MBA/MBA Insurance and Risk Management Mcq Set 5 Sample Test,Sample questions

Question:
If market interest rates are 6%, the market price of a 7% 3-month CD for $100,000 with 60 days to maturity is:

1.$101,750

2.$100,757

3.$100,505

4.$100,254


Question:
If market interest rates fall to 5%, the market price of the CD in question 5, when it has 40 days to maturity will be:

1.$101,195

2.$100,760

3.$101,750

4.$100,806


Question:
If people are willing to lend at 7% when inflation is 2% and continue to lend the same amounts when inflation is 4% and interest rates have risen to 8%, they are assumed to be subject to:

1.Myopic expectations

2.Money illusion

3.Risk aversion

4.Extrapolative expectations


Question:
If redemption yields on one year bonds are 4.5 per cent while yields on two year bonds are 5.3 per cent, this suggests that the rate on one year bonds in one year's time will be (approximately):

1.1.8%

2.6.1%

3.9.8%

4.4.9%


Question:
If savers decide to save more, ceteris paribus, the loanable funds theory predicts:

1.A reduction in investment and interest rates

2.A fall in the exchange rate

3.A reduction in interest rates and more investment

4.An increase in investment and interest rates


Question:
If the current one-year rate is 5.5% while the current two-year rate is 6%, this suggests that the one year rate next year will be:

1.6.75%

2.5.75%

3.6.5%

4.6.25%


Question:
If the demand for money is interest-elastic, an increase in interest rates:

1.Would have little impact on the rest of the economy

2.Would increase the liquidity of financial assets other than money

3.Would cause the supply of money to fall

4.Would have a powerful impact on the rest of the economy


Question:
If the discount rate on 3-month commercial paper is 4.9% while the yield on 3-month CDs is 5%, the real difference between them in basis points is:

1.1

2.39

3.10

4.3.9


Question:
If the required rate of return on a company's shares is 15 per cent, its last dividend payment was 8p and earnings are expected to continue their steady growth of 9 per cent p.a., the price of the shares (to the nearest whole p) will be:

1.133p

2.120p

3.53p

4.145p


Question:
If the risk free rate is 5 per cent while the market risk premium is 10 per cent, the required return on shares where the beta-coefficient is 0.8 is:

1.13%

2.8%

3.10%

4.18%


Question:
If the risk-free rate of interest is 5 per cent p.a. while the return on a whole market portfolio is 17 per cent, the rate of return required on a share with an â-coefficient of 1.15 will be:

1.13.8%

2.19.55%

3.18.8%

4.24.55%


Question:
Imagine a banking system with a reserve ratio of 0.1 and a public's cash ratio is 0.05. According to the base-multiplier approach, an open market purchase of £20m bonds from the general public by the central bank should:

1.Reduce the money supply by £20m

2.Reduce the money supply by £140m

3.Increase the money supply £20m

4.Increase the money supply by £140m


Question:
Imagine that a bank grants new lending facilities to its customers of £200m. Customers borrow £150m which they use to make payments to creditors. The creditors decide to hold those payments as £100m additional bank deposits and £50m notes and coin. The effect on the money supply is:

1.+£100m

2.+£200m

3.+£150m

4.No change


Question:
In 2008 you are advising someone with £1000 to invest. Their sole investment objective is to earn a rate of return which is absolutely guaranteed over the next four years. Which of the following would you recommend?

1.Buy corporate bonds maturing in 2010 and then reinvest for two years

2.Buy government bonds maturing in 2012

3.Buy company shares now and sell in 2012

4.Buy perpetual bonds and sell in 2012


Question:
In Italy in recent years there has been:

1.A loss of competitiveness in the banking system

2.A reduction in the number of banks

3.An increase in the number of small, more specialist, banks

4.An increase in the role of the government in the banking system


Question:
In June 2008, UK banks held approximately £6bn in notes and coin, £26bn in operational deposits at the Bank of England, £475bn in money market loans and £3,958bn in sterling and foreign currency deposits. Their collective reserve ratio was:

1.0.15%

2.0.6%

3.0.8%

4.12.8%


Question:
In the course of 1923, German prices rose by approximately:

1.20,000 times

2.20bn times

3.2m times

4.2bn times


Question:
In the course of a year a pension fund buys £15m of UK government bonds, £30m of UK company shares, £10m of ordinary company shares. It also sells £5m of overseas government bonds and £9m of UK preference shares. Its net acquisition of assets during the year was:

1.£30m

2.£55m

3.£69m

4.£41m


Question:
In the flow of funds analysis of money supply determination an increase in government borrowing not financed by the sale of bonds is likely to lead to:

1.An increase in notes and coin

2.Less bank lending to the general public

3.Higher interest rates

4.An increase in bank deposits


Question:
In the flow of funds approach to money supply determination a rise in the central bank's official dealing rate will most likely:

1.Reduce the demand for deposits

2.Lead to a smaller multiplier

3.Reduce the public's cash ratio

4.Reduce the demand for bank loans


Question:
In the loanable funds theory of interest determination, an increase in the productivity of capital equipment should lead to:

1.Higher prices

2.A reduction in interest rates

3.A reduction in the amount of saving

4.Higher interest rates


Question:
Interest rates are 7.5 per cent. A 9% corporate bond, maturing in three years time for £100 and paying annual coupons will have a price of:

1.£83.33

2.£833.33

3.£103.90

4.£120


Question:
Investment trusts often expose investors to higher capital risk than unit trusts because:

1.Investment trusts have higher operating costs

2.Unit trusts hold more bonds

3.Investment trusts are less diversified

4.Investment trusts can be 'geared'


Question:
It is suggested in the text that the demand for money is not of great importance from the point of view of monetary policy because:

1.Money has largely been replaced in the economy by credit and debit cards.

