
_ Flat
_ Up-sloping through year 1, then flat thereafter
Question No: 14 ( Marks: 1 ) - Please choose one
Which of the following statement is true about two bonds having same default
rate and tax status but different maturity dates?
_ It creates no effect on yield of bonds
_ Both of them have different yield
_ Liquidity risk factor should be taken into consideration
_ It is impossible that default risk and tax status of two bonds are same
Question No: 15 ( Marks: 1 ) - Please choose one
A business cycle downturn shifts the bond supply to the:
_ Right
_ Left
_ No change
_ None of the given options
A business-cycle downturn shifts the bond supply to the left and the bond
demand to the left. In this case the bond price can rise or fall, depending on
which shift is greater. But interest rates tend to fall in recessions, so bond prices
are likely to increase.
Question No: 16 ( Marks: 1 ) - Please choose one
An increase in the expected inflation shifts the bond demand to the _________
_ Right
_ Left
_ No change
_ None of the given options
Question No: 17 ( Marks: 1 ) - Please choose one
An increase in the expected inflation shifts the bond supply to the _________
_ Right
_ Left
_ No change
_ None of the given options
Question No: 18 ( Marks: 1 ) - Please choose one
Current yield did NOT measure which of the following?
_ Return arises from coupon payment
_ Capital gain and loss
_ Return arises from bond holding till maturity
_ All of the given options
Question No: 19 ( Marks: 1 ) - Please choose one
Current yield is equal to which of the following?
_ Price paid / yearly coupon payment
_ Price paid *yearly coupon payment
_ Yearly coupon payment / face value of bond
_ Yearly coupon payment / price paid
Question No: 20 ( Marks: 1 ) - Please choose one
The relationship between the price and the interest rate for a zero coupon bond
Come & Join Us at www.vustudents.netis best described as _________.
_ Volatile
_ Stable
_ Inverse
_ No relationship
Question No: 21 ( Marks: 1 ) - Please choose one
Which of the following statement is NOT true for consols?
_ Consol offers only periodic interest payments
_ Borrower never repays the principal
_ There are Government and as well as private consols
_ Price of a consol is the present value of all the future interest payments
There are no privately issued consols because only governments can credibly
promise to make payments forever
Question No: 22 ( Marks: 1 ) - Please choose one
___________ is the strategy of reducing overall risk by making two investments
with opposing risks.
_ Spreading the risk
_ Standard deviation
_ Hedging the risk
_ Variance
Hedging is the strategy of reducing overall risk by making two investments with
opposing risks so that when one does poorly the other does well and vice versa.
Question No: 23 ( Marks: 1 ) - Please choose one
The variance is generally less useful than the standard deviation on which of the
following reasons?
_ Variance is easier to calculate
_ Variance is a measure of risk, whereas standard deviation is a measure of
return
_ Variance isn't calculated in the same units as payoffs where as standarad
deviation is
_ Both are equally useful
Question No: 24 ( Marks: 1 ) - Please choose one
Suppose a $1000 investment has a fixed return of 5% per annum, which one of
the following statement is NOT true for this investment?
_ Its return can be calculated
_ It’s a risky investment
_ It will give return annually
_ Its future value is known
Question No: 25 ( Marks: 1 ) - Please choose one
If a bond sells at a premium, where price exceeds face value, then we would
expect to see:
_ Market interest rate the same as the coupon rate
_ Market interest rates above the coupon rate
_ Market interest rates below the coupon rate
Come & Join Us at www.vustudents.net_ None of the given options
Question No: 26 ( Marks: 1 ) - Please choose one
The rule of 72 says that at 12% interest $100 should become $200 in about
._________
_ 72 months
_ 100 months
_ 12 years
_ 8.2 years
Question No: 27 ( Marks: 1 ) - Please choose one
A borrower is promised a $100 payment (including interest) one year from today.
If the lender has an 8% opportunity cost of money, he should be willing to accept
what amount today?
_ Rs.100.00
_ Rs.108.20
_ Rs.92.59
_ Rs.96.40
Question No: 28 ( Marks: 1 ) - Please choose one
___________ is the today's value of a payment that is promised to be made in
the future.
