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MGT201  Mid Term Papers Fall 2010 (01~12 Dec 2010) All in One Discussion

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Today FM paper attempted
Total were 32 question
Jo jo mcqs ki statements muje yad hen me likh rai hon or long question b plx go through theses ones before going through ur own FM paper 


MCQS(just statements I remembered in mind so u go through handouts and find these topic all mcqs were from these one topics again and again repeated)

1-Where there is a single period capital rationing ,what would be the most suitable way of marketing investment decision mentions?


2-which of the following slect the combination of investments proposals that will provide greatest increase in the value of the firm within the budget ceiling constraint?


3-a five year ordinary annuity has periodic cash flows of Rs:100 each year if the interest rate is 8 percent ,the present value of this annuity is closest to which of the following ?


4- which of the following is equall to the average text rate ?


5-which type of the responsibilities are primarily assigned to controller and treasurer respectively?


6-who determinces the market price of a share of common stock ?

LONG QUESTIONS:
1-A stock is expected to pay a dividend of Rs:0.75 at the end of the year. The required rate of return is Ks+10.5% and the expected constant growth rate is g=6.4%.what is the stock’s current price?


2- there are some risks(unique risk) that we can diversity but some of the risk(market risk) are not diversifiable .explain both types of risk?


3-hammad inc is considering two alternative mutually exclusive projects both projects require an initial investment of Rs:10000 and are typical average risk projects for the firm Project A has an expected life of 2 year with after –taz cash inflow of Rs:6000. and 8000 at the end of year 1 AND 2 respectively?
Can you please share the formula of this question? a five year ordinary annuity has periodic cash flows of Rs:100 each year. if the interest rate is 8 percent ,the present value of this annuity is closest to which of the following ?
Paper Pattern of FM paper

there was 32 Q
2 Q for 3 marks
&
2 for 5 Marks
Q1:Define EPS approach? (3 Marks)
Q2:-what are securities? (3 Marks)
Q3:-Calculation wala Q yad nahi.........
Q4:-Define the Market Risk and Diversifiable risk? & why risk occurs? ( 5 marks
Thank you all for helping. Just came back from exam center. 95% came from above mcqs and long question. Only one long question was different which is: "In a efficient and fair market investors have knowledge of market but they differ explain why?"
MY TODAY’S PAPER MGT 201(7.12.2010)

• What are the reason due to which you do not invest in project which provide you highest return?(3)
• Briefly explain advantages of assets having short life(3)
• How negatively coorelated investment behave in a market?(5)
• Why does diversification reduce risk(5)

Q. No.01: What advantages of Short life assets? (03)
Q.No. 02: How Diversification reduce risk? (03)
Q.No. 03: What is effecient Portfolio, How does an investors choose optimal
portfolio profit(05)
MY TODAY’S PAPER MGT 201(7.12.2010)10 am

· What are the reason due to which you do not invest in project which provide
you highest return?(3)
· Briefly explain advantages of assets having short life(3)
· How negatively coorelated investment behave in a market?(5)
· Why does diversification reduce risk(5)

2 subjective questions from today's MGT201 paper.

Q1-ABC Corporation is expected to pay Rs.1 per share dividend at the end of year (D1 = Rs.1). The dividend is expected to grow at a constant rate of 5% a year. The required rate of return on stock is 16%. What is the per share value of ABC Corporation?

Q2-Suppose you have two projects of different life spans, how you would calculate their NPV? Give any one approach.

My today paper of mgt201 

Paper Pattern of FM paper

there was 32 Q
2 Q for 3 marks
&
2 for 5 Marks
Q1:Define EPS approach? (3 Marks)
Q2:-what are securities? (3 Marks)
Q3:-Calculation wala Q yad nahi.........
Q4:-Define the Market Risk and Diversifiable risk? & why risk occurs? ( 5 marks)
2 subjective questions from today's MGT201 paper.

Q1-ABC Corporation is expected to pay Rs.1 per share dividend at the end of year (D1 = Rs.1). The dividend is expected to grow at a constant rate of 5% a year. The required rate of return on stock is 16%. What is the per share value of ABC Corporation?

Q2-Suppose you have two projects of different life spans, how you would calculate their NPV? Give any one approach.


Q:1 How should investors interpret price-earnings ratios ?(3)
Ans:The most common measure of how expensive a stock is. The P/E ratio is equal to a stock's market capitalization divided by its after-tax earnings over a 12-month period, usually the trailing period but occasionally the current or forward period.investors love buying stocks with higher P/E ratios because there are high expectations the company will see significant growth. However, those high expectations come with higher prices



Q:2what are the problems in capital rationing?( 3 )
Ans: Size Difference of cash flows
Timing Difference of cash flows
Different (or Unequal) Lives of different projects.
Q:3 what is bond ? explains its exemples? (5 )
Ans:it is debt paper representing loan or borrowing.


