MIDTERM EXAMINATION
Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following are without maturity dates?
► Zero coupon bonds
► Coupon securities
►
Consols► Preferred Bonds
http://www.allvupastpapers.blogspot.com/Question No: 2 ( 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: 3 ( Marks: 1 ) - Please choose one
Mr. Ghazanfar obtains a home improvement loan from Allied Bank.This loan is:
► Mr. Ghazanfar’s asset and the bank's liability
► Mr. Ghazanfar 's asset, but the liability belongs to the bank's depositors
► Mr. Ghazanfar 's liability and an asset for the bank
► Both Mr. Ghazanfar's and bank's liability
Question No: 4 ( Marks: 1 ) - Please choose one
Components of M
► Currency in the hands of public
► Demand deposits
1 DO NOT include which one of the following?► Small denominations time deposit
► Checkable deposits
Question No: 5 ( 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
http://www.allvupastpapers.blogspot.com/Question No: 6 ( Marks: 1 ) - Please choose one
Which of the following is
► Bank
► Securities firm
►
NOT an example of financial institutions?Stock exchange► Insurance company
Question No: 7 ( 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: 8 ( Marks: 1 ) - Please choose one
In a financial market where information is symmetric:
► The same information would be known by both parties in a
transaction
► One party to a transaction knows information the other party does not
► The ability to obtain information is available to only one party
► All of the given options
Question No: 9 ( Marks: 1 ) - Please choose one
When stock prices reflect fundamental values:
► All investors will experience capital gains
► All companies will have an easier task of obtaining financing for
investment projects
► The allocation of resources will be more efficient
► The overall level of the stock market should move higher continuously
http://www.allvupastpapers.blogspot.com/Question No: 10 ( Marks: 1 ) - Please choose one
An index number is a valuable tool because:
► The number by itself provides all of the useful information needed
►
percentage changes
The index provides a meaningful measurement scale to calculate► The index is more stable than the data it reflects
► It does not require any calculations to compute percentage changes
Question No: 11 ( Marks: 1 ) - Please choose one
The concept of limited liability says
► 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
►
Question No: 12 ( Marks: 1 ) - Please choose one
a stockholder of a corporation:Cannot lose more than their investmentOther things remaining equal, the liquidity premium theory is based upon the
idea that ____________.
► Investors prefer long-term bonds
►
Investors prefer short-term bonds► Investors are indifferent between short-term and long-term bonds
► Investors prefer intermediate-term bonds
Question No: 13 ( Marks: 1 ) - Please choose one
Which one of the following is
► Risk free interest rate can be computed
► There is uncertainty in the future
► Identifying yield of bond today that will be available next year
NOT true for the expectation hypothesis?► It focuses on risk free interest rate and the risk premium
Question No: 14 ( Marks: 1 ) - Please choose one
A graph of the term structure with YTM on Y-axis and time to maturity on X-axis
is called:
► Demand curve
► Supply curve
► Yield curve
► Leffer curve
http://www.allvupastpapers.blogspot.com/Question No: 15 ( Marks: 1 ) - Please choose one
Bond A Bond B
Maturity
5 years 10 yearsDefault risk
5% 5%Tax rate
30% 30%Yield ? ?
See the above table and choose the one option which is
yield of Bond A and Bond B?
►
the yield of the two bonds
NOT correct about theBond tax status and default rate are not the only factors that affect► Bond A has different yield from that of Bond B because of change in
maturity period
► Yields of both the bonds are not disturbed by maturity period
► Yield of Bond B depends on what people expect to happen in years to
come
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 bond rating of a security refers to which of the followings?
► The size of the coupon payment relative to the face value
► The return a holder is likely to receive
► The likelihood the lender/borrower will be repaid by the
borrower/issuer
► The years until the bond matures
http://www.allvupastpapers.blogspot.com/Question No: 18 ( Marks: 1 ) - Please choose one
An increase in the expected inflation shifts the bond demand to the _________
► Right
► Left
► No change
► None of the given options
Question No: 19 ( Marks: 1 ) - Please choose one
The current yield on a $10,000, 5% coupon bond selling for $8,000 is:
► 6.25%
► 7.50%
► 8.00%
► 5.00%
Question No: 20 ( Marks: 1 ) - Please choose one
If the annual interest rate is 6% (.06); the price of a one year Treasury bill would
be:
► $94.00
► $94.33
► $95.25
► $96.10
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
Which of the following best describes the relationship between Bond prices and
yields?
► Move together directly
► Independent of each other
► Move together inversely
► Bond yields do not change since the coupon is fixed
http://www.allvupastpapers.blogspot.com/Question No: 23 ( Marks: 1 ) - Please choose one
Mr. A has a Treasury bill with a maturity period of 6 months where as Mr. B has
a bond with a maturity period of 1 year. Which of the following statement is
NOTtrue for this situation?
► Mr. A has paid less price for his bond than Mr. B
► Mr. A and Mr. B is a holder of zero coupon bond
► Mr. A will receive payment at the end of the maturity period
► Mr. B will receive the payment at the end of the maturity period
Question No: 24 ( Marks: 1 ) - Please choose one
What is true relationship between return and risk?
► Lower the risk greater the return
►
Greater the risk greater the return► Greater the risk no change in return
► No relationship between them
Question No: 25 ( Marks: 1 ) - Please choose one
Sum of all the probabilities should be equal to which one of the following?
