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MGT411 Money and Banking MCQs

MGT411 Money, Banking and Financial Markets Solved MCQs 30

Q#1 A central bank typically:
A) has a monopoly in issuing currency.
B) use monetary policy in attempts to stabilize economic growth and/or inflation.
C) serves as a "bankers' bank" that provides services to other banks.
D) All of the above are correct.
The Basics: How Central Banks Originated and Their Role Today.

Q#2 The primary reason for the existence of central banks today is to:
A) help finance wars.
B) serve as a bank for the government, accepting deposits and providing the government with checkable deposits.
C) control the money supply.
D) stabilize the prices of specific commodities.
The Basics: How Central Banks Originated and Their Role Today.

Q#3 Monetary policy in the countries that are part of the European Monetary Union is controlled by the:
A) European Central Bank.
B) central banks of each of the member countries.
C) Federal Reserve Board.
D) Bank ofEngland.
The Basics: How Central Banks Originated and Their Role Today.

Q#4 Which of the following tasks is NOT performed by a central bank as part of its role as a "bankers' bank?"
A) providing loans to banks during periods of financial stress
B) managing the payments system
C) controlling stock prices
D) accepting deposits from banks

Q#5 Central banks can serve as a lender of last resort because:
A) they have the ability to create money.
B) they are the only financial institution that is legally allowed to make loans during a financial panic.
C) the interest rates they charge are so high that banks are virtually never willing to borrow from the Fed.
D) banks are more likely to borrow money from their depositors during a financial panic.
The Basics: How Central Banks Originated and Their Role Today.

Q#6 Fedwire:
A) is a financial news network developed by the Federal Reserve Board.
B) is used for interbank transfers.
C) was once heavily used by banks, but is rarely used today since there is little need for interbank transfers now that the internet exists.
D) is used by the Fed solely to make loans to member banks.
The Basics: How Central Banks Originated and Their Role Today.

Q#7 Historical evidence indicates that theU.S. financial system is:
A) always very stable as long as the government does not imposed any regulations.
B) prone to periods of instability that have imposed substantial costs on society.
C) somewhat unstable, but this does not matter much since the social cost of the instability is always low.
D) as unstable today as it was in the late 1800s.
Stability: The Primary Objective of All Central Banks.

Q#8 One of the main objectives of a central bank is to:
A) reduce idiosyncratic risk in financial markets.
B) reduce systematic risk in financial markets.
C) encourage a low and stable rate of economic growth.
D) achieve a high and stable inflation rate.
Stability: The Primary Objective of All Central Banks.

Q#9 Central banks generally place a great deal of emphasis on maintaining a low and stable inflation rate because:
A) inflation lowers the information content of prices.
B) economic growth tends to decline as inflation rates rise.
C) inflation tends to be less predictable when inflation rates rise.
D) All of the above are correct.

Q#10 Central banks usually establish a positive inflation rate target rather than a zero inflation rate target because:
A) economic growth is higher when the inflation rate rises.
B) a positive inflation rate makes it possible for firms to reduce real wages without reducing nominal wages, leading to more efficient labor markets.
C) the Fed is a more profitable operation for the government when the inflation rate is positive.
D) a higher inflation rate results in a higher unemployment rate, and higher unemployment rates are preferred by policymakers.
Stability: The Primary Objective of All Central Banks.

Q#11 Which of the following is not a primary objective of the Fed?
A) low and stable inflation
B) high and stable real growth
C) financial system stability
D) maintaining low interest rates

Q#12 Exchange–rate stability is:
A) a more important goal for the Fed than it is for the central banks of smaller and more trade-oriented economies.
B) a less important goal for the Fed than it is for the central banks of smaller and more trade-oriented economies.
C) equally important as a goal for the Fed as it is for the central banks of smaller and more trade-oriented economies.
D) a primary objective of the Fed.

Q#13 Which of the following is not generally a characteristic of a successful central bank?
A) Central bank policy must be controlled by the same authorities.
B) Central bank decisions must be made in private and policy should not be publicly announced.
C) Decision making should be made by an individual, not a committee, to ensure consistency of goals.
D) The central bank should operate within a framework in which it has clear goals.

Q#14 Central bank independence is:
A) not very common in industrialized countries today.
B) a practice that was widely adopted by central banks for industrialized countries in the late 1800s.
C) a relatively recent historical phenomenon.
D) a policy that is practiced by the European Central Bank, but not the Fed.

Q#15 Empirical evidence suggests that a higher level of central bank independence results in:
A) higher average inflation rates than occur in countries with less independent central banks.
B) lower average inflation rates than occur in countries with less independent central banks.
C) the same average inflation rates that occur in countries with less independent central banks.
D) lower rates of economic growth than occurs in countries with less independent central banks.

Q#16 A source of conflict between monetary and fiscal policy decision makers is that:
A) fiscal policy decision makers place more emphasis on short-term objectives while monetary policy makers focus on long-term objectives.
B) it is easier, from a political standpoint, to pay for increased government spending by a monetary expansion than by raising taxes.
C) Both of the above are correct.
D) None of the above is correct.


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MGT411 Solved Quizzes Chapter 8-9 Quiz

MGT411- QUIZ(lecture08-09)

 

 

1         The future value of $200 at a 5% per year interest rate at the end of one year is:

            A)        $195.00

            B)        $210.00

            C)        $197.50

            D)        None of the above.

