MGT411 Solved MCQ2 from Quiz # 2 (chapters 1-22)

MGT411 Solved MCQ2 from Quiz #2

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Question # 1

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

Bond yield

Bond price 

Bond risk
Bond ratings 

Bond price 

Question # 2
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

Question # 3
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  
Inverse 

Question # 4

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

Question # 5
Coupon bonds make the annual payments which are called as ___________. 
Select correct option: 

Annual payments
Fixed payments
Coupon payments
Maturity payment

  

Question # 6

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

Question # 7
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

Question # 8

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

 Question # 9 of
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

Question # 10
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 # 11
Which of the following are used to monitor and stabilize the economy? 
Select correct option: 

Stock exchanges
Commercial Banks
Central Banks 

Financial institutions

Question # 12

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

Question # 13

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

Free-riding

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Moral hazard
Adverse selection
The Lemons market

Question # 14
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

Question # 15

_____________ are organized to eliminate the need of costly information gathering. 
Select correct option: 

Central bank
Commercial banks
Stock exchanges 
Insurance companies

  

Question # 16
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 # 17

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) 

Question # 18
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

Question # 19
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 # 20
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 

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

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