► Zero
► One
► Two
► Three
Question No: 26 ( Marks: 1 ) - Please choose one
_________ measures the probability of worst outcome in any investment project.
► Variance
► Standard deviation
►
Value at risk► Hedging
http://www.allvupastpapers.blogspot.com/Question No: 27 ( 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
►
standard deviation is
Variance isn't calculated in the same units as payoffs where as► Both are equally useful
Question No: 28 ( 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: 29 ( Marks: 1 ) - Please choose one
Which of the following provides the greatest incentive to borrow?
► A high real interest rate
► A low real interest rate
► A high nominal interest rate
► A low nominal interest rate
Question No: 30 ( 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
►
years equal to $130,000
Set the sum of the present value of $70,000 for each of the next three► Subtract $130,000 from $210,000 and set this difference equal to the
interest rate
http://www.allvupastpapers.blogspot.com/Question No: 31 ( Marks: 1 ) - Please choose one
A borrower is promised a $100 payment (including interest) one year from today.
If the lender has an 8% opportunity cost of money, he should be willing to accept
what amount today?
► Rs.100.00
► Rs.108.20
► Rs.92.59
► Rs.96.40
Question No: 32 ( Marks: 1 ) - Please choose one
Which one of the following is
► New York Stock Exchange
► NASDAQ
NOT an example of Centralized exchange?► Large exchanges in London
► Large exchanges in Tokyo
Question No: 33 ( 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: 34 ( Marks: 1 ) - Please choose one
The shares of McDonald Corporation stock are examples of:
►
A standardized financial instrument► A standardized financial liability instrument
► A non-standardized financial instrument
► A means of payment
http://www.allvupastpapers.blogspot.com/Question No: 35 ( Marks: 1 ) - Please choose one
Which of the following statements is
NOT correct?► Banks are financial intermediaries
► Financial intermediary involves in giving loan and accepting deposit
► All financial intermediaries are insurance companies
► Financial intermediaries increase the efficiency of the economy
Question No: 36 ( Marks: 1 ) - Please choose one
Economic research shows:
► There is a strong inverse correlation between financial market
development and economic growth
► There is weak relation between financial market development and
economic growth around 0.25
►
market development and economic growth
There is a relatively strong positive correlation between financial► There isn't any correlation between financial market development and
economic growth
Question No: 37 ( Marks: 1 ) - Please choose one
Which of the following statements is correct?
► If you can buy the same goods this year as you bought last year with less
money the money supply decreased.
► To purchase the same goods today that were purchased one year
ago requires more money, there must have been inflation
► To purchase the same goods today as one year ago requires less money,
the money supply must have increased
► To purchase the same goods today that were purchased one year ago
requires the same amount of money, there must have been inflation
http://www.allvupastpapers.blogspot.com/Question No: 38 ( Marks: 1 ) - Please choose one
The one that you get from bank when you open your checking account is
__________.
►
Debit card► Credit card
► Store value card
► Customer card
Question No: 39 ( Marks: 1 ) - Please choose one
Wealth can be held in number of other forms but we use to hold money because
of which one of the following reason?
► It is the only mode of payment
► It is an asset
►
It is most liquid► It is the only store of value
Question No: 40 ( Marks: 1 ) - Please choose one
Which of the following are used to monitor and stabilize the economy?
► Stock exchanges
► Commercial Banks
►
Central Banks► Financial institutions
http://www.allvupastpapers.blogspot.com/Question No: 41 ( Marks: 10 )
“A financial instrument is a real or virtual document representing a legal
agreement involving some sort of monetary value.” Discuss further on financial
instruments by giving examples. Point out some of its uses and important
characteristics.
ANSWER: Financial Instrument:
one party to transfer something of value to anther party at a future date under
certain conditions.
· By written obligation we mean that it is enforced by the government
and this obligation is an important feature of a financial instrument.
· The party here can be an individual, company or a government
· Future date can be specified or when some event occurs.
Financial instrument is a written obligation ofExamples:
Stocks, bonds, insurance etc are examples of financial instruments.Characteristics of Financial Instruments:
financial instruments.
There are certain characteristics of1.
reduction in costs of complexity. So because of this most financial
instruments today are similar.
Standardization: It is a standardized agreement which enables2.
about the issuer which otherwise would have been difficult to gather for
the lenders.
Communicate Information: Provide certain important informationValue of Financial Instruments:
various factors.
·
instrument.
·
financial instrument.
·
possibilities that payment will be made.
·
the financial instrument more valuable.
The value of financial instruments depends onSize: Larger the promised payment more valuable is the financialTiming: The sooner the payment is made increases the value ofRisk: A financial instrument is more valuable if there are greaterCircumstances: Payments made when needed the most makesUses of Financial Instruments:
·
Stocks:
receives part of its profits.
Store Of Value:The stock holder is a part owner of the firm andBonds:
in future dates.
A form of loan which promises to make repaymentBank loans:
exchange of promised payments.
·
Insurance:
particular conditions (accident, death etc)
Borrowers obtains resources from lenders inTransfer of Risk:Takes premium to assure payment underFuture contracts:
quantity of a commodity or an asset at a fixed price. Transfer
risk of price fluctuations.
It is an agreement to exchange fixedOptions:
an underlying asset at predetermined price within a specific
period.Gives holder the right to purchase fixed quantity ofhttp://www.allvupastpapers.blogspot.com/
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