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Thread: MGT411 Paper 26 May,2010

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    99 MGT411 Paper 26 May,2010

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    MIDTERM EXAMINATION
    Spring 2010
    MGT411- Money & Banking (Session - 5)


    Question No: 1 ( Marks: 1 ) - Please choose one
    Given a choice between two investments with the same expected payoff:

    ► Most people will select the one with the highest variance
    ► Most people will opt for the one with the higher standard deviation
    ► Most people will be indifferent since the expected payoffs are the same
    ► Most people will choose the one with the lower standard deviation

    Question No: 2 ( Marks: 1 ) - Please choose one

    For the valuation of goods and for quoting prices under the barter system the general formula which is used for n goods is ___________.

    ► n (n+1)/ 2
    ► n (n-1)* 2
    ► n (n-1)/ 2
    ► (n-1)/ 2

    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
    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: 5 ( 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: 6 ( Marks: 1 ) - Please choose one
    Which of the following is NOT a non depository institution?

    ► House Building Finance Corporation
    ► Zarai Tarkaytee Bank LTD
    ► United Bank LTD
    ► Khushali Bank

    Question No: 7 ( 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: 8 ( 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: 9 ( 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

    Question No: 10 ( 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: 11 ( Marks: 1 ) - Please choose one

    Which of the following statement best describes to calculate the future value?

    ► Multiply the present value by the interest rate and add that amount of interest to the present value
    ► Divide the present value by the interest rate and add that amount of interest to the present value.
    ► Divide the present value by the interest rate and subtract that amount of interest to the present value.
    ► Multiply the present value by the interest rate and subtract that amount of interest to the present value.

    Question No: 12 ( 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: 13 ( Marks: 1 ) - Please choose one

    When an individual obtains a student loan and makes all of the regular monthly payments, the sum of the payments made will exceed the initial amount of the loan. Which of the core principle primarily applies in this situation?

    ► Risk Requires Compensation
    ► Time has value
    ► Markets are sometimes inefficient at allocating resources
    ► Information is the basis for decisions

    Question No: 14 ( 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: 15 ( 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

    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 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: 18 ( 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: 19 ( 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: 20 ( 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: 21 ( Marks: 1 ) - Please choose one
    Beside default risk which one if the following factor affects the return on bond?

    ► Taxes
    ► Monetary policy
    ► Junk bonds
    ► Debt

    Question No: 22 ( 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: 23 ( 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: 24 ( 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: 25 ( Marks: 1 ) - Please choose one
    Mr. David makes payment in the form of paper cheques to a merchant in exchange of some goods. Merchant deposits that cheque in his bank in order to receive payment. Which one of the following is NOT true for the above situation?

    ► Merchant's bank will debit merchant’s account and credit Mr. David's account.
    ► Merchant's bank will just credit the merchant account and send cheque to central bank for further processing.
    ► Mr. David's bank will debit his account.
    ► Central bank will credit merchant's bank reserve account and debit Mr. David's Bank account.

    Question 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
    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: 28 ( Marks: 1 ) - Please choose one
    If a bank has 2000 depositors, each of whom deposits $500 in the bank, and the bank makes 100 loans of $10,000 each:

    ► Each depositor has contributed $100 to each loan
    ► Each depositor has contributed $5 to each loan
    ► Each depositor has contributed $50 to each loan
    ► Each depositor has contributed $500 to each loan


    Question No: 29 ( Marks: 3 )

    “Stock market plays a crucial role in every modern capitalist economy”. Discuss.

    Question No: 30 ( Marks: 3 )
    Differentiate among the individual’s categories of Risk Neutral, Risk Averse and Risk Lovers.

    Question No: 31 ( Marks: 5 )
    Discuss bubbles in your own word.

    Question No: 32 ( Marks: 5 )

    Equilibrium in the bond market is the point at which bonds supply equals bonds demand. Discuss bond supply and bond demand.
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  3. #3
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    MIDTERM EXAMINATION
    Spring 2010
    MGT411- Money & Banking (Session - 4)
    Time: 60 min
    Marks: 44


    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
    Banks usually offer lower rates of interest to people willing to keep their funds in the bank for a short time because:

    ► Banks really do not want these people as customers
    ► Banks really do not want a lot of people coming into the bank
    ► Banks realize that time has value
    ► All of the given options

    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

    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

    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
    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

    Question No: 7 ( 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: 8 ( 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: 9 ( 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: 10 ( 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: 11 ( 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: 12 ( 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: 13 ( 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: 14 ( Marks: 1 ) - Please choose one
    _________ measures the probability of worst outcome in any investment project.

    ► Variance
    ► Standard deviation
    ► Value at risk
    ► Hedging

    Question No: 15 ( 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: 16 ( Marks: 1 ) - Please choose one
    Most of the people among us are ___________.

    ► Risk lovers
    ► Risk enhancers
    ► Risk averse
    ► Risk tolerating

    Question No: 17 ( Marks: 1 ) - Please choose one
    When a bond becomes more liquid relative to its alternatives, the demand curve for bonds shifts to the:

    ► Right
    ► Left
    ► No change
    ► None of the given options

    Question No: 18 ( Marks: 1 ) - Please choose one
    Which one of the following agencies assesses the default risk of different issuers?

    ► Insurance companies
    ► Bond issuing
    ► Credit rating
    ► Recruitment agencies

    Question No: 19 ( 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: 20 ( 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: 21 ( Marks: 1 ) - Please choose one
    Which of the following patterns of term structure occur most frequently?

    ► Ascending yield curve
    ► Descending yield curve
    ► Flat yield curve
    ► Humped yield curve

    Question No: 22 ( Marks: 1 ) - Please choose one
    Term structure of interest rate can be explained by which one of the following?

    ► Tax difference
    ► Expectation hypothesis
    ► Liquidity premium theory
    ► Both by expectation hypothesis and liquidity premium theory

    Question No: 23 ( 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: 24 ( 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: 25 ( 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: 26 ( Marks: 1 ) - Please choose one
    Financial instruments are used to transfer which of the following?

    ► Both Risk and Resources
    ► Risk
    ► Resources
    ► Mortgages

    Question No: 27 ( Marks: 1 ) - Please choose one
    _________ evolved from coffee houses to trading places to electronic networks.

    ► Financial companies
    ► Financial markets
    ► Financial institutions
    ► Financial intermediaries

    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 )
    Differentiate between yield to maturity and current yield.


    Question No: 30 ( Marks: 3 )
    “Stock market plays a crucial role in every modern capitalist economy”. Discuss.

    Question No: 31 ( Marks: 5 )
    a) Mr. A has a bond of ABC Corporation. Will his return from this bond be affected by tax? Support your answer with reason.

    b) Mr. B has a bond of that is issued by Government. Will his return from this bond be affected by tax? Support your answer with reason.

    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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