 

2          Which of the following expresses 6.5%

            A)        0.0065

            B)        6.50

            C)        0.650

            D)        0.0650

6.5/100=0.065

 

3          Which of the following best expresses the proceeds a lender receives from a simple loan?

            A)        PV(1 + i)

            B)        FV/i

            C)        PV + i

            D)        PV/i

 

4          Mark borrows $8,000 and then repays $8,600 to ABC bank. What is the interest rate on Mark's loan?"

            A)        $600

            B)        7.50%

            C)        6.0%

            D)        None of the above

 

5          Which of the following best expresses the payment a lender receives for lending their money for four years:

            A)        PV(1+i)4

            B)        PV/(1 + i)4

            C)        4PV

            D)        None of the above.

 

6          A lender is promised a $100 payment (including interest) one year from today. If the lender has a 8% opportunity cost of money, she should be willing to accept what amount today:

            A)        $100.00

            B)        $108.20

            C)        $92.59

            D)        $96.40

 100/(1+.08) = 92.58

 

7          Mary deposits funds into a CD at her bank. The CD has an annual interest of 4.0%. If Mary leaves the funds in the CD for entire two years she will have $1081.60. What amount is Mary depositing:

            A)        $960.60

            B)        $900.00

            C)        $1005.00

            D)        $1000.00

 

FV=PV(1+i)^n

1081.60=PV(1+.04)^2

1081.60=PV(1.0816)

PV=1081.60/1.0816

PV=1000

 

8          The future value of $100 left in a savings account earning 4.5% for two and a half years is best expressed by:

            A)        $100(1.045)3/2

            B)        $100( 0.45)2.5

            C)        $100(1.045)2.5

            D)        $100 x 2.5 x (1.045)

 

9          The rule of 72 says that at 12% interest $100 should become $200 in about:

            A)        72 months

            B)        100 months

            C)        12 years

            D)        8.2 years

  

 

10        The longer the time (n) until the payment:

            A)        The lower the present value.

            B)        The higher the present value because time is valuable.

            C)        The lower must be the interest rate.

            D)        None of the above.

 

11        A change in the interest rate has:

            A)       A larger impact on the present value of a payment to be made far into the future than one to be made sooner.

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

            C)        A smaller impact on the present value of a payment to be made far into the future than one to be made sooner.

            D)        None of the above.

 

12        An investment has grown from $100.00 to $160.00 or 60% over four years. What annual increase gives a 60% increase over four years:

            A)        7.50%

            B)        12.48%

            C)        15.00%

              D)               13.24%

 

FV=PV(1+i)^n

(1+i)^n=FV/PV

Multiply both sides with 1/4 , we will get,

(1+i)^4*1/4= (160/100)^1/4

1+i=(1.6)^1/4

i=1.24-1

 = 0.1246 * 100  , = 12.468 Ans.

 

13        People with a high discount rate will require:

            A)        A higher interest rate to entice them to save.

            B)        Investment options with longer maturities.

            C)        A lower interest rate to entice them to save.

            D)        a and b

 

14        If the internal rate of return from an investment is less than the opportunity cost of funds:

            A)        The firm should make the investment.

            B)        The firm should not make the investment.

            C)        The firm should only make the investment using retained earnings.

            D)        None of the above.

 

15        A mortgage, where the monthly payments are not the same for the duration of the loan, is an example of:

            A)        A variable payment loan.

            B)        An installment loan.

            C)        A fixed payment loan.

            D)        An equity security.

The variable payment mortgage would be a mortgage on a fixed rate that allows you to vary your payment each month.

 

 

16        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:

 

            A)        Calculate the present value of each of the $70,000 payments and multiply these and set this equal to $130,000.

            B)        Take the present value of $210,000 for three years from now and set this equal to $130,000.

            C)        Set the sum of the present value of $70,000 for each of the next three years equal to $130,000.

            D)        Subtract $130,000 from $210,000 and set this difference equal to the interest rate.

 

17        The price of a bond is determined by:

 

            A)        Taking the present value of the bond's final payment and subtracting the coupon payments.

            B)        Taking the present value of the coupon payments and adding this to the face value.

            C)        Taking the present value of the bond's final payment.

            D)        Taking the sum of the present values of the future payments

 

18        If a bond has a face value of $1,000 and the bondholder receives coupon payments of $35.00 semi-annually, the bond's coupon rate is:

 

            A)        3.5%

            B)        7.0% 

            C)        7.5%

            D)        Cannot be determined from the information provided.

 

         35×2=70
         70/1000=0.07
         0.07×100=7%

 

 

19        Which formula below best expresses the nominal interest rate, (r)?

            A)        i = r – πe

            B)        r = i + πe

            C)        i = r + πe

            D)        πe = i + r

 

20        From the Fisher equation we see the relationship between the nominal interest rate and expected inflation is:

            A)        Direct and one-to-one.

            B)        Direct but more than one-to-one.

            C)        Inverse.

            D)        There is no relationship between these two variables.

 

MGT411 Money and Banking Solved MCQs from Quiz # 

MGT411 – Money & Banking

Online Quiz # 3

If bond’s rating is lower, what will be its price?

Select correct option:

            Higher

            Lower

            Equal to

            No change

 

High State Bank purchases some U.S. Treasury bonds. We would view such bonds as being free of:

Select correct option:

            Credit risk

            Interest rate risk

            Reinvestment risk

            All of the given options

 

Which of the following is a role of a financial institution acting as a financial intermediary?