_ None of the given options
_ Future value
_ Present value
_ Agreed value
The present value is the value today of a payment that is promised to be made in
the future. It is the amount that must be invested today in order to realize a
specific amount on a given future date
Question No: 29 ( Marks: 1 ) - Please choose one
The future value of $100 left in a savings account earning 4.5% for two and a half
years is best expressed by:
_ $100(1.045)3/2
_ $100( 0.45)2.5
_ $100(1.045)2.5
_ 100 x 2.5 x (1.045)
Question No: 30 ( Marks: 1 ) - Please choose one
What is relationship between interest rate and future value?
_ Lower the interest rate higher will be the future value
_ Higher the interest rate higher will be the future value
_ Higher the interest rate lower will be the future value
_ Interest rate has no effect on future value
Question No: 31 ( Marks: 1 ) - Please choose one
Which of the following is a financial market in which a borrower obtains funds
from a lender by selling newly issued securities?
_ Secondary market
Come & Join Us at www.vustudents.net_ Primary market
_ Over the counter market
_ Centralized market
In a primary market a borrower obtains funds from a lender by selling newly
issued securities. Most of the action in primary markets goes on out of public
view. Most companies use an investment bank, which will determine a price and
then purchase the company’s securities in preparation for resale to clients; this is
called underwriting. We hear more about the secondary markets where people
can buy and sell existing securities.
Question No: 32 ( Marks: 1 ) - Please choose one
Repurchase agreements are:
_ The most liquid of all money market instruments
_ In use for hundreds of years
_ Loans of deposits at the Federal Reserve
_ Short term loans with Treasury bills as collateral
Question No: 33 ( Marks: 1 ) - Please choose one
Considering the value of a financial instrument, the longer the time until the
promised payment is made:
_ The less valuable is the promise to make it since time is valuable
_ The greater the risk, therefore the promise has greater value
_ The more valuable is the promise to make it
_ It has no effect on the value of instrument
Question No: 34 ( Marks: 1 ) - Please choose one
A Financial Intermediary:
_ Is an agency that guarantees a loan
_ Is involved in direct finance
_ Would be used in indirect finance
_ None of the given options
Question No: 35 ( Marks: 1 ) - Please choose one
The Consumer Price Index (CPI):
_ Tends to overstate inflation due to substitution bias
_ Tends to understate actual inflation
_ Is more accurate than the GDP deflator
_ Is based on basket of goods that changes monthly with consumer expenditures
Question No: 36 ( Marks: 1 ) - Please choose one
All of the following are the components of M2 EXCEPT?
_ M1
_ Saving deposits
_ Travelers cheques
_ Mutual funds shares
Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following statement truly represents the main difference between
debit card and store value card?
Come & Join Us at www.vustudents.net_ Debit card is operated by ATM machine while Store value card doesn’t
_ Debit card appearance is different from Store value card
_ Debit card is not specific for user but store value card is specific
_ Debit card is specific for user but store value card is not
Question No: 38 ( Marks: 1 ) - Please choose one
In electronic transfer the most common method is to send money through a
systemmaintained by Federal reserve called __________.
_ Fedex
_ Fedwire
_ Fedtransfer
_ Fedmoney
One wire transfer system used generally to transfer large dollar amounts
instantaneously
and which is provided by the US Federal Reserve System
Question No: 39 ( Marks: 1 ) - Please choose one
The one that you get from bank when you open your checking account is
.__________
_ Debit card
_ Credit card
_ Store value card
_ Customer card
Question No: 40 ( Marks: 1 ) - Please choose one
Mr. Ghazanfar has assets which when converted to cash, yield more currency
then he needs to pay his debt. Which of the following statement best suites Mr.
Ghazanfar?
_ Mr. Ghazanfar earns good income
_ Mr. Ghazanfar is a wealthy person
_ All of the given options
_ Mr. Ghazanfar has a lot of money at point in time
Question No: 41 ( Marks: 10 )
What are five core principles of financial system? Discuss it in detail.
Answer:
Financial System:
In finance, the financial system is the system that allows the transfer of money
between savers and borrowers.
Five Core Principles of the Financial System & Details:
Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following are without maturity dates?
_ Zero coupon bonds
_ Coupon securities
_Consols
_ Preferred Bonds
Question No: 2 ( Marks: 1 ) - Please choose one
Come & Join Us at www.vustudents.netWhich of the following institution takes direct deposit from customer and gives
loan to customer directly?
