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MIDTERM EXAMINATION
Spring 2010
MGT411- Money & Banking (Session - 4)
Time: 60 min
Marks: 44
Student Info
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Q No. 9 10 11 12 13 14 15 16
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Q No. 17 18 19 20 21 22 23 24
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Q No. 25 26 27 28 29 30 31 32
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Question No: 1 ( 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
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
What will be the Future Value (FV) of $1000 in 5 years at 5% interest rate?
► $1300.00
► $1276.28
► $1999.99
► $1500.52
Which one of the following is the procedure of finding out the Present Value (PV)?
► Discounting
► Compounding
► Time value of money
► Bond pricing
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
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
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
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
Which one of the following agencies assesses the default risk of different issuers?
► Insurance companies
► Bond issuing
► Credit rating
► Recruitment agencies
In the long run, the yield curve tends to be which of the following?
► Upward sloping
► Downward sloping
► Nearly vertical
► Nearly horizontal
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
The theory of efficient market states that prices of financial instruments reflect:
“Stock market plays a crucial role in every modern capitalist economy”. Discuss.
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.
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?