Select correct option:

            Pooling the resources of small savers

            Formulating oversight regulations

            Sending out free calendars at the holidays

            Lobbying legislators

 

Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease:

Select correct option:

            The yield curve must have a positive slope

            The yield curve must be inverted

            The yield curve could be flat

            The slope of the yield curve should actually increase

 

___________ include savings and time deposits and account for nearly two-thirds of all commercial bank liabilities.

Select correct option:

            Non transactions Deposits

            Borrowings

            Checkable Deposits

            Discount loans

 

 

Liquidity is the risk that is arises as a result of which one of the following consequences?

Select correct option:

            It arises when loan is not repaid

            It arises because of sudden demands of funds

            It arises when two sides of the balance sheet do not match up

            It arises when banks make additional profit by using derivatives

Which one of the following is true for financial intermediaries?

Select correct option:

            Channel funds from savers to borrowers

            Greatly enhance economic efficiency

            Have been an source of many financial innovations

            All of the given options

 

According to the rule of 72 for reasonable rates of return, the time it takes to __________ the money will be t =72/i%

Select correct option:

            Doubles

            Triples

            halves

            3/4

__________ is the interest rate at which the present value annual reveneu equals the cost of the investment.

Select correct option:

            Fixed rate of interest

            Internal rate of return

            Variable rate of interest

            Nominal rate of interest

 

Which of the following would be included in a definition of risk?

Select correct option:

            Risk is a not measure of uncertainty

            Risk is unavoidable

            Risk doesn't have a time horizon

            Risk seldom involves some future payoff

 

_____________ are organized to eliminate the need of costly information gathering.

Select correct option:

            Central bank

            Commercial banks

            Stock exchanges

            Insurance companies

 

You receive a check for $100 two years from today. The discounted present value of this $100 is:

Select correct option:

            $100/(1+i)

            $100*(1+i)^2

            $100*(1+i)

            $100/(1+i)^2

 

 

What is true relationship between return and risk?

Select correct option:

            Lower the risk greater the return

            Greater the risk greater the return

            Greater the risk the return will remain constant

            No relationship between them

 

A risk-averse investor will:

Select correct option:

            Always prefer an investment with a lower expected return

            Always prefer an investment with a certain return to one with the same expected return but any amount of uncertainty

            Always require a certain return

            Always focus exclusively on the expected return

MGT411 MCQs (e) from Quiz # 2 solved

MGT411 Solved MCQ5 from Quiz #2

The fact that common stockholders are residual claimants means: 

Select correct option: 

 

The stockholders receive the remains after everyone else is paid

The stockholders are paid any past due dividends before other claims are paid

The common stockholders are responsible for all corporate debts

 

Which one of the following is true for financial intermediaries? 

Select correct option: 

 

Channel funds from savers to borrowers

Greatly enhance economic efficiency

Have been an source of many financial innovations

All of the given options 

 

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

Select correct option: 

 

Volatile

Stable

Non-existent 

Inverse 

Reference: The price of a bond and the interest rate move in opposite directions                                

 

Consumer Price Index (CPI) measures the: 

Select correct option: 

 

Changes in the quantity

Changes in the prices

Changes in the cost

Changes in the profit

Reference: CPI :Measure of the overall level of prices 

Core principles of Money and Banking include each of the following except? 

Select correct option: 

 

People act rationally

Time has value

Information is the basis for decisions

Risk requires compensation

 

The longer the time (n) until the payment: 

Select correct option: 

 

The lower the present value

The higher the present value because time is valuable

The lower must be the interest rate

Time has no effect on present value

 

When stock prices reflect fundamental values: 

Select correct option: 

 

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

Reference: So long as stock prices accurately reflect fundamental values, this resource allocation mechanism works well

 

What will be the result of the difference of real and nominal interest rate? 

Select correct option: 

 

The cost of borrowing

The effect of inflation

The price of bonds

The return of bonds

 

 

If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face value would be: 

Select correct option: 

 

$94.00

$94.33

$95.25

$96.10

 

Which of the following would probably NOT earn an A rating from Standard & Poor's: 

Select correct option: 

 

30 years bond issued by the U.S. Treasury

New vegetarian fast-food chain

90 days T-Bills issued by the U.S. Treasury

Both 30 years bond and 90 days T-Bills issued by U.S. Treasury 

There is no guarantee that a bond issuer will make the promised payments is known as which one of the following? 

Select correct option: 

 

Default risk

Inflation risk

Interest rate risk

Systematic risk

 

If a bond sells at a premium, where price exceeds face value, then we would expect to see: 

Select correct option: 

 

Market interest rate the same as the coupon rate

Market interest rates above the coupon rate 

Market interest rates below the coupon rate 

All of the given options

 

Reference: So, When Market Interest Rate < Coupon Interest Rate, Market Value (or Price) of Bond >Par Value. Because when market is offering lower rate of return then the bond then the bond becomes
valuable. This is known as a Premium Bond.
 Pg no.68 MGT201 H.outs

 

Which of the following is a role of a financial institution acting as a financial intermediary? 

Select correct option: 

 

Pooling the resources of small savers

Formulating oversight regulations

Sending out free calendars at the holidays

Lobbying legislators

Reference: The most straightforward economic function of a financial intermediary is to pool the resources of many small savers Pg no.71 MGT411 H.outs

Financial Systems makes it easier to trade because it: 

Select correct option: 

 

Facilitate Payments 

Channels Funds from Savers to Borrowers 

Enables Risk Sharing 

All of the given options

Which of the following is the measure of likelihood that an event will occur? 