_ZaraiTarkaytee Bank LTD
_Soneri Bank
_Khushali Bank
_ Credit union
Question No: 3 ( Marks: 1 ) - Please choose one
Mr. Ghazanfar obtains a home improvement loan from Allied Bank.This loan is:
_ Mr. Ghazanfar’s asset and the bank's liability
_ Mr. Ghazanfar 's asset, but the liability belongs to the bank's depositors
_ Mr. Ghazanfar 's liability and an asset for the bank
_ Both Mr. Ghazanfar's and bank's liability
Question No: 4 ( Marks: 1 ) - Please choose one
Components of M1DO NOT include which one of the following?
_ Currency in the hands of public
_ Demand deposits
_ Small denominations time deposit
_ Checkable deposits
Question No: 5 ( Marks: 1 ) - Please choose one
Which of the following has created an opportunity for small investors to
participate in economic activity?
_Mutual funds
_ Small corporations
_ Stock brokers
_ Small investors cannot take part in economic activity
Question No: 6 ( Marks: 1 ) - Please choose one
Which of the following is NOT an example of financial institutions?
_ Bank
_ Securities firm
_Stock exchange
_ Insurance company
Question No: 7 ( Marks: 1 ) - Please choose one
Requiring a large deductible on the part of an insured is one way insurers treat
the problem of:
_ Free-riding
_Moral hazard
_Adverse selection
_ The Lemons market
Question No: 8 ( Marks: 1 ) - Please choose one
In a financial market where information is symmetric:
_The same information would be known by both parties in a transaction
_One party to a transaction knows information the other party does not
_The ability to obtain information is available to only one party
Come & Join Us at www.vustudents.net_ All of the given options
Question No: 9 ( Marks: 1 ) - Please choose one
When stock prices reflect fundamental values:
_ All investors will experience capital gains
_All companies will have an easier task of obtaining financing for investment
projects
_The allocation of resources will be more efficient
_The overall level of the stock market should move higher continuously
Question No: 10 ( Marks: 1 ) - Please choose one
An index number is a valuable tool because:
_The number by itself provides all of the useful information needed
_The index provides a meaningful measurement scale to calculate
percentage changes
_The index is more stable than the data it reflects
_It does not require any calculations to compute percentage changes
Question No: 11 ( Marks: 1 ) - Please choose one
The concept of limited liability says a stockholder of a corporation:
_Is liable for the corporation's liabilities, but nothing more
_Cannot receive dividends that exceed their investment
_Cannot own more than fiver percent of any public corporation
_Cannot lose more than their investment
Question No: 12 ( Marks: 1 ) - Please choose one
Other things remaining equal, the liquidity premium theory is based upon the idea
that ____________.
_ Investors prefer long-term bonds
_Investors prefer short-term bonds
_ Investors are indifferent between short-term and long-term bonds
_ Investors prefer intermediate-term bonds
Question No: 13 ( Marks: 1 ) - Please choose one
Which one of the following is NOT true for the expectation hypothesis?
_ Risk free interest rate can be computed
_There is uncertainty in the future
_ Identifying yield of bond today that will be available next year
_It focuses on risk free interest rate and the risk premium
Question No: 14 ( Marks: 1 ) - Please choose one
A graph of the term structure with YTM on Y-axis and time to maturity on X-axis
is called:
_ Demand curve
_ Supply curve
_ Yield curve
_Leffer curve
Come & Join Us at www.vustudents.netQuestion No: 16 ( Marks: 1 ) - Please choose one
The____________ are an assessment of the creditworthiness of the corporate
issuer.
_ Bond yield
_ Bond ratings
_ Bond risk
_ Bond price
Question No: 17 ( Marks: 1 ) - Please choose one
The bond rating of a security refers to which of the followings?
_The size of the coupon payment relative to the face value
_The return a holder is likely to receive
_The likelihood the lender/borrower will be repaid by the borrower/issuer
_The years until the bond matures
Question No: 18 ( Marks: 1 ) - Please choose one
An increase in the expected inflation shifts the bond demand to the _________
_Right
_Left
_No change
_None of the given options
Question No: 19 ( Marks: 1 ) - Please choose one
The current yield on a $10,000, 5% coupon bond selling for $8,000 is:
_ 6.25%
_ 7.50%
_ 8.00%
_ 5.00%
Question No: 20 ( Marks: 1 ) - Please choose one
If the annual interest rate is 6% (.06); the price of a one year Treasury bill would
be:
_ $94.00
_ $94.33
_ $95.25
_ $96.10
Question No: 21 ( Marks: 1 ) - Please choose one
The return on holding a bond till its maturity is called:
_ Coupon rate
_Yield to maturity
_ Current yield
_ Fixed return
Question No: 22 ( Marks: 1 ) - Please choose one
Which of the following best describes the relationship between Bond prices and
yields?
