Very Short Answer Questions Over the next year the stock rises to Rs40.

What is his return on

1. Write the meaning of financial market. investment?
2. Mention the difference between close end and open end mutual fund 19. If you purchase Rs 50000 of one year term life insurance, and
Investment Company. premium is Rs 2000, what is the implicit probability that you will
3. Write are the types of financial market. die during the next year? The cost of money is 10% and company
4. Write any 4 objectives of NRB. applies 20 load factors to the premium.
5. Write any 4 functions of central bank. 20. Suppose an employee is in 20 years of service. The percentage
6. What are the monetary tools of central bank? annual benefit provided is 2.5%. The average salary per month is Rs
6250. The flat benefit is Rs 5000. What is the final pay retirement?
7. Mention the difference between primary and secondary functions of
commercial bank.
8. Write the meaning of Central bank. Short Answer Questions
21. Describe the function of financial institutions.
9. What are the various types of assets in commercial bank?
22. Mention the objectives of central bank. Describe it.
10. What do you mean by commercial paper?
23. What are the risks of commercial bank?
11. Suppose the inflation premium is expected to be 5% in 2011.
24. What are the functions of financial market? Describe it.
However, the real risk free rate currently is 3%. Assume that
25. Mention the features of common stock and describe it.
maturity risk premium is 0.5%. Calculate the nominal interest rate 26. Describe the types of financial institution.
on 1-year Treasury bill. 27. Consider three pure discount bond with maturities of one, two and
12. You purchase a 20year annuity which will pay you Rs. 20000 per three years and prices of Rs 930.23, Rs 923.79 and Rs 919.54
year starting 30 years from now. The policy states that you will pay respectively. Each bond has Rs 1000 face value. Based on this
five equal annual premiums the first one due immediately. The information, calculate the one-year, two-year and three-year spot
insurance company’s annual cost of money is 12%. Find the rates.
premium payments assuming they are fair. 28. Suppose a year ago, the New Himalayan Fund was being quoted at
an NAV of Rs 21.50 and an offer price of Rs 23.35; today it’s being
13. You bought a bond for Rs 950 and sold it for Rs 1000. What is the
quoted at Rs 23.04(NAV) and Rs 25.04(offer). What is the holding
HPR, if the bond is hold for one year and receive Rs 80 as an period return on this load fund, given that it was purchased a year
interest? ago and its dividends and capital gains distributions over the year
14. Suppose a 4year bond is currently yielding 8% and 3 year bond is have totaled Rs 1.05 per share?
yielding 5%. What is the implied yield for 1 year bond starting from 29. You have just purchased a three-month Rs 400000 negotiable CD,
year 3? which will pay a 5% annual interest rate.
a. If the market rate on the CD rises to 8%, what is its current
15. What will be the price of pure discount bond with face value
market value?
Rs1000, which has maturity of one year and has a yield to maturity b.If the market rate on the CD falls to 4%, what is its current market
of 10%? value?
16. If the real return on an investment in a given year is 6%, while its 30. In a city, there are 100000 policyholders alive at the beginning of
normal return is 11.3%, what must be the inflation rate during the age 40. Out of them, 500 are expected to die at the age of 40. Each
year? policyholder has Rs 200000 life insurance policy and the cost of
17. An investor receives Rs 9200 today on Rs 10000 one year discount money is 8%.
Required:
bond. Find the YTM. a. Expected Claims
18. Mr. A bought on margin 100shares at Rs 35 each. The initial margin b.Present value of expected claims
requirement is 45% and the annual interest on margin loan is 12%. c. Estimated net premium per policyholder
 d.Gross premium per policyholder assuming that the insurance 35. XYZ Investment Company has assets of Rs 4300000and liabilities
company will cost Rs 7407407.41 to service the insurance needs of Rs 150000 on January 1. On February 1 assets decrease to Rs
of 200000 policyholders during the year. 4250000 and liabilities by Rs 110000. On 1 march assets increase to
Rs 4600000 and liabilities by Rs 24000. Total no of share
31. Consider the following information
outstanding on initial stage is 10000. On February 1 Mr. A deposit
Maturity YTM %
(year) Rs 210500 and on march1.Mr B withdraw Rs 432000.
5 14 Required:
4 13 a. Net assets value on January 1
3 12 b. Net assets value on February 1
2 11 c. No of share issue for Mr. A
1 10 d. Net assets value on march 1
Calculate all possible forward rates. e. No of share repurchase for Mr. B.
f. Holding period returned of Mr. B on cash and Margin basis if initial
32. The current selling price for a treasury-bill is Rs980 on a Rs1000
margin is 50% and broker charge 12% interest.
face value and the bill is maturing in 91 days. 60 after the g. Total no of share and assets value after repurchase of share.
purchases the investor sells it at a discount rate of 4 %Calculate: h. Differentiate between open end and close end mutual fund
a. Discount rate on T-bill. Investment Company.
b. Coupon equivalent yield.
36. Suppose that XYZ mutual fund Investment Company has assets of
c. Price of T-bill after 60 days.
Rs 6300000and liabilities of Rs 300000 on Day 1. On Day 2 assets
d. Holding period return.
increase by Rs 450000 and liabilities became zero. On Day 3 its
assets increase by Rs 490000. On Day 1 company has 250000 share
33. Your employer uses a career average formula to determine
outstanding. On Day 2 Mr. Karki withdraw Rs 135000 and on
retirement payment to its employees. The annual retirement payout Day3.Mr Thapa deposited Rs 217500.
is 5%of the employees career average salary times the number of Required:
years of service. Calculate your annual benefit payment under the a. Net assets value on Day 1
following scenarios. b. Net assets value on Day 2
Years worked 30 33 35 25 20 c. Total number of share outstanding after withdraw by Mr. Karki.
Career average salary 60000 6250 65000 52000 48000
d. Total assets of company after withdraw.
0
e. Net Assets Value on Day 3.
f. Total number of share outstanding after deposit by Mr. Thapa.
34. Mr. X purchases a stock of a company @ Rs 500 per share under
g. Total assets of company after deposit.
margin purchase and paid 40% of the price as initial margin. The
h. Differentiate between open end and close end mutual fund
brokerage firm charges 10% interest on the loan. At the end of year
Investment Company.
one company paid Rs 20 as dividend and price of stock increase to
Rs 600.
a. Find holding period return.
b. Find holding period return if he purchase on cash basis.
c. Why is the return under margin purchase higher than on cash basis?
Case analysis