Select correct option: 

 

Risk

Probability

Frequency

Outcom

 

The concept of limited liability says a stockholder of a corporation: 

Select correct option: 

 

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

Reference: Because of limited liability, investor’s losses cannot exceed the price they paid for the
stock Pg no.63 MGT411 H.outs

 

The risk premium for an investment: 

Select correct option: 

 

 Increases with risk

Is a fixed amount added to the risk free return

Is negative for U.S. Treasury Securities

 

Is negative for risk averse investors 

MGT411 MCQs From Quiz# 7 solved

MGT411-Money & Banking

following NOT true for financial institutions?

It reduces the transaction cost

It reduce the information cost

It reduces the asymmetric information

It doesn’t make long term loans 

Current accounts of commercial bank lies in which money aggregate definition?

Currency

M1

M2

M3

Commercial bank is a bank whose principal functions are to receive demand deposits and to make short-term loans. It is a Bank that makes loans to businesses, consumers, and non business institutions.

The price of a coupon bond can best be described as:

The present value of the face value

The future value of the coupon payments and the face value

The present value of the coupon payments

Both The present value of the face value and of the coupon payments 

The money aggregate M2 includes each of the following EXCEPT:

Small denomination time deposits.

Retail Money Market Mutual fund shares

U.S. Treasury bills

M1

M2 is the measure of the money supply that includes M1, plus savings and small time deposits, overnight repos at commercial banks, and non-institutional money market accounts.

According to the rule of 72 for reasonable rates of return, the time it takes to ________ the money will be t =72/i%

Doubles

Triples

halves

3/4

The default premium:

Is positive for a U.S. Treasury bond

Must always be less than 0 (zero)

Is also known as the risk spread

Is assigned by a bond rating agency

Which of the following is NOT a depository financial institution?

Credit Union

Savings and Loan

Commercial bank

Life Insurance Company

credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members.

savings and loan association (or S&L), also known as a thrift, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans.

Commercial bank is an institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit.

Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness.

What is primary cause of inflation?

Energy crises

Gold reserve shortage

Issue excessive currency

Rising cost of input

A corrupt or pressured government might issue excessive amounts of money, thereby unleashing severe inflation.

Which characteristic are common both in money and securities

Transfer of risk, store of value

Unit of account, mean of payment

Mean of payment, transfer of risk

Store of value, mean of payment

If YTM is less 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

All of the given options

The longer the time (n) until the payment:

The lower the present value

The higher the present value because time is valuable

The lower must be the interest rate

Time has no effect on present value

Mr A need 1000000 to buy a car for his personal use he contact with bank that give his loan this would be called:

Direct finance

Indirect finance

Facilitate payment

All of above

A risk-averse investor will:

Always prefer an investment with a lower expected return

Always prefer an investment with a certain return to one with the same expected return but any amount of uncertainty

Always require a certain return

Always focus exclusively on the expected return

GDP deflator is called

Retailer price index

Consumer price index

Producer price index

None of above

The GDP deflator, also called the implicit price deflator for GDP, measures the price of output relative to its price in the base year. It reflects what’s happening to the overall level of prices in the economy.

When the price of a bond is above face value:

The yield to maturity will be above the coupon rate

The yield to maturity is below the coupon rate

The yield to maturity will equal zero

The yield to maturity will equal the coupon rate

Bond Price < Face Value:

Coupon Rate < Current Yield < Yield to Maturity

Bond Price = Face Value:

Coupon Rate = Current Yield = Yield to Maturity

Bond Price > Face Value:

Coupon Rate > Current Yield > Yield to Maturity

A zero coupon bond:

Does not pay any coupon payments because the issuer is in default

Pays coupons only once a year versus the usual twice a year

Promises a single future payment

Pays coupons only if the bond price is below face value

A ________ is a promise to make a series of payments on specific future date.

Stock

Bond

Loan

Cheque

A bond is a promise to make a series of payments on specific future date.

Economic development measured by

Real GDP/population

Real GDP/ nominal GDP

Real GDP/Real GNP

None of above 

Economic growth is conventionally measured as the percentage increase in gross domestic product (GDP) or gross national product (GNP) during one year.

Which one the following is NOT the way to manage liquidity risk?

By holding sufficient excess reserves

Through diversification

By adjusting assets

By adjusting liabilities

Which of the following is the true about bank statement?

Total Bank Assets = Total Bank Liabilities + Bank Capital

Total Bank Liabilities = Bank Capital

Total Bank Assets +Total Bank Liabilities = Bank Capital

Total Bank Assets = Total Bank Liabilities - Bank Capital

A typical bank will offer ______ type/s of checking accounts.

Only one type

Two types

Four types

Six or more types

If a bond sells at a premium, where price exceeds face value, then we would expect to see:

Market interest rate the same as the coupon rate

Market interest rates above the coupon rate

Market interest rates below the coupon rate

All of the given options

MGT411 Solved MCQ5 from Quiz #2

Spreading involves:

Select correct option:

 

Finding assets whose returns are perfectly negatively correlated

Building a portfolio of assets whose returns move together

Investing in bonds and avoiding stocks during bad times

Adding assets to a portfolio that move independently

 

Internal Rate of Return is _________.

Select correct option:

 

Present value of investment

Future value of its investment +Cost of investment

Cost of investment

Present value of investment + cost of investment

 

 

 

Which of the following best describes checks? 

Select correct option: 

 A means of payment

 Money

 Not a promise of any kind

 Not acceptable by the U.S. Government for payment of taxes.

 

A business cycle downturn shifts the bond supply to the:

Select correct option:

Right

Left

No change

None of the given options

 

According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects

Select correct option:

 

Short-term interest rates to rise sharply

Short-term interest rates to stay near their current levels

Short-term interest rates to drop sharply

Short-term interest rates does not change

  

Which of the following represents the fisher’s equation?