_ Move together directly
_ Independent of each other
_ Move together inversely
Come & Join Us at www.vustudents.net_ Bond yields do not change since the coupon is fixed
Question No: 23 ( Marks: 1 ) - Please choose one
Mr. A has a Treasury bill with a maturity period of 6 months where as Mr. B has a
bond with a maturity period of 1 year. Which of the following statement is NOT
true for this situation?
_ Mr. A has paid less price for his bond than Mr. B
_ Mr. A and Mr. B is a holder of zero coupon bond
_ Mr. A will receive payment at the end of the maturity period
_ Mr. B will receive the payment at the end of the maturity period
Question No: 24 ( Marks: 1 ) - Please choose one
What is true relationship between return and risk?
_ Lower the risk greater the return
_Greater the risk greater the return
_ Greater the risk no change in return
_ No relationship between them
Question No: 25 ( Marks: 1 ) - Please choose one
Sum of all the probabilities should be equal to which one of the following?
_ Zero
_ One
_ Two
_ Three
Question No: 26 ( Marks: 1 ) - Please choose one
_________ measures the probability of worst outcome in any investment project.
_ Variance
_ Standard deviation
_Value at risk
_ Hedging
Question No: 27 ( Marks: 1 ) - Please choose one
The variance is generally less useful than the standard deviation on which of the
following reasons?
_ Variance is easier to calculate
_ Variance is a measure of risk, whereas standard deviation is a measure of
return
_Variance isn't calculated in the same units as payoffs where as standard
deviation is
_Both are equally useful
Question No: 28 ( Marks: 1 ) - Please choose one
A credit market instrument that pays the owner a fixed coupon payment every
year until the maturity date and then repays the face value is called:
_ Simple loan
_ Fixed-payment loan
_ Coupon bond
_ Discount bond
Come & Join Us at www.vustudents.netQuestion No: 29 ( Marks: 1 ) - Please choose one
Which of the following provides the greatest incentive to borrow?
_A high real interest rate
_A low real interest rate
_A high nominal interest rate
_A low nominal interest rate
Question No: 30 ( Marks: 1 ) - Please choose one
An investment carrying a current cost of $130,000 is going to generate $70,000
of revenue for each of the next three years. To calculate the internal rate of
return we need to:
_Calculate the present value of each of the $70,000 payments and multiply these
and set this equal to $130,000
_ Take the present value of $210,000 for three years from now and set this equal
to $130,000
_Set the sum of the present value of $70,000 for each of the next three
years equal to $130,000
_Subtract $130,000 from $210,000 and set this difference equal to the interest
rate
Question No: 31 ( Marks: 1 ) - Please choose one
A borrower is promised a $100 payment (including interest) one year from today.
If the lender has an 8% opportunity cost of money, he should be willing to accept
what amount today?
_ Rs.100.00
_ Rs.108.20
_ Rs.92.59
_ Rs.96.40
Question No: 32 ( Marks: 1 ) - Please choose one
Which one of the following is NOT an example of Centralized exchange?
_ New York Stock Exchange
_ NASDAQ
_ Large exchanges in London
_ Large exchanges in Tokyo
Question No: 33 ( Marks: 1 ) - Please choose one
Financial intermediaries provide small lender-savers all of the following
advantages
EXCEPT:
_ Greater liquidity
_ Lower transaction cost
_ Lower risk
_Higher return
Question No: 34 ( Marks: 1 ) - Please choose one
The shares of McDonald Corporation stock are examples of:
_A standardized financial instrument
_A standardized financial liability instrument
_A non-standardized financial instrument
Come & Join Us at www.vustudents.net_A means of payment
Question No: 35 ( Marks: 1 ) - Please choose one
Which of the following statements is NOT correct?
_ Banks are financial intermediaries
_Financial intermediary involves in giving loan and accepting deposit
_All financial intermediaries are insurance companies
_Financial intermediaries increase the efficiency of the economy
Question No: 36 ( Marks: 1 ) - Please choose one
Economic research shows:
_There is a strong inverse correlation between financial market development and
economic growth
_There is weak relation between financial market development and economic
growth around 0.25
_There is a relatively strong positive correlation between financial market
development and economic growth
_There isn't any correlation between financial market development and economic
growth
Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following statements is correct?
