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MIDTERM EXAMINATION MGT411- Money & Banking

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

Wider the range of outcomes wider will be the ___________.

► Risk

► Cost

► Probability

► Loss

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

Which of the following statement is true?

► Increasing the FV by any percentage will change the PV by same percentage in opposite direction

► Increasing the FV by any percentage will change the PV by same percentage in same direction

► Increasing the FV by any percentage will not change the PV by any percentage

► None of the given options

Question No: 3 ( Marks: 1 ) - Please choose one

A change in the interest rate:

► Has a larger impact on the present value of a payment to be made far into the future than one to be made sooner

► Will not have a difference on the present value of two equal payments to be made at different times

► Has a smaller impact on the present value of a payment to be made far into the future than one to be made sooner

► None of the given options

Question No: 4 ( Marks: 1 ) - Please choose one

The interest rate used in the present value calculation is often referred as:

► Discount rate

► Inflation rate

► Nominal rate

► Deflation rate

Question No: 5 ( Marks: 1 ) - Please choose one

__________ pool money from individuals and invest in differ net portfolio and return is distributed in different share holders.

► Mutual funds

► Investment banks

► Brokers

► Finance companies

Question No: 6 ( Marks: 1 ) - Please choose one

Which of the following institution takes direct deposit from customer and gives loan to customer directly?

► Zarai Tarkaytee Bank LTD

► Soneri Bank

► Khushali Bank

► Credit union

Question No: 7 ( Marks: 1 ) - Please choose one

The statement "risk requires compensation" implies:

► People always accept risk

► People will only accept risk when they are rewarded for doing so

► People do not take risk

► People will pay to avoid risk

Question No: 8 ( Marks: 1 ) - Please choose one

Financial instruments are used to transfer which of the following?

► Both Risk and Resources

► Risk

► Resources

► Mortgages

Question No: 9 ( Marks: 1 ) - Please choose one

The Dividend-Discount Model of stock valuation:

► Takes the annual dividend, adds it to the expected future selling price and divides by the number of years to get the current price

► Takes the net present value of expected dividends and add it to the future sale price of the stock

► Takes the net present value of the expected future price of the stock and add the annual dividend

► Is an application of the net present value formula

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

You start with a $1000 portfolio; it loses 40% over the next year, the following year it gains 50% in value; At the end of two years the worth of your portfolio will be:

► $900

► $600

► $1000

► $1100

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

The risk premium of a bond will:

► Higher for investment-grade bonds than for high-yield bonds

► Positive but small if the risk of default is zero

► Decrease when the default risk rises

► Increase when the risk of default rises

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

A graph in which time to maturity is along x-axis and yield to maturity is along y-axis is called __________.

► Government curve

► SWAP curve

► Yield curve

► LIBOR curve

Question No: 14 ( Marks: 1 ) - Please choose one

Which of the following statement is true about two bonds having same default rate and tax status but different maturity dates?

► It creates no effect on yield of bonds

► Both of them have different yield

► Liquidity risk factor should be taken into consideration

► It is impossible that default risk and tax status of two bonds are same

Question No: 15 ( 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: 16 ( Marks: 1 ) - Please choose one

Which of the following ratings shows “Highest quality and credit worthiness”?

► AAA

► AA

► BB

► A

Question No: 17 ( Marks: 1 ) - Please choose one

Which of the following best describes default risk?

► The chance the issuer will be unable to make interest payments or repay principal

► The chance the issuer will retire the debt early

► The chance the issuing firm will be sold to another firm

► The chance the issuer will sell more debt

Question No: 18 ( Marks: 1 ) - Please choose one

In which of the following bonds we may ignore the default risk?

► Privately issued bonds

► Government issued bonds

► Bonds issued by Corporate

► All of the given options

Question No: 19 ( Marks: 1 ) - Please choose one

A business cycle downturn shifts the bond supply to the:

► Right

► Left

► No change

► None of the given options

Question No: 20 ( Marks: 1 ) - Please choose one

The relationship between the price and the interest rate for a zero coupon bond is best described as _________.

► Volatile

► Stable

► Inverse

► No relationship

Question No: 21 ( Marks: 1 ) - Please choose one

The return on holding a bond till its maturity is called:

► Coupon rate

► Yield to maturity

► Current yield

► Fixed return

Question No: 22 ( Marks: 1 ) - Please choose one

Treasury bonds & corporate bonds are the examples of__________ bonds.

► Zero-coupon bonds

► Coupon bonds

► Consols

► Fixed payment

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