2.The supply of money is endogenous.

3.The supply of money is exogenous.

4.The demand for money function is unstable.


Question:
Long dated government bonds tend to have higher yields than short-dated bonds because:

1.There is a smaller market for them

2.There is a smaller market for them

3.They carry higher capital risk

4.There is less demand


Question:
Monetary authorities might be able to reduce inflation without causing a recession if their policies are:

1.Unexpected

2.Thought credible by market agents

3.Supported by the opposition

4.Believed by the voters


Question:
Mutual and co-operative banks in France charge lower interest rates (than commercial banks) because:

1.They have no shareholders

2.They offer limited services

3.They use cheap premises

4.Of official regulations


Question:
My spending is a regular £2000 per month. However, I keep an average of £3000 per month in by bank account. This suggests that I am using bank deposits as both:

1.Means of payment and store of wealth

2.Savings and precautionary balances

3.Idle balances

4.Means of payment and medium of exchange


Question:
Other things being equal, a high p/e ratio shows?

1.The share is overpriced

2.The firm operates a low dividen policy

3.The share is underpriced

4.Investors expect rapid earnings growth


Question:
Other things being equal, a rise in the price of a company's shares:

1.Reduces the cost of equity capital

2.Increases its costs of capital

3.Means that fewer shares will be demanded

4.Reduces the price of its bonds


Question:
Other things being equal, according to the base multiplier analysis of money supply determination, a decrease in banks' reserve ratios will lead to:

1.A larger multiplier and decrease in the money supply

2.A reduction in demand for deposits

3.A smaller multiplier and reduction in money supply

4.A larger multiplier and increase in the money supply


Question:
Other things being equal, according to the base multiplier analysis of money supply determination, an increase in the public's cash ratio will lead to:

1.Less spending

2.A larger multiplier and increase in the money supply

3.An increase in demand for deposits

4.A smaller multiplier and reduction in money supply


Question:
Other things being equal, lenders prefer to lend for short periods because:

1.They can earn higher interest

2.The future is uncertain

3.They have more choice

4.They can reinvest frequently


Question:
Pension and life insurance funds hold few short-term assets because:

1.Their cashflows are predictable

2.Most people live for a long time

3.Long-term assets are more profitable

4.Short-term assetsare too dear


Question:
Shares in ABC plc. have an â-coefficient of 0.9. The risk free rate of interest is 4 per cent p.a. while the return on a whole market portfolio is 15 per cent. The last dividend paid by the firm was 10p per share and earnings have grown steadily in recent years at 9 per cent p.a. The share price (to the nearest whole p) will be:

1.222p

2.242p

3.168p

4.204p


Question:
Standard and Poor's bond rating agency reduces your firm's bond rating from AA+ to AA. The likely effect on your firm's bonds will be:

1.The price will rise

2.Investors will prefer your company's shares

3.Investors will not hold them

4.The price will fall


Question:
Suppose that the Bank of England cuts interest rates by 0.5 per cent. Other things being equal, the change in the price of shares in Q.7 will be:

1.-95p

2.-3p

3.11p

4.165p


Question:
Suppose that the β-coefficient of ABC shares (in Q6) increases to 1.1. Other things being equal, the new share price would be:

1.62p

2.95p

3.141p

4.154p


Question:
Suppose that three year interest rates rise from 5 per cent to 6 per cent while one year rates remain at 3 per cent. This suggests:

1.Three year bonds have become less liquid

2.Short term interest rates are likely to rise in future

3.Three year bonds have become more risky

4.The central bank has raised three year rates


Question:
The 'clean price' of a bond is:

1.The price when it is first issued

2.The price including the interest which has accrued since the last coupon payment

3.The price excluding accrued interest

4.The price excluding the broker's commission


Question:
The ability of central banks to influence short-term interest rates rests upon:

1.Government policy

2.Their role as lenders of last resort

3.Their supervisory role

4.Sales of government bonds


Question:
The banking systems of Nordic countries are remarkable for their:

1.Instability

2.Economies of scale

3.Mortgage lending

4.Degree of market concentration


Question:
The Caisses d'Epargne are:

1.Mutual banks providing services to local authorities

2.Private commercial banks

3.Co-operative savings banks

4.Mutual banks linked to particular economic activities


Question:
The conversion of building societies to PLC status allowed them:

1.To raise funds by bond issues

2.To raise capital by share issues

3.To make personal loans

4.To expand by merger


Question:
The demand for insurance derives from the fact that people want:

1.The certainty of a good return

2.To reduce the risk of accidents

3.The possibility of a large loss to the certainty of a small one

4.The possibility of generous compensation


Question:
The essential characteristic that any monetary asset must possess is:

1.Stable value

2.Convenience

3.Acceptability in exchange

4.Classification as legal tender


Question:
The federal insurance of deposits is:

1.Compulsory for thrifts

2.Compulsory for all banks

3.Compulsory for nationally-chartered banks

4.Voluntary for all banks


Question:
The German banking system can be divided into 'specialised credit institutions' and:

1.Co-operative banks

2.'Universal' banks

3.Mortgage banks

4.Foreign banks


Question:
The Glass-Steagall Act:

1.Set up the Federal Reserve system

2.Prevented national banks from opening branches

3.Made national banks subject to the same branching restrictions as applied to national banks

4.Established the Federal Deposit Insurance Corporation (FDIC)


Question:
The idea behind a capital adequacy ratio is that banking risk should be borne by:

1.Shareholders

2.Creditors

3.Managers

4.Borrowers


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  148. MBA Marketing Management Mcq Set 3
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