_If you can buy the same goods this year as you bought last year with less
money the money supply decreased.
_To purchase the same goods today that were purchased one year ago
requires more money, there must have been inflation
_To purchase the same goods today as one year ago requires less money, the
money supply must have increased
_To purchase the same goods today that were purchased one year ago requires
the same amount of money, there must have been inflation
Question No: 38 ( Marks: 1 ) - Please choose one
The one that you get from bank when you open your checking account is
.__________
_Debit card
_ Credit card
_ Store value card
_ Customer card
Question No: 39 ( Marks: 1 ) - Please choose one
Wealth can be held in number of other forms but we use to hold money because
of which one of the following reason?
_It is the only mode of payment
_It is an asset
_It is most liquid
_It is the only store of value
Question No: 40 ( Marks: 1 ) - Please choose one
Which of the following are used to monitor and stabilize the economy?
Come & Join Us at www.vustudents.net_ Stock exchanges
_ Commercial Banks
_Central Banks
_Financial institutions
Question No: 41 ( Marks: 10 )
“A financial instrument is a real or virtual document representing a legal
agreement involving some sort of monetary value.” Discuss further on financial
instruments by giving examples. Point out some of its uses and important
characteristics.
ANSWER: Financial Instrument: Financial instrument is a written obligation of
one party to transfer something of value to anther party at a future date under
certain conditions.
By written obligation we mean that it is enforced by the government and this   .
obligation is an important feature of a financial instrument.
The party here can be an individual, company or a government   .
.Future date can be specified or when some event occurs   .
Examples: Stocks, bonds, insurance etc are examples of financial instruments.
Characteristics of Financial Instruments: There are certain characteristics of
financial instruments.
1. Standardization: It is a standardized agreement which enables reduction in
costs of complexity. So because of this most financial instruments today are
similar.
2. Communicate Information: Provide certain important information about the
issuer which otherwise would have been difficult to gather for the lenders.
Value of Financial Instruments: The value of financial instruments depends on
various factors.
.Size: Larger the promised payment more valuable is the financial instrument   .
Timing: The sooner the payment is made increases the value of financial   .
instrument.
Risk: A financial instrument is more valuable if there are greater possibilities   .
that payment will be made.
Circumstances: Payments made when needed the most makes the financial   .
instrument more valuable.
Uses of Financial Instruments:
:Store Of Value   .
Stocks: The stock holder is a part owner of the firm and receives
part of its profits.
Bonds: A form of loan which promises to make repayment in future
dates.
Bank loans: Borrowers obtains resources from lenders in exchange
of promised payments.
:Transfer of Risk   .
Insurance: Takes premium to assure payment under particular
conditions (accident, death etc)
Future contracts: It is an agreement to exchange fixed quantity of a
commodity or an asset at a fixed price. Transfer risk of price
fluctuations.
Come & Join Us at www.vustudents.netOptions: Gives holder the right to purchase fixed quantity of an
underlying asset at predetermined price within a specific period.
Question # 1 of 15 ( Start time: 12:24:16 AM ) Total Marks: 1
Which of the following best expresses the payment a lender receives for lending their money for four years?
Select correct option:
PV(1+i)4
PV/(1 + i)4
4PV
PV/(1 - i)4
Question # 2 of 15 ( Start time: 12:25:21 AM ) Total Marks: 1
Which characteristic are common both in money and securities
Select correct option:
Transfer of risk, store of value
Unit of account, mean of payment
Mean of payment, transfer of risk
Store of value, mean of payment
Question # 3 of 15 ( Start time: 12:26:18 AM ) Total Marks: 1
We need __________ to carry out day to day transactions.
Select correct option:
Money
Bonds
Stocks
Loans
Question # 4 of 15 ( Start time: 12:27:39 AM ) Total Marks: 1
Which of the following best describes checks?
Select correct option:
A means of payment
Money
Not a promise of any kind
Not acceptable by the U.S. Government for payment
of taxes.
Question # 5 of 15 ( Start time: 12:28:17 AM ) Total Marks: 1
The____________ are an assessment of the creditworthiness of the corporate issuer.