Select correct option:

 

Nominal interest rate = real interest rate + inflation

Nominal interest rate + inflation = real interest rate

Nominal interest rate = real interest rate - inflation

Nominal interest rate = real interest rate / inflation

 

Bonds that are issued by Government are called _________.

Select correct option:

 

Government bond

Treasury bond

Corporate bond

Callable Bonds

  

What will the yield curve look like if future short-term interest rates are expected to rise sharply?

Select correct option:

 

It will steeply slope upward

It will be horizontal

It will slightly slope upward

It will slope downward

  

The interest rate that is involved in _____________ calculation is referred to as discount rate

Select correct option:

Present value

Future value

Intrinsic value

Discount value

  

Which one of the following is true for the relationship between the yield of taxable and tax exempt bond?

Select correct option:

Higher the tax rate wider the gap between the yield of taxable and tax exempt bond

Taxable bond yield is always greater than tax exempt bond

Higher the tax rate shorter the gap between yield of taxable and tax exempt bond

Lower the tax rate wider the gap between yield of taxable and tax exempt bond  

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:

Select correct option:

$900

$600

$1000

$1100

 

first year gain = 1000*.40 = 400

second year loss = 1000*.5 =  500

Total gain or loss after two year = 400-500 = -100

1000-100 = 900

.

What is true relationship between return and risk?

Select correct option:

Lower the risk greater the return

Greater the risk greater the return

Greater the risk the return will remain constant

No relationship between them

 

Which of the following is NOT included in the definition of M1?

Select correct option:

Traveler’s checks

Demand deposits

Currency

Gold coins issued by treasury

   

 

The Financial Systems makes it easier to trade because it:

Select correct option:

Facilitate Payments

Channels Funds from Savers to Borrowers

Enables Risk Sharing

All of the given options

  

Which one of the following agencies assesses the default risk of different issuers?

Select correct option:

Insurance companies

Bond issuing

Credit rating

Recruitment agencies

  

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

Select correct option:

Privately issued bonds

Government issued bonds

Bonds issued by Corporate

All of the given options

 

Which of the following best describes default risk?

Select correct option:

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

  

  

Coupon bonds make the annual payments which are called as ___________.

Select correct option:

Annual payments

Fixed payments

Coupon payments

Maturity payment 

MGT411 MCQs From Quiz solved

Question # 1 of 20 ( Start time: 05:44:09 PM )  Total M - 1 

___________ is the strategy of reducing overall risk by making two investments with opposing risks. 

Select correct option: 

 

Spreading the risk

Standard deviation

Hedging the risk

Variance

Question # 2 of 20 ( Start time: 05:44:45 PM )  Total M - 1 

The lowest rating for an investment grade bond assigned by Moody's is: 

Select correct option: 

 

BBB

ABB

Baa

Aaa

 

Which one of the following is the narrowest definition of money? 

Select correct option: 

 

C

M1

M2

M3

Question # 4 of 20 ( Start time: 05:46:15 PM )  Total M - 1 

The price of a coupon bond can best be described as: 

Select correct option: 

 

The present value of the face value

The future value of the coupon payments and the face value

The present value of the coupon payments

Both The present value of the face value and of the coupon payments

 

Question # 5 of 20 ( Start time: 05:46:53 PM )  Total M - 1 

We need __________ to carry out day to day transactions. 

Select correct option: 

 

Money

Bonds

Stocks

Loans

 

Question # 6 of 20 ( Start time: 05:47:16 PM )  Total M - 1 

The process of financial intermediation: 

Select correct option: 

 

Creates a net cost to an economy but is unavoidable

Is used primarily in underdeveloped countries

Is always used when a borrower needs to obtain funds

Increases the economy's ability to produce

 

Question # 7 of 20 ( Start time: 05:47:51 PM )  Total M - 1 

Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease: 

Select correct option: 

 

The yield curve must have a positive slope

The yield curve must be inverted

The yield curve could be flat

The slope of the yield curve should actually increase

 

 

Question # 8 of 20 ( Start time: 05:48:41 PM )  Total M - 1 

Which one of the following is true for the relationship between the yield of taxable and tax exempt bond? 

Select correct option: 

 

Higher the tax rate wider the gap between the yield of taxable and tax exempt bond

Taxable bond yield is always greater than tax exempt bond

Higher the tax rate shorter the gap between yield of taxable and tax exempt bond

Lower the tax rate wider the gap between yield of taxable and tax exempt bond

 

Question # 9 of 20 ( Start time: 05:49:13 PM )  Total M - 1 

Which of the following expresses 6.5%? 

Select correct option: 

 

0.0065 

6.50 

0.650 

0.0650

 

 

Question # 10 of 20 ( Start time: 05:50:19 PM )  Total M - 1 

What will be the result of the difference of real and nominal interest rate? 

Select correct option: 

 

The cost of borrowing

The effect of inflation

The price of bonds

The return of bonds

 

Question # 11 of 20 ( Start time: 05:50:40 PM )  Total M - 1 

Other things remaining equal, the liquidity premium theory is based upon the idea that ____________. 

