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END - OF - SEMESTER EXAMINATION

SEMESTER SESSION


(The Examination Paper Consists of printed Pages)

INSTRUCTION(S) TO CANDIDATES

DO NOT OPEN UNTIL YOU ARE ASKED TO DO SO

Answer all the questions.
Part I & II : Circle the correct answers in True/ False & MCQ answer sheet provided.
Part III : Write answers of all the questions in the answer booklet.


Any form of cheating or attempt to cheat is a serious Offence which may lead to
dismissal.

APPROVED BY:









Programme

: Executive Bachelor in
Business Management

Level of
Study
: Undergraduate
Time

Date
:

:



Date

Day
:

:



Venue :

Course Code : Section(s)

: ALL
Course Title : Instructor :
PART I: Multiple Choice Questions (50 Marks)

Answer ALL questions. Each question carries one mark.

1. When the market's required rate of return for a particular bond is less than its coupon rate,
the bond is referred to as a __________.
a. premium bond.
b. discount bond.
c. face value.
d. current yield.

2. Which one of the following statements is true concerning bonds?
a. A bond yield represents only the interest earned on a bond.
b. Bond yield data is more useful to an investor when compared over time.
c. A bond's yield remains constant even when a bond is sold prior to maturity.
d. Bonds with similar characteristics generally have widely disparate bond yields.

3. The government is generally
a. not involved in the financial markets.
b. the owner of the financial market.
c. a supplier of funds to the financial market.
d. a demander of funds in the financial market.

4. On a net basis, funds in the financial markets are generally supplied by
a. individuals.
b. both individuals and business firms.
c. business firms.
d. the government.

5. A forum in which suppliers and demanders of funds make financial transactions is called a
financial
a. institution.
b. bank.
c. instrument.
d. market.

6. Stocks are a(n) ________ investment representing ________ of a business.
a. direct; ownership
b. direct; debt
c. indirect; ownership
d. indirect; debt

7. On a net basis, funds in the financial markets are generally supplied by
a. individuals
b. both individuals and business firms.
c. business firms.
d. the government.

8. Short-term securities are bought and sold in the
a. capital market.
b. primary market.
c. money market.
d. stock market.

9. Which one of the following statements concerning the primary market is correct?
a. A transaction in the primary market is between two private stockholders.
b. The first public sale of a company's stock in the primary market is called a
seasoned new issue.
c. A private placement occurs in the primary market.
d. A rights offering is a direct sale of stock to an institution that participates in the
primary market.

10. The purchase of stock with cash in the hope of earning a capital gain is known as taking a
a. long position in the stock.
b. short position in the stock.
c. long, margined position in the stock.
d. short, margined position in the stock.

11. Preferred shareholders' claims on assets and income of a firm come those of creditors
those of common shareholders.
a. before; and also before.
b. after; but before.
c. after; and also after.
d. equal to; and equal to.

12. A call provision, a sinking fund, and/or conversion are used to retire
a. bonds and preferred stock.
b. bonds and common stock.
c. preferred stock and common stock.
d. only common stock.

13. A bond issue may be retired by:
a. calling the bonds if there is a call feature.
b. converting the bonds (if convertible) into common stock.
c. making a single-sum payment at final maturity.
d. all of the above.

14. In 3 years you are to receive $5,000. If the interest rate were to suddenly increase, the
present value of that future amount to you would
a. fall.
b. rise.
c. remain unchanged.
d. cannot be determined without more information.

15. This type of risk is avoidable through proper diversification.
a. portfolio risk.
b. systematic risk.
c. unsystematic risk.
d. total risk.

16. Uses of funds include a (an):
a. decrease in cash.
b. increase in any liability.
c. increase in fixed assets.
d. tax refund.
17. Which of the following would be included in a cash budget?
a. depreciation charges.
b. dividends.
c. goodwill.
d. patent amortization.

18. In proper capital budgeting analysis we evaluate incremental
a. accounting income.
b. cash flow.
c. earnings.
d. operating profit.