Select correct option:
Bond yield
Bond ratings
Bond risk
Bond price
Question # 6 of 15 ( Start time: 12:29:10 AM ) Total Marks: 1
Which of the following best describes the relationship between Bond prices and yields?
Select correct option:
Move together inversely
Bond yields do not change since the coupon is fixed
Move together directly
Are independent of each other
Question # 7 of 15 ( Start time: 12:29:56 AM ) Total Marks: 1
Core principles of Money and Banking include each of the following except?
Select correct option:
People act rationally
Time has value
Information is the basis for decisions
Risk requires compensation
Question # 8 of 15 ( Start time: 12:30:49 AM ) Total Marks: 1
An increase in the expected inflation shifts the bond supply to the _________.
Select correct option:
Right
Left
No change
All of the given options
Question # 9 of 15 ( Start time: 12:32:14 AM ) Total Marks: 1
Which of the following institution take direct deposit from customer and give loan to customer directly?
Select correct option:
Zarai Tarkaytee Bank LTD
Soneri Bank
Come & Join Us at www.vustudents.netKhushali Bank
Credit union
Question # 10 of 15 ( Start time: 12:33:18 AM ) Total Marks: 1
A __________ is a promise to make a series of payments on specific future date.
Select correct option:
Stock
Bond
Loan
Cheque
Question # 11 of 15 ( Start time: 12:33:57 AM ) Total Marks: 1
Which of the following best represent the true relationships between interest rates and bond prices?
Select correct option:
Move in the same direction
Move in opposite direction
Sometimes move in the same direction, some times
in opposite direction
Have no relationship with each other (i.e. they are
independent)
Question # 12 of 15 ( Start time: 12:34:39 AM ) Total Marks: 1
Time affects the value of which of the following?
Select correct option:
Financial Instruments
Financial Markets
Financial Institutions
Central Banks
Question # 13 of 15 ( Start time: 12:35:18 AM ) Total Marks: 1
___________ is the strategy of reducing overall risk by making two investments with opposing risks.
Select correct option:
Spreading the risk
Standard deviation
Hedging the risk
Variance
Question # 14 of 15 ( Start time: 12:35:51 AM ) Total Marks: 1
Bonds without maturity dates are which of the followings?
Select correct option:
Zero coupon bonds
Coupon securities
Consols
Preferred Bonds
Question # 15 of 15 ( Start time: 12:36:33 AM ) Total Marks: 1
Which is broadly used as money aggregate?
Select correct option:
M1
M2
M3
None of Above
MIDTERM EXAMINATION
Spring 2010
MGT411- Money & Banking (Session - 2)
Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following are used to transfer resources from savers to investors and to
transfer risk to those who best equipped it?
► Financial markets
► Financial instruments
► Financial institutions
► Banks
Refrance page num 2
2. Financial Instruments
Come & Join Us at www.vustudents.net To transfer wealth from savers to borrowers
 To transfer risk to those best equipped to bear it .
 Once investing was an activity reserved for the wealthy
 Costly individual stock transactions through stockbrokers
 Information collection was not so easy
 Now, small investors have the opportunity to purchase shares in “mutual funds.”
Question No: 2 ( Marks: 1 ) - Please choose one
The reason for the government to get involved in the financial system is to:
► Protect investors
► Ensure the stability of the financial system
► Protect bank customers from monopolistic exploitation
► All of the given options
Refrance page num 92
There are three reasons for the government to get involved in the financial system
 To protect investors
 To protect bank customers from monopolistic exploitation
 To ensure the stability of the financial system
Question No: 3 ( Marks: 1 ) - Please choose one
A Financial Intermediary:
► Is an agency that guarantees a loan
► Is involved in direct finance
► Would be used in indirect finance
► None of the given options
Question No: 4 ( Marks: 1 ) - Please choose one
A derivative instrument:
► Gets its value and payoff from the performance of the underlying instrument
► Is a high risk financial instrument used by highly risk averse savers
► Comes into existence after the underlying instrument is in default
► Should be purchased prior to purchasing the underlying security
Page num 16
Derivative Instruments
 Value and payoffs are “derived from” the behavior of the underlying instruments
Question No: 5 ( Marks: 1 ) - Please choose one
The financial intermediary that obtains funds largely through premium payments and
uses those funds to purchase corporate bonds and mortgages is:
► Credit unions
► Mutual funds
► Life insurance companies
► Pension funds
Ref page 21
Question No: 6 ( Marks: 1 ) - Please choose one
Which one of the following financial instrument is NOT primarily used as store of value?
