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Thread: MGT411 Solved Midterm paper

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    Icon14 MGT411 Solved Midterm paper

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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 YTMequals 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 YTMis 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

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  2. #2
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    Well, This solution is useful for me to solve the exams of NTS.

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