19. In a common stock rights offering the subscription price is generally:
a. set equal to the current market price of the stock.
b. set below the current market price of the stock.
c. set above the current market price of the stock.
d. set after the stock goes "ex-rights."

20. Financial intermediaries
a. do not invest in new long-term securities.
b. include insurance companies and pension funds.
c. include the national and regional stock exchanges.
d. are usually underwriting syndicates.

21. A project's profitability index is equal to the ratio of the of a project's future cash flows to
the project's
a. present value; initial cash outlay.
b. net present value; initial cash outlay.
c. present value; depreciable basis.
d. net present value; depreciable basis.

22. If capital is to be rationed for only the current period, a firm should probably first consider
selecting projects by descending order of
a. net present value.
b. payback period.
c. internal rate of return.
d. profitability index.

23. The method provides correct rankings of mutually exclusive projects, when the firm is not
subject to capital rationing.
a. net present value.
b. internal rate of return.
c. payback period.
d. profitability index.

24. "Shareholder wealth" in a firm is represented by:
a. the number of people employed in the firm.
b. the book value of the firm's assets less the book value of its liabilities.
c. the amount of salary paid to its employees.
d. the market price per share of the firm's common stock.





25. The long-run objective of financial management is to:
a. maximize earnings per share.
b. maximize the value of the firm's common stock.
c. maximize return on investment.
d. maximize market share.




PART II: Problematic Questions (50 Marks)

Answer ALL questions.


QUESTION 1

a) A 5%, 10-year bond has 2 years remaining to maturity. The bond is currently priced in
the market at RM800. Determine the bonds current yield?
(2 marks)

b) Bond BBB was issued 5 years ago with 15 years maturity and a coupon rate of 10%. It is
currently selling at RM900. Calculate the yield to maturity on this bond.
(5 marks)


QUESTION 2

Megah Bhd plans to increase fixed assets by RM 5 million by the end of the year. The
company capital account consists of 35% bond, 25% preferred stock and 40% common stock.
New securities can be issued as follows:
20 years, 7% bond, interest to be paid annually for RM930 less floatation cost of 4%
80% preferred stock to be sold at par
Common stock for RM90 flotation cost of 8%

The corporate tax rate is 45%. The company paid dividend of RM6 last year and the expected
growth is 7%. What is the WACC of financing the investment?
(15 marks)


QUESTION 3

Malaysia Bhd considering these two mutually exclusive projects which required an initial
outlays of RM150,000. The cost of capital is 12%. Based on the information provided below,
discuss which project should Malaysia Bhd choose for each of the variables involved.

Project A Project B
Payback Period 2.2 years 2.7 years
Net present value RM120,000 RM98,000
Internal rate of return 3.9% 2.79 %

(6 marks)


QUESTION 4

a. Ali Bhds preferred stock pay quarterly dividend of RM2.50. If the price of this preferred
share is currently RM50, what is the nominal annual rate of return?
(2 marks)

b. Hartamas Bhd plan to pay a dividend of RM 1.20 per share in year 1, RM 1.50 per share
in year 2, RM 2.10 per share in year 3 and RM 2.50 in year 4. At the end of the period,
you plan to sell the shares for RM 25 each. Find the value of share today if your required
rate of return is 15%.
(8 marks)

c. At the end of last year, BABA NYONYA BHD. paid a dividend of RM 1.80 per share. The
company common stock dividend has been growing at a rate of 8% per year. What is the
value of common stock today if the investors required rate of return is 9%?
(4 marks)

QUESTION 5
XYZ Berhad is planning to invest in one of the two projects with the following distribution of
possible return.

Condition Probability Returns Project
A
(RM)
Returns Project
B
(RM)
Excellent 0.3 10,500 11,050
Good 0.4 8,700 9,300

a) Calculate the expected rate of return, standard deviation for both projects. Which project
is more risky? Why?
(8 marks)


END OF QUESTIONS

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