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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