Select correct option: 

 

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 # 12 of 20 ( Start time: 05:51:25 PM )  Total M - 1 

The Segmented Markets Theory of term structure suggests that: 

Select correct option: 

 

Investors have strong preferences for bonds of a particular maturity

Investors have no preference for short-term bonds over long-term bonds, or vice versa

Interest rates on long-term bonds strongly influence the demand for short-term bonds

Bonds of different maturities are perfect substitutes for each other

 

 

Question # 13 of 20 ( Start time: 05:52:23 PM )  Total M - 1 

Often a bank will require a loan officer to make personal visits on customers with loans outstanding. This is encouraged because: 

Select correct option: 

 

The bank worries about competitors trying to steal their customers 

The bank wants to make sure the business is still there

The bank likely has excess funds available and hopes to make another loan to the business

This is an effective monitoring technique and should reduce moral hazard

 

Question # 14 of 20 ( Start time: 05:53:10 PM )  Total M - 1 

If the tax rate is higher than gap between yield on taxable and tax exempt bond? 

Select correct option: 

 

Shorter

Wider

No gap

Any thing can be possible

 

 

Question # 15 of 20 ( Start time: 05:53:46 PM )  Total M - 1 

Investors will hold higher compensation for the __________ investment. 

Select correct option: 

 

More risky 

Less risky 

Fixed return

Less dividend

 

Question # 16 of 20 ( Start time: 05:54:14 PM )  Total M - 1 

Which of the following are used to monitor and stabilize the economy? 

Select correct option: 

 

Stock exchanges

Commercial Banks

Central Banks

Financial institutions

 

Question # 17 of 20 ( Start time: 05:54:38 PM )  Total M - 1 

The theory of efficient market states that prices of financial instruments reflect: 

Select correct option: 

 

All available information

Some of the information

No information 

Imperfect information 

 

Question # 18 of 20 ( Start time: 05:55:37 PM )  Total M - 1 

With direct finance we mean which of the following? 

Select correct option: 

 

Individuals (or firms) borrow directly from the savers

Individuals (or firms) borrow directly from banks.

Individuals deposit savings directly in banks. 

Firms deposit savings directly in banks. 

 

 

Question # 19 of 20 ( Start time: 05:56:08 PM )  Total M - 1 

Which of the following best describes the relationship between Bond prices and yields? 

Select correct option: 

 

Move together inversely

Bond yields do not change since the coupon is fixed

Move together directly

Are independent of each other

 

Question # 20 of 20 ( Start time: 05:56:35 PM )  Total M - 1 

The fact that common stockholders are residual claimants means: 

Select correct option: 

 

The stockholders receive their dividends before any other residuals are paid

The stockholders receive the remains after everyone else is paid

The stockholders are paid any past due dividends before other claims are paid

The common stockholders are responsible for all corporate debts

MGT411 Solved MCQ2 from Quiz #2

The____________ are an assessment of the creditworthiness of the corporate issuer. 
Select correct option: 

Bond yield

Bond price 

Bond risk
Bond ratings 

Which of the following statement is true for the given sentence, "that tax affects the bond return"? 
Select correct option: 

Because only interest income they receive from bond is taxable 
Because principal amount and interest income they receive from bond is taxable
Because bond holders are taxpayers
Because all bond is sold with a condition that tax will be deducted from its return

The second important factor that affects the return on a bond is taxes, Bondholders must pay income tax on the interest income they receive from privately issued


The relationship between the price and the interest rate for a zero coupon bond is best described as: 
Select correct option: 

Volatile
Stable
Non-existent
  

Incerse

When stock prices reflect fundamental values: 
Select correct option: 

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

Coupon bonds make the annual payments which are called as ___________. 

Select correct option: 

Annual payments
Fixed payments
Coupon payments

Maturity payment

  

If information in a financial market is asymmetric, this means: 
Select correct option: 

Borrowers and lenders have perfect information
Borrowers would have more information than lenders 

Borrowers and lenders have the same information
Lenders lack any information

If YTM equals the coupon rate the price of the bond is __________. 

Select correct option: 

Greater than its face value
Lower than its face value
Equals to its face value

Insufficient information


The Financial Systems makes it easier to trade because it: 
Select correct option: 

Facilitate Payments 
Channels Funds from Savers to Borrowers 
Enables Risk Sharing 
All of the given options

Debt instruments is categorized on the basis of which one of the following? 
Select correct option: 

Loan maturity period 
Interest rates
Mode of payment of interest
Amount of the debt taken

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

Select correct option: 

Coupon rate
Yield to maturity

Current yield
Internal rate of return
 


Which of the following are used to monitor and stabilize the economy? 
Select correct option: 

Stock exchanges
Commercial Banks
Central Banks 

Financial institutions


Previously financial markets are located in which of the following? 
Select correct option: 

Coffee houses or Taverns .
Stock exchanges
Bazaar
Coffee houses and Stock exchanges
Financial Markets

To buy and sell financial instruments quickly and cheaply. Evolved from coffeehouses to trading places (Stock exchanges) to electronic networks

Transactions are much more cheaper now. Markets offer a broader array of financial instruments than were available even 50 years ago

Requiring a large deductible on the part of an insured is one way insurers treat the problem of: 
Select correct option: 

    Free-riding 



Which one of the following is the procedure of finding out the Present Value (PV)? 
Select correct option: 

Discounting
Compounding
Time value of money
Bond pricing

_____________ are organized to eliminate the need of costly information gathering. 

Select correct option: 

Central bank
Commercial banks
Stock exchange
Insurance companies

  

With direct finance we mean which of the following? 
Select correct option: 

Individuals (or firms) borrow directly from the savers
Individuals (or firms) borrow directly from banks.
Individuals deposit savings directly in banks.
 

Firms deposit savings directly in banks. 

