Question

7) Which of the following is true about the real rate and nominal rate?

a) The real rate is always larger than the nominal rate

b) A real interest rate can be approximated by nominal rate minus the risk-free rate

c) The real rate is always smaller than the nominal rate

d) A real interest rate can be approximated by nominal rate minus the expected inflation rate

8) If a financial product requires an initial investment of $200 now, pays an annual coupon of $30 at the end of each year for 10 years, and pay back the $200 at the end of 10 years, which of the following best describes the time line of this investment?

a) +200 at t=10, -30 for t=1 to t=9, and -230 for t=10

b) -200 at t=0, -30 for t=1 to t=9, and +200 for t=1

c) -200 at t=0, +30 for t=1 to t=9, and +230 for t=10

d) -200 at t=0, +30 for t=1 to t=9, and +200 for t=10

9) Which of the following is true about the valuation of equity?

a) Asset-based valuation models are more applicable to the firms with small amount of intangible assets and assets with ready market values

b) All of the listed choices

c) Common benchmarks of price multiples include a time series comparison and a cross-sectional comparison

d) P/E ratio, P/S ratio, P/B ratio and P/CF ratio are commonly used relative valuation measures

10) Which of the following does not fall into the category of equity?

a) Notes

b) Preferred stock

c) Warrants

d) Private equity

11) Which of the following is/are true about financial investments?

I. If the asset value increases, a short position will benefit.

II. Not all securities are publicly traded.

III. Commodities, arts, real estates, bond, and equipment are all real assets.

IV. The primary market and secondary market are categorised according to the size of the security.

a) II only

b) II and IV

c) III only

d) I and III

12) Cell D4 consists of the following formula “=B1*(1+C1)^D1”. Which of the following is true about Cell D4?

a) If B1 is a future value, C1 is an annual interest rate, D1 is the number of periods then D4 calculates the present value

b) If B1 is a present value, C1 is an annual interest rate, D1 is the number of periods then D4 calculates the net present value

c) If B1 is a present value, C1 is an annual interest rate, D1 is the number of periods then D4 calculates the future value

d) None of the listed choices

Answer 1

7) real interest rate is defined as nominal interest rate minus expected rate of inflation.and when inflation is zero real rate equals to nominal interest rate.so we can not say which is always greater.

so option d) is correct answer.

8)

here initial cash out flow at t = 0 is 200 since it is out flow we show it with negative sign. so -200 at t = 0

cash inflows will be $30 every year until year 10 and also in year 10 along with $30 we also get $200 back so in year 10   cash inflow will be $230( 200 + 30)

so the time line will be -200 at t = 0 , +30 for t = 1 to 9 ,and +230 for t = 10

option c)   is correct answer

9)

first lets find out correct answers

a) using asset based valuation model we can find the value of a firm and that is = assets - liabilities

to find value of assets we use market or fair values instead of balance sheet values and in assets we also include intangible assets which are  quite difficult to value. so option a is correct answer.

c) this is also correct option because Common benchmarks of price multiples include a time series comparison and a cross-sectional comparison

d) basically there are four commonly used valuation measures which are:

price / earnings ratio(P / E)

Price to sales ( P / S)

Price to book value (P/B)

Price to cash flow (P / CF)

so all options are correct.

  Option b) is correct answer.

10)  

  preferred stocks , warrants , private equity all are equity except Notes which is not an equity

Option a)  is correct answer

11)

   a bond is not a real asset it is financial asset so option iii is incorrect

The primary market and secondary market are not Categorised according to the size of the security. sp Option iv is incorrect.

if asset value increases a short position will benefit this is incorrect.

Not all securities are publicly traded this is the only correct option

  option a) is correct.

12)

future value = present value ( 1 + r)^n

where , r = rate of interest

n = number of periods

so option c) is correct answer