BSNS114 Exam with Questions and
100% Correct Answers
Bonds with a higher maturity will carry more or less interest rate risk? - Answer more
Bonds with a higher coupon rate will carry more or less interest rate risk? - Answer less
In what case will the real value of a bond be decreasing:
- when inflation rate < interest rate
- when inflation rate > interest rate - Answer when inflation rate > interest rate
Which of these are the determinants of default risk by a firm?
- size of the firm
- capacity to generate cash flows
- number of shareholders
- volatility of cash flows
- fixed commitments - Answer capacity to generate cash flows, volatility of cash flows,
fixed commitments
You calculate the present value of a bond by:
- adding a perpetuity and present value of face value
- adding the present value of the FV to the present value of an annuity where YTM = r
, - adding the present value of an annuity due and a perpetuity where r = YTM - Answer
adding the present value of the FV to the present value of an annuity where YTM = r
What are the three different types of project? - Answer Expansion Project, New
Product Project, Replacement Project
What is an expansion project? - Answer Major strategic decisions to enter new areas
of business or markets.
What is a new product project? - Answer Decisions on new ventures within
existing businesses or markets?
What is a replacement project? - Answer Replacing current assets with existing assets.
What is EAR? - Answer Effective Annual Rate - annual growth rate that takes frequency
of compounding into account.
What is APR? - Answer Annual Percentage Rate - the interest rate quoted by
banks which uses simple interest.
3 fundamental decisions in financial management - Answer Capital budgeting,
financing decisions, working capital management decisions.
What are capital budgeting decisions? - Answer Decisions about which productive
assets the company should purchase to maximise cash flows in the long term.
What are financing decisions? - Answer What combination of debt and equity will
be used to finance assets (capital structure).
100% Correct Answers
Bonds with a higher maturity will carry more or less interest rate risk? - Answer more
Bonds with a higher coupon rate will carry more or less interest rate risk? - Answer less
In what case will the real value of a bond be decreasing:
- when inflation rate < interest rate
- when inflation rate > interest rate - Answer when inflation rate > interest rate
Which of these are the determinants of default risk by a firm?
- size of the firm
- capacity to generate cash flows
- number of shareholders
- volatility of cash flows
- fixed commitments - Answer capacity to generate cash flows, volatility of cash flows,
fixed commitments
You calculate the present value of a bond by:
- adding a perpetuity and present value of face value
- adding the present value of the FV to the present value of an annuity where YTM = r
, - adding the present value of an annuity due and a perpetuity where r = YTM - Answer
adding the present value of the FV to the present value of an annuity where YTM = r
What are the three different types of project? - Answer Expansion Project, New
Product Project, Replacement Project
What is an expansion project? - Answer Major strategic decisions to enter new areas
of business or markets.
What is a new product project? - Answer Decisions on new ventures within
existing businesses or markets?
What is a replacement project? - Answer Replacing current assets with existing assets.
What is EAR? - Answer Effective Annual Rate - annual growth rate that takes frequency
of compounding into account.
What is APR? - Answer Annual Percentage Rate - the interest rate quoted by
banks which uses simple interest.
3 fundamental decisions in financial management - Answer Capital budgeting,
financing decisions, working capital management decisions.
What are capital budgeting decisions? - Answer Decisions about which productive
assets the company should purchase to maximise cash flows in the long term.
What are financing decisions? - Answer What combination of debt and equity will
be used to finance assets (capital structure).