► Banks loans
► Asset-backed securities
► Insurance contracts
► Stocks
Ref page 17
Come & Join Us at www.vustudents.netPrimarily Stores of Value
 Bank Loans
 A borrower obtains resources from a lender immediately in exchange for a promised set
of
payments in the future
 Bonds
 A form of a loan, whereby in exchange for obtaining funds today a government or
corporation
promises to make payments in the future
 Home Mortgages
 A loan that is used to purchase real estate
 The real estate is collateral for the loan ,
 It is a specific asset pledged by the borrower in order to protect the interests of the
lender in the
event of nonpayment.
 If payment is not made the lender can foreclose on the property .
 Stocks
 An owner of a share owns a piece of the firm and is entitled to part of its profits .
Question No: 7 ( Marks: 1 ) - Please choose one
Which one of the following represents the main purpose for which the secondary markets
are made?
► Small investors who don’t have an access to new securities
► Primary market is not enough for buying and selling of securities
► Large investors usually traded in these markets
► Prices in the secondary markets are known to investors
Question No: 8 ( Marks: 1 ) - Please choose one
Which one of the following is NOT an example of Centralized exchange?
► New York Stock Exchange
► NASDAQ
► Large exchanges in London
► Large exchanges in Tokyo
Question No: 9 ( Marks: 1 ) - Please choose one
What will be the effect on the present value if we double the future value of the payment?
► It will decrease the value by one-half
► It will increase the value by one-half
► It will equally increase the value i.e. doubles the value
► It will have no effect on the value
Question No: 10 ( Marks: 1 ) - Please choose one
The interest rate that is involved in _____________ calculation is referred to as discount
rate
► Present value
► Future value
► Intrinsic value
► Discount value
Question No: 11 ( Marks: 1 ) - Please choose one
A credit market instrument that pays the owner a fixed coupon payment every year until
the maturity date and then repays the face value is called:
► Simple loan
Come & Join Us at www.vustudents.net► Fixed-payment loan
► Coupon bond
► Discount bond
Question No: 12 ( Marks: 1 ) - Please choose one
Mary is planning on taking out a mortgage loan for her new house. She is given the
choice of two different banks: Bank A has quoted annual rate of 8% compounded
semiannually
and Bank B has a quoted annual rate of 7.5% compounded for a certain number
of times a year. Which bank should Mary choose?
► Bank A
► Bank B
► Indifferent between Bank A and Bank B
► Insufficient information
Question No: 13 ( Marks: 1 ) - Please choose one
For a $1000 one year discount bond with a price of $975, the yield to maturity is which
of the following?
► $975/$1000
► ($1000 – $975)/$975
► ($1000 – $975)/($1000)
► $1000/$975
Cuppon rate/ market price
Question No: 14 ( Marks: 1 ) - Please choose one
If YTM equals the coupon rate the price of the bond is __________ .
► Greater than its face value
► Lower than its face value
► Equals to its face value
► Insufficient information is given
Ref chaptor 14 start
Question No: 15 ( Marks: 1 ) - Please choose one
If YTM is less than the coupon rate the price of the bond is __________ .
► Greater than its face value
► Lower than its face value
► Equals to its face value
► Insufficient information is given
Ref chaptor 14 start
Page 43
Yield to Maturity: General Relationships
 General Relationships
 If the yield to maturity equals the coupon rate, the price of the bond is the same as its
face value.
 If the yield is greater than the coupon rate, the price is lower ;
 if the yield is below the coupon rate, the price is greater
 If you buy a bond at a price less than its face value you will receive its interest and a capital gain ,
which is the difference between the price and the face value.
 As a result you have a higher return than the coupon rate
 When the price is above the face value, the bondholder incurs a capital loss and the bond’s yield
to
Come & Join Us at www.vustudents.netmaturity falls below its coupon rate
Question No: 16 ( Marks: 1 ) - Please choose one
Current yield is equal to which of the following?
► Price paid / yearly coupon payment
► Price paid *yearly coupon payment
► Yearly coupon payment / face value of bond
► Yearly coupon payment / price paid
Question No: 17 ( Marks: 1 ) - Please choose one
For a $100 one-year zero-coupon bond, the supply will be __________ at $95 than it will
be at $90, all other things being equal.
