MidTerm Solved MGT201

MIDTERM
EXAMINATION
SPRING 2007 Marks: 40
MGT201 - FINANCIAL MANAGEMENT (Session - 3)
Question No: 1 (Marks: 1) - Please choose one

An initial investment of Rs. 200,000 is required to start the business; Rs. 9,000 per month is
expected to be earned for the first year and Rs. 20,000 would be earned every month in the second
year. How many months will it take to recover your initial investment?
► 14 months
► 16 months
► 18 months
► 20 months
“Don’t put all eggs in one basket” explains _____________ concept of finance.
► Time value of money
► Risk and Return
► Discounting and NPV
► Portfolio Diversification

_________ is equal to risk per unit return.
► Standard Deviation
► Variance
► Coefficient of Variation
► None of the given options

Ref: http://74.125.153.132/search?
q=cache:57jrkpN0nqkJ:www.pitt.edu/~schlinge/fall99/l9.doc+"is+equal+to+risk+per+unit+return"&
cd=7&hl=en&ct=clnk&lr=lang_en

Question No: 4 ( Marks: 1 ) - Please choose one

A bond that pays no annual interest but is sold at a discount below the par value is called:
► An original maturity bond

► A floating rate bond
► A fixed maturity date bond
► A zero coupon bond

Since preferred stock dividends are fixed, valuing preferred stock is roughly equivalent to valuing:
► A zero growth common stock
► A positive growth common stock
► A short-term bond
► An option
An unincorporated business owned by one individual is called _________.
► Partnership
► Company
► Sole proprietorship
► None of given options
_______ is a ratio of the present value of future cash flows to the initial investment.
► Return on Investment
► NPV
► Payback Period
► Profitability Index

_______ is the actual price at which share is bought or sold.
► Fair price
► Par value
► Market price
► Written down value

_____ ratio gives an indication how equity investors regard the company’s value.
► Price / Earning
► Market / Book
► Earning / Share
► Price / Cash flow
http://www.fiu.edu/~keysj/Financial_Statement_Analysis.doc

In the formula rCE = (D1V1/Po) + g, what does (D1V1/Po) represent?
► The expected dividend yield from a common stock
► The expected price appreciation yield from a common stock
► The dividend yield from a preferred stock
► The interest payment from a bond

For a given nominal interest rate, the more numerous the compounding periods, the less the
effective annual interest rate.
► True
► False

The current ratio is never larger than the quick ratio.
► True
► False
If firm has more inventory it will be having large current ratio

When interest rates go up, the market price of a bond goes up.
► True
► False

Maximizing the price of a share of the firm's common stock is the equivalent of maximizing the
wealth of the firm's present owners.
► True
► False

You can reduce systematic risk by adding more common stocks to your portfolio.
► True
► False
Question No: 16 ( Marks: 3 )

Assume that one year from now; you will deposit Rs. 1,000 into a saving account
that pays 8%interest. If the bank compounds interest semi-annually, how much will
you have in your account four years from now?

FV = PV(1+i/m)^mn
FV = 1000 (1.04)^6 ( m*n = 2*3 as we are depositing after one year so total years will
be 3)
FV = 1265

How much should you pay for the preferred stock of the PST Corporation, if it has $ 50 par value,
pays $20 a share in annual dividends, and your required rate of return is 15%.
=20/.15 = 133.33

What is a portfolio? Why an investor should invest his/her funds in a portfolio rather than in the
stocks of a single corporation.

What do you mean by yield to maturity (YTM) of a bond? Explain briefly.


Explain briefly the Constant Growth Dividends Model of common stocks valuation.

Snyder Computer Chips Inc. is experiencing a period of rapid growth. Earnings and dividends are
expected to grow at a rate of 15% during the next 2 years, at 13% in the third year, and at
constant rate of 6% thereafter. Snyder’s last dividend was Rs. 1.15, and the required rate of return
on the stock is 12%. Required:
I. Calculate the expected dividends of the firm in the first three years.
II.Calculate the fair value per share of these stocks at the end of third year.

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MIDTERM

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

Question No: 4 ( Marks: 1 ) - Please choose one

► An original maturity bond

Question No: 8 ( Marks: 1 ) - Please choose one

Question No: 10 ( Marks: 1 ) - Please choose one

Question No: 11 ( Marks: 1 ) - Please choose one

Question No: 13 ( Marks: 1 ) - Please choose one

Question No: 20 ( Marks: 3 )

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