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MGT411 current paper (May 2010)

Wednesday, May 26, 2010 Posted In , , Edit This

Today Paper (26-05-2010)



MIDTERM EXAMINATION
Spring 2010
MGT411- Money & Banking (Session - 2)
Time: 60 min
Marks: 44
Student Info
StudentID:

Center:
OPKST
ExamDate:
5/26/2010 12:00:00 AM

For Teacher's Use Only
Q No.
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Q No.
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Q No.
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32

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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
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
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
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
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
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
► 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 semi-annually 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
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
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
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
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
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
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
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
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
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 )
Find 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?

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