Yield curves show which of the followings? 
Select correct option: 

The relationship between bond interest rates (yields) and bond prices
The relationship between liquidity and bond interest rates (yields)
The relationship between risk and bond interest rates (yields)
The relationship between time to maturity and bond interest rates (yields)  

In a financial market where information is symmetric: 
Select correct option: 

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

Other things remaining equal, the liquidity premium theory is based upon the idea that ____________. 

Select correct option: 

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

  

Spreading involves: 
Select correct option: 

Finding assets whose returns are perfectly negatively correlated
Building a portfolio of assets whose returns move together
Investing in bonds and avoiding stocks during bad times
Adding assets to a portfolio that move independently 

MGT411 Solved MCQ1 from Quiz #2

The Financial Systems makes it easier to trade because it:

 

Select correct option: Facilitate Payments

Channels Funds from Savers to Borrowers

Enables Risk Sharing

All of the given options

 

The process of financial intermediation:

Select correct option:

Creates a net cost to an economy but is unavoidable

Is used primarily in underdeveloped countries

Is always used when a borrower needs to obtain funds

Increases the economy's ability to produce

 

What is true relationship between return and risk?

Select correct option:

Lower the risk greater the return

Greater the risk greater the return

Greater the risk the return will remain constant

 

Financial instruments are evolved just as ____________.

Select correct option:

Currency

Stock

Bond

Commodity

 

Beside default risk which one if the following factor affects the return on bond?

Select correct option:

Taxes

Monetary policy

Junk bonds

Debt

The second important factor that affects the return on a bond is taxes

 

Which of the following is the measure of likelihood that an event will occur?

Select correct option:

Risk

Probability

Frequency

 

According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expects

Select correct option:

Short-term interest rates to rise sharply

Short-term interest rates to stay near their current levels

Short-term interest rates to drop sharply

Short-term interest rates does not change

 

 

 Home loans and car loans are the example of which one of the following?

Select correct option:

Mortgage loans

Pledge

Fixed Payment Loans

Fixed Payment Loans

 

They promise a fixed number of equal payments at regular intervals. Home mortgages and car loans are examples of fixed payment loans.

 

Which one of the following is the procedure of finding out the Present Value (PV)?

Select correct option:

Discounting

Compounding

Time value of money

 Bond pricing

 

 Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease:

Select correct option:

The yield curve must have a positive slope

The yield curve must be inverted

The yield curve could be flat

The slope of the yield curve should actually increase

 

Most of the people among us are ___________.

Select correct option:

Risk lovers

Risk enhancers

Risk averse

Risk tolerating

 

A risk-averse investor will:

Select correct option:

Always prefer an investment with a lower expected return

Always prefer an investment with a certain return to one with the same expected return but any amount of uncertainty

Always require a certain return

Always focus exclusively on the expected return

 

The liquidity premium theory suggests that yield curves should usually be:

Select correct option:

 

Up-sloping

Inverted

Flat

Up-sloping through year 1, then flat thereafter

 

Wider the range of outcome wider will be the ___________.

Select correct option: 

 

Risk

Profit

Probability

Measuring Risk

 Most of us have an intuitive sense for risk and its measurement; The wider the range of outcomes the greater the risk

 

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

Coupon rate

 Yield to maturity

Current yield

Fixed return                                                       

                                                                                      

 

 

If information in a financial market is asymmetric, this means:

Select correct option:

Borrowers and lenders have perfect information

Borrowers would have more information than lenders

Borrowers and lenders have the same information

Lenders lack any information

 

 

According to the rule of 72 for reasonable rates of return, the time it takes to __________ the money will be t =72/i%

 Select correct option:

 

Doubles

 Triples

Halves

3/4

 

Stock market bubbles can lead to:

 Select correct option:

 

An inefficient allocation of resources

Stock market crashes

Patterns of volatile returns from the stock market 

All of the given options

 

Which one of the following is true for the relationship between the yield of taxable and tax exempt bond?

 Select correct option:

 

Higher the tax rate wider the gap between the yield of taxable and tax exempt bond

Taxable bond yield is always greater than tax exempt bond

Higher the tax rate shorter the gap between yield of taxable and tax exempt bond

Lower the tax rate wider the gap between yield of taxable and tax exempt bond

change

 

 

The Dividend-Discount Model of stock valuation:

 Select correct option:

 

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

 

 

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

 Select correct option:

 

Privately issued bonds

Government issued bonds

Bonds issued by Corporate 

All of the given options

  

The slope of the yield curve seems to predict the performance of the economy with:

 Select correct option:

 

Usually 3 months lag

Usually two years lag

Usually within few weeks

Usually one year lag

 

The GDP deflator is calculated as___________.

 Select correct option:

 

Nominal GDP/Real GDP *100

Real GDP/Nominal GDP

Nominal GDP – Real GDP

Real GDP – Nominal GDP

 

What is true about the relationship between standard deviation and risk?

 Select correct option:

 

Greater the standard deviation greater will be the risk

Greater the standard deviation lower will be the risk

Greater the standard deviation risk remains the same

No relation between them

 

 

The concept of limited liability says a stockholder of a corporation:

 Select correct option:

 

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

 

Which of the following best describes the relationship between Bond prices and yields?

 Select correct option:

 

Move together inversely

Bond yields do not change since the coupon is fixed

Move together directly

Are independent of each other

 

Which of the following best expresses the payment a lender receives for lending their money for four years?

 Select correct option:

 

PV(1+i)4  

PV/(1 + i)4  

4PV

PV/(1 - i)4

 

If YTM is greater than the coupon rate the price of the bond is __________.

