MGT411 Paper 26 May,2010
Reply With QuoteMIDTERM 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.
