MGT201 Solved Quizs

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

 Which of the following is NOT the present value of the bond?

        ► Intrinsic value (Fair Value or Intrinsic Value – P # 11)

       ► Market price

       ► Fair price

       ► Theoretical price

( not sure about this answer.)

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

 A coupon bond pays annual interest, has a par value of Rs.1,000, matures in 4 years, has a coupon rate of 10%, and has a yield to maturity of 12%.  What is the current yield on this bond?

        ► 10.65%

       ► 10.45%

       ► 10.95%

       ► 10.52%

In this we have to first calculate the price of bond first

=100*(1 + 0.12)^-1+100*(1 + 0.12)^-2+100*(1 + 0.12)^-3+1100*(1.12)^-4 = 939.25

 Current yield = coupon amount /Price of bond

100/939.25 =

So coupon payment  for 4 year @ 10% = 100*4 = 400

Plug the values in Current yield formula = 400/1000 =  .1064 = 10.64%

    Question No: 23    ( Marks: 1 )    - Please choose one

 A coupon bond that pays interest annually is selling at par value of Rs.1,000, matures in 5 years, and has a coupon rate of 9%.  What is the yield to maturity on this bond?

        ► 8.0%

       ► 8.3%

       ► 9.0%

       ► 10.0%

 Question No: 24    ( Marks: 1 )    - Please choose one

 What is yield to maturity on a bond?

 ► It is below the coupon rate when the bond sells at a discount, and equal to the coupon rate when the bond sells at a premium

 ► The discount rate that will set the present value of the payments equal to the bond price (repeated)

 ► It is based on the assumption that any payments received are reinvested at the coupon rate

► None of the given options

Question No: 25    ( Marks: 1 )    - Please choose one

 Which of the following value of the shares changes with investor’s perception about the company’s future and supply and demand situation?

       ► Par value

       ► Market value (repeated – P # 74)

       ► Intrinsic value

       ► Face value

    Question No: 26    ( Marks: 1 )    - Please choose one

 The value of direct claim security is derived from which of the following?

        ► Fundamental analysis

       ► Underlying real asset (P # 63)

       ► Supply and demand of securities in the market

       ► All of the given options

    Question No: 27    ( Marks: 1 )    - Please choose one

 Low Tech Company has an expected ROE of 10%.  The dividend growth rate will be ________ if the firm follows a policy of paying 40% of earnings in the form of dividends.

        ► 6.0%

       ► 4.8%

       ► 7.2%

       ► 3.0%

Growth = ROE * plow back ratio

Plowback ratio     ratio that measures the amount of earnings retained after dividends have been paid out (100%-40% = 60%)

Let us  plug in the value into above formula

 10% * .60 =  6%

   Question No: 28    ( Marks: 1 )    - Please choose one

 How dividend yield on a stock is similar to the current yield on a bond?

        ► Both represent how much each security’s price will increase in a year

       ► Both represent the security’s annual income divided by its price

       ► Both are an accurate representation of the total annual return an investor can expect to earn by owning the security

       ► Both incorporate the par value in their calculation

    Question No: 29    ( Marks: 1 )    - Please choose one

 In the dividend discount model, which of the following is (are) NOT incorporated into the discount rate?

        ► Real risk-free rate

       ► Risk premium for stocks

       ► Return on assets

       ► Expected inflation rate

 Question No: 30    ( Marks: 1 )    - Please choose one

  Total portfolio risk is __________.

        ► Equal to systematic risk plus non-diversifiable risk

       ► Equal to avoidable risk plus diversifiable risk

       ► Equal to systematic risk plus unavoidable risk

       ► Equal to systematic risk plus diversifiable risk (repeated -- P # 91)

 Question No: 31    ( Marks: 1 )    - Please choose one

 The ratio of the standard deviation of a distribution to the mean of that distribution is referred to as __________.

        ►  A probability distribution

       ►  The expected return

       ►  The standard deviation

       ►  Coefficient of variation

 Question No: 32    ( Marks: 1 )    - Please choose one

 A well-diversified portfolio is defined as:

        ► One that is diversified over a large enough number of securities that the nonsystematic variance is essentially zero

       ► One that contains securities from at least three different industry sectors

       ► A portfolio whose factor beta equals 1.0

       ► A portfolio that is equally weighted

 Question No: 33    ( Marks: 1 )    - Please choose one

 If a company intends to start a new project, ________ technique are employed to assess the financial viability of the project.

        ► Financial planning

       ► Financial forecasting

       ► Capital budgeting (P # 39)

       ► Capital rationing

    Question No: 34    ( Marks: 1 )    - Please choose one

 Capital budgeting is a decentralized function assigned to:

        ► Individuals

       ► Departments

       ► Teams

       ► All of the given options (P # 39)

  Question No: 35    ( Marks: 1 )    - Please choose one

 The biggest challenge in capital budgeting is to keep finding:

        ► Valuable projects (P # 39)

       ► Sources of funds

       ► Blue chips

       ► Fixed assets

    Question No: 36    ( Marks: 1 )    - Please choose one

 The objective of financial management is to maximize _________ wealth.

        ► Stakeholders

       ► Shareholders (P # 12)

       ► Bondholders

       ► Directors

    Question No: 37    ( Marks: 1 )    - Please choose one

 Information that goes into __________ can be used to prepare __________.

       ► A forecast balance sheet; a forecast income statement

       ► Forecast financial statements; a cash budget

       ► Cash budget; forecast financial statements

       ► A forecast income statement; a cash budget

    Question No: 38    ( Marks: 1 )    - Please choose one

 A proposal is accepted if payback period falls within the time period of 3 years. According to the given criteria which of the following project will be accepted?

	Payback period
Project A	1.66
Project B	2.66
Project C	3.66

       ► Project A

       ► Project B

       ► Project C

       ► Project A & B (The shorter the payback period, the more an investor would be willing to invest his money – P # 40)

    Question No: 39    ( Marks: 1 )    - Please choose one

 What is the present value of Rs.1,000 to be paid at the end of 5 years if the interest rate is 8% compounded annually?

       ► Rs.680.58

       ► Rs.1,462.23

       ► Rs.322.69

       ► Rs.401.98

 PV = amt / (1+i)^n

PV = 1000/(1+.08)^5 = 680.53

    Question No: 40    ( Marks: 1 )    - Please choose one

 What is the present value of Rs.6,500 to be paid at the end of 8 years if the interest rate is 10% compounded annually?

        ► Rs.3,032

       ► Rs.3,890

       ► Rs.3,190

       ► Rs.4,301

PV = amt / (1+i)^n

PV = 6500/(1+.10)^8 = 3032.29