 Select correct option:

 

 

 Greater than its face value

Lower than its face value

Equals to its face value

All of the given options

 

Bond Price < Face Value:

Coupon Rate < Current Yield < Yield to Maturity

MGT411 Solved MCQ2 from Quiz # 1

Chapter (1-15)

When a bond becomes more liquid relative to its alternatives, the demand curve for bonds shifts to the:

Select correct option:

Right

Left

No change

None of the given options

 

Consumer Price Index (CPI) measures the:

Select correct option:

 

Changes in the quantity

Changes in the prices

Changes in the cost

Changes in the profit

 

A risk-averse investor will:

Select correct option:

 

Always prefer an investment with a lower expected return

Always prefer an investment with a certain return to one with the same expected return but any amount of uncertainty

Always require a certain return

Always focus exclusively on the expected return

 

Which of the following best represent the true relationships between interest rates and bond prices?

Select correct option:

 

Move in the same direction

Move in opposite direction

Sometimes move in the same direction, some times in opposite direction

Have no relationship with each other (i.e. they are independent)

Which one of the following is a component of wealth that is held in a readily spendable form?

Select correct option:

 

Money

Bonds

Stocks

Income

 

The return on the bond is equal to which of the following?

Select correct option:

 

Coupon rate + rate of capital gains

Current yield + rate of capital gains

Coupon rate - rate of capital gains

Current yield - rate of capital gains

 

Time affects the value of which of the following?

Select correct option:

 

Financial Instruments

Financial Markets

Financial Institutions

Central Banks

 

Which of the following statement is true about the relation ship between bond ,coupon payment and interest?

Select correct option:

 

Coupon payments fall, the interest rate falls, and Bond price will rise

Coupon payments rises, the interest rate falls, and Bond price will rise

Coupon payments fall, the interest rate falls, and Bond price will fall

Coupon payments rise, the interest rate falls, and Bond price will fall

 

The current yield on a $10,000, 5% coupon bond selling for $8,000 is:

 

Select correct option:

 

5.00%

6.25%

7.50%

8.00%

 

=  coupon payment/price  (so coupon payment 5%of 10,000 = 500)

= 500/8000 = .0625 *100 = 6.25%

 

There is no guarantee that a bond issuer will make the promised payments is known as which one of the following?

Select correct option:

 

Default risk

Inflation risk

Interest rate risk

Systematic risk

 

What will be the result of the difference of real and nominal interest rate?

Select correct option:

 

The cost of borrowing

The effect of inflation

The price of bonds

The return of bonds

MGT411 Solved MCQ1 from Quiz #1

Question # 5 of 20 ( Start time: 08:03:08 PM )

Total M - 1

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

Select correct option:

 

Coupon rate

Yield to maturity

Current yield

Internal rate of return

 

Question # 6 of 20 ( Start time: 08:03:27 PM )

Total M - 1

Wider the range of outcome wider will be the ___________.

Select correct option:

 

Risk

Profit

Probability

Lose

 

 Question # 7 of 20 ( Start time: 08:04:42 PM )

Total M - 1

The interest rate that is involved in _____________ calculation is referred to as discount rate

Select correct option:

 

Present value

Future value

Intrinsic value

Discount value

 

Question # 8 of 20 ( Start time: 08:06:05 PM )

Total M - 1

Bonds that are issued by Government are called _________.

Select correct option:

 

Government bond

Treasury bond

Corporate bond

Callable Bonds

 

Question # 13 of 20 ( Start time: 08:13:26 PM )

Total M - 1

If a bond sells at a premium, where price exceeds face value, then we would expect to see:

Select correct option:

 

Market interest rate the same as the coupon rate

Market interest rates above the coupon rate

Market interest rates below the coupon rate

All of the given options

 

Question # 14 of 20 ( Start time: 08:14:49 PM )

Total M - 1

With direct finance we mean which of the following?

Select correct option:

 

Individuals (or firms) borrow directly from the savers

Individuals (or firms) borrow directly from banks.

Individuals deposit savings directly in banks.

Firms deposit savings directly in banks.

  

Question # 15 of 20 ( Start time: 08:16:14 PM )

Total M - 1

Investors will hold higher compensation for the __________ investment.

Select correct option:

 

More risky

Less risky

Fixed return

Less dividend

 

Question # 16 of 20 ( Start time: 08:17:16 PM )

Total M - 1

Which of the following best expresses the proceeds a lender receives from a simple loan?

Select correct option:

 

PV(1 + i)

FV/i

PV + i

PV/i

 

Question # 17 of 20 ( Start time: 08:18:11 PM )

Total M - 1


Select correct option:
A financial instrument in which a borrower obtains resources from a lender immediately in exchange for a promised set of payments in the future is called as ___________.

 

Bond

Bank Loan

Home Mortgage

Futures Contract

 

Question # 18 of 20 ( Start time: 08:19:18 PM )

Total M - 1

According to the rule of 72 for reasonable rates of return, the time it takes to __________ the money will be t =72/i%

Select correct option:

 

Doubles

Triples

halves

3/4

  

Question # 19 of 20 ( Start time: 08:19:37 PM )

Total M - 1

The return on the bond is equal to which of the following?

Select correct option:

 

Coupon rate + rate of capital gains

Current yield + rate of capital gains

Coupon rate - rate of capital gains

Current yield - rate of capital gains

 

Question # 20 of 20 ( Start time: 08:21:06 PM )

Total M - 1

A loan that is used to purchase the real estate is known as:

Select correct option:

 

Real estate loan

Home mortgages

Fixed payment loan

Home loan 

 

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

100/1.06=94.33

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