Define EPS approach? (3 Marks)
An:In EPS approach, we estimate the price of common stock under very long term investment.
EPS Stock Price Estimation Formula
PV = Po* = EPS 1 / rCE + PVGO
Po = Estimated Present Fair Price,
EPS 1 = Forecasted Earnings per Share in the next year (i.e. Year 1),
rCE = Required Rate of Return on Investment in Common Stock Equity.
PVGO = Present Value of Growth Opportunities. It means the Present Value of Potential
what are securities? (3 Marks)
Ans:Security, also known as a financial asset, is a piece of paper representing a claim on an asset. Securities can be classified into two categories.
Direct Securities: Direct securities include stocks and bonds. While valuing direct securities we take into account the cash flows generated by the underlying assets.
Indirect Securities: Indirect securities include derivatives, Futures and Options. The securities do not generate any cash flow; however, its value depends on the value of the underlying asset.
Define the Market Risk and Diversifiable risk? & why risk occurs? ( 5 marks)
Ans:Market Risk
It is known as Non-Diversifiable or Systematic or Beta Risk. It is associated with Macroeconomic or Socio-Political or Global events that systematically affect Stock investments in every Stock Market in the country i.e. Inflation, Macro Market Interest Rates, Recession, and War.Market Risk can NOT be reduced by Diversification
Diversifiable risk
It is known as Company-Specific or Unique or Non-Systematic Risk. It is associated with
random events associated with Each Company whose stocks you are investing in i.e. Winning major
contract, losing a court case, successful marketing campaign, losing a charismatic CEO,cDiversifiable
Risk can be Reduced using Diversification. The bad random events affecting one stock will offset the
good random events affecting another stock in your portfolio
Causes of Risk
These can be Company-Specific or General. It may be because of Cash Losses from operations
or poor financial management of the company. This is one possibility but the real question is that why
these losses occurred. One of the reasons for the losses might be the companys Debt, Inflation,
Economy, Politics, War or Fate. Final analysis of risk is that it is a game of fate or chance.

1. What is interest rate tradeoff?
Ans:The 2 Effects Cancel Each Other Out. When market Interest Rates Rise, Bond Prices Drop
(Interest Rate Risk Goes Up) BUT Overall Returns on future reinvestment in bonds go up (ie.
Reinvestment Risk Goes Down).
What is Bonds period tradeoff?
Find Standard Deviation.
3. Write down the formula of NPV



Q: Difference between expected return and required rate of return? 5
Ans:Expected return is the weighted average of all probable outcomes for that investment. Its the most likely return you would expect from an investment based on its risk.
Required return is the amount that you would need in order to get you to put your money into that investment. Its an opportunity cost.
Q: different types of investment time horizons? 3
Ans:There are two types of Investment Time Horizons
Finite Investment:
In this duration of our investment is limited. Cash inflow from Forecasted Selling Price must be taken into account in price estimate.
Perpetual Investment:
It is very long term horizon for long term investment. It is Perpetual so Forecasted Selling Price not significant and can be eliminated. If you are planning to buy and hold the share for 20 or 30 years then you can consider it as a long term assets.

Q: differentiate between junk and floating rate bonds? 3
Ans:Junk bonds are most commonly associated with corporate issuers. They are high-risk debt with rating below BB by S&P.
It is defined as a type of bond bearing a yield that may rise and fall within a specified range according to fluctuations in the market. The bond has been used in the housing bond market.





1-Where there is single period capital rationing, what the most sensible way of making investment decisions?
Select correct option:
Choose all projects with a positive NPV
Group projects together to allocate the funds available and select the group of projects with the highest NPV
Choose the project with the highest NPV
Calculate IRR and select the projects with the highest IRRs

2-Which one of the following selects the combination of investment proposals that will provide the greatest increase in the value of the firm within the budget ceiling constraint?
Select correct option:
Cash budgeting
Capital budgeting
Capital rationing
Capital expenditure


3- A 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the present value of this annuity is closest to which of the following equations?
Select correct option:

(Rs.100)(PVIFA at 8% for 4 periods) + Rs.100

(Rs.100)(PVIFA at 8% for 4 periods)(1.08)
(Rs.100)(PVIFA at 8% for 6 periods) - Rs.100
Can not be found from the given information

4- Which of the following is equal to the average tax rate?
► Total tax liability divided by taxable income
► Rate that will be paid on the next dollar of taxable income
► Median marginal tax rate
► Percentage increase in taxable income from the previous period

5-Which type of responsibilities are primarily assigned to Controller and Treasurer respectively?
Operational; financial management

Financial management; accounting Accounting; financial management

Financial management; operations


6-who determinces the market price of a share of common stock ?

1-A stock is expected to pay a dividend of Rs:0.75 at the end of the year. The required rate of return is Ks+10.5% and the expected constant growth rate is g=6.4%.what is the stock’s current price?


2- there are some risks(unique risk) that we can diversity but some of the risk(market risk) are not diversifiable .explain both types of risk?


3-hammad inc is considering two alternative mutually exclusive projects both projects require an initial investment of Rs:10000 and are typical average risk projects for the firm Project A has an expected life of 2 year with after –taz cash inflow of Rs:6000. and 8000 at the end of year 1 AND 2 respectively?

What are the reason due to which you do not invest in project which provide you highest return?(3)
Asn:Because also high risk associated with high return.




What advantages of Short life assets? (03)
Ans:The advantage of a short life asset is that the investor, by making reinvestment in the asset of a
superior quality, lowers down the costs and updates the project to the new technological requirements.


Q.No. 03: What is Effecient Portfolio, How does an investors choose optimal
portfolio profit(05)
Ans:Efficient Portfolios are those portfolios in which risk and return match the ones computed using theoretical probability formulas,choose the 1 with lowest risk but highest return


How negatively coorelated investment behave in a market?(5)
Ans:if Ro=0 then 2 investments are negatively correlated and in ideal case all risk can be diversifiesd away.

Why does diversification reduce risk(5)
Ans:Diversification can reduce risk. By spreading your money across many different Investments, Markets, Industries, Countries you can avoid the weakness of each.

thanks

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