► Higher than before
► Lower than before
► Stable
► Insufficient information
For a $100 one-year zero-coupon bond, the supply will be higher at $95 than it will be at
$90,
all
other things being equal.
Question No: 18 ( Marks: 1 ) - Please choose one
An increase in the expected inflation shifts the bond supply to the _________
► Right
► Left
► No change
► None of the given options
An increase in expected inflation shifts bond supply to the right and bond demand
to
the left.
Question No: 19 ( Marks: 1 ) - Please choose one
The default premium:
► Is positive for a U.S. Treasury bond
► Must always be less than 0 (zero)
► Is also known as the risk spread
► Is assigned by a bond rating agency
Question No: 20 ( Marks: 1 ) - Please choose one
Calculate tax implication on Bond yields. Consider a one year bond face value
Rs.100 (issued by Government) with coupon rate of 6%.What is the income of
bond that is received at maturity? (Tax rate is 30%).
► Rs.6
► Rs.1.80
► Rs.4.20
► Rs.7.80
Come & Join Us at www.vustudents.netTax-Exempt Bond Yield = (Taxable Bond Yield) x (1- Tax Rate).
Question No: 21 ( Marks: 1 ) - Please choose one
Which of the following statement is true for the given sentence, "that tax affects
the bond return"?
► Because only interest income they receive from bond is taxable
► Because principal amount and interest income they receive from bond is
taxable
► Because bond holders are taxpayers
► Because all bond is sold with a condition that tax will be deducted from its
return
The important factor that affects the return on a bond is taxes
Bondholders must pay income tax on the interest income they receive from
privately issued
Question No: 22 ( Marks: 1 ) - Please choose one
Expectation hypothesis focuses on which one of the following?
► Risk premium
► Risk free interest rate
► Yield to maturity
► None of the given options
Reference:
Expectations Hypothesis
The risk-free interest rate can be computed, assuming that there is no uncertainty about
the future
Question No: 23 ( Marks: 1 ) - Please choose one
According to the liquidity premium theory of the term structure, when the yield
curve has its usual slope, the market expects
► Short-term interest rates to rise sharply
► Short-term interest rates to stay near their current levels
► Short-term interest rates to drop sharply
► Short-term interest rates does not change
Question No: 24 ( Marks: 1 ) - Please choose one
The Theory of Efficient Markets:
► Allows for higher than average returns if the investor takes higher
risk
Come & Join Us at www.vustudents.net► Says Insider-information makes markets less efficient
► Rules out high returns due to chance
► Assumes people have equal luck
Question No: 25 ( Marks: 1 ) - Please choose one
If information in a financial market is asymmetric, this means:
► Borrowers and lenders have the same information
► Lenders lack any information
► Borrowers and lenders have perfect information
► Borrowers would have more information than lenders
Question No: 26 ( Marks: 1 ) - Please choose one
Often a bank will require a loan officer to make personal visits on customers with
loans outstanding. This is encouraged because:
► The bank worries about competitors trying to steal their customers
► The bank wants to make sure the business is still there
► The bank likely has excess funds available and hopes to make another
loan to the business
► This is an effective monitoring technique and should reduce moral
hazard
Question No: 27 ( Marks: 1 ) - Please choose one
Financial instruments are used to transfer which of the following?
► Both Risk and Resources
► Risk
► Resources
► Mortgages
Question No: 28 ( Marks: 1 ) - Please choose one
Which of the following has created an opportunity for small investors to
participate in economic activity?
► Mutual funds
► Small corporations
► Stock brokers
► Small investors cannot take part in economic activity
Question No: 29 ( Marks: 3 )
Come & Join Us at www.vustudents.netFind out YTM of 1 year 12% coupon bond selling at $130. (Face value of bond =
$100).
Question No: 30 ( Marks: 3 )
Why stocks are risky?
Question No: 31 ( Marks: 5 )
Discuss the negative consequences of information costs and also suggest their
solution.
Question No: 32 ( Marks: 5 )
Ahmad purchases a 10 year 8% coupon bond with the face value of $100. He
wants to hold this bond for 1-year and then sells a 9-year bond after 1-year.
(i) If interest rate does not change then what will be the rate of return?
(ii) If interest rate falls to 6% then suppose price increases to $109.16. What will
be the capital gain after the price rise?
(iii) After the price rise, what will be the one year holding period return?