1. A series of fixed payments at a specified time interval ...ibskayamkulam.in/OnlineExam/file/2013-09-251380093780New version... · A series of fixed payments at a specified time

1. A series of fixed payments at a specified time interval, over given time period is called:

a) Interest payments

b) Principal payments

c) Annuities

d) Maturity payments

e) None of the above

2. The interest that is paid each year as fixed percentage of the amount borrowed or depositedis called:

a) Interest

b) Simple interest

c) Compound interest

d) Yield to maturity.

e) Annuities

3. Formula for simple interest rate is :

a) Principal x rate

b) Principal x time

c) Principal x rate x time

d) Receivable amount x rate x time.


4. When a person borrows money, he pays in return some extra money to the lender. Thisextra money is called ––––––:

a) Principal amount

b) Dividend

c) Interest

d) Bonus

5. The money borrowed from bank or any person is called –––––

a) Principal Amount

b) Interest

c) Capital

d)Financial Assistance

6. The formula for finding simple interest is ––––––

a) Interest =

b)

c) Interest = A ( 1 + )

d) Interest =

7. X borrowed a sum of Rs. 10000 from Y at 12% p.a. interest rate for 2 years. What is theamount of total interest payable?

a) Rs. 120

b) Rs. 240

c) Rs. 1200

d) Rs. 2400

e) Rs. 3600

8. B borrowed Rs. 20000 from A at 10%.p.a. interest rate for 3 years. What is total amountrepayable by B to A.?

a) Rs. 20000

b) Rs. 6000

c) Rs. 24000

d) Rs. 22000

e) Rs. 26000

9. Interest that is paid on the original principal amount and also on the accumulated part ofinterest, is called:

a) Interest

b) Simple interest

c) Compound interest

d) Yield to maturity.

e) Annuities

10. The simple interest on Rs. 10,000 at 6% p.a. for 3 years would be –––––

a) Rs. 600

b) Rs. 1,200

c) Rs. 1,800

d) Rs. 2,000

11. What is the simple interest on Rs. 1,200 at 5.5% p.a. for 5 years? Find the amount also.

a) 320 + 1,200 = Rs. 1,520

b) 325 + 1,200 = Rs. 1,525

c) 340 + 1,200 = Rs. 1,540

d) 350 + 1,500 = Rs. 1,550


12. A money lender lent some amount to a trader @ 8% p.a. After 18 months, the trader paidhim Rs. 700 in full payment of interest and principal amount. Find out the sum lent by themoney- lender.

a) Rs. 600

b) Rs. 610

c) Rs. 625

d) Rs. 650

13. The term compounding period stands for :

a) Time intervals for charging of interest

b) Time period for charging interest

c) Time interval between which the interest is added to the principal

d) Period when the effect of compounding is given


14. On an amount of Rs. 10000 lent at 6% interest. On which of the following compoundingperiods, the interest amount will be highest:

a) Yearly-compounding

b) Half-yearly compounding

c) Quarterly compounding

d) Monthly compounding

e) Weekly compounding

15. What is rule of 72 in interest calculations?

a) Used to fix interest rate

b) Used to calculate amount of interest

c) Used to find out the time during which the amount becomes double at a given rate of interest

d) None of the above

16. In how many years will the interest be Rs. 150 on Rs. 1,250 @ 4% per annum?

a) 1 years

b) 2 years

c) 3 years

d) 4 years

17. What annual rate of simple interest was paid if Rs. 500 earned Rs. 55 as interest in 2 yearsand 9 months?

a) 2%

b) 3%

c) 3.5

d) 4%

18. A sum of money at simple interest amounts to Rs. 2,800 in 2 years and to Rs. 3,250 in 5years. Find the sum and the rate of interest.

a) Rs. 2,500; 4%

b) Rs. 2,500; 5%

c) Rs. 3,000; 4%

d) Rs. 2,500; 6%

19. According to rule of 72, to calculate the time when the amount becomes double whatformula is used:

a) Principal / 72

b) Interest rate / 72

c) 72 / time

d) 72 / interest rate

e) Principal / time

20. An annuity under which payments are made at the end of each period are known as :

a) Annual annuity

b) Annuity due

c) Special annuity

d) Ordinary annuity


21. An annuity under which payments are made in the beginning of each period are known as :

a) Annual annuity

b) Annuity due

c) Special annuity

d) Ordinary annuity


22. Certain principal amount plus its 5 years’ simple interest makes an amount of Rs. 500. If theinterest is 1/4th of the principal, find out the rate of interest and the principal amount.

a) 4%; Rs. 400

b) 5%; Rs. 400

c) 5.5%; Rs. 300

d) 6%; Rs. 250

23. A sum of money amounts to Rs. 2,240 @ 4% simple interest in 3 years. Find the interest onthe same sum for 6 months @ 3.5% p.a.

a) Rs. 35

b) Rs.40

c) Rs. 45

d) Rs. 50

24. The simple interest on a sum of money is 1/9th of the principal and the number of years isequal to the rate percent annum. The rate percent per annum is ––––

a) 2%

b) 2 %

c) 3%

d) 3 %

25. What is the amount of Rs. 4,000 @ 4% simple interest p.a. from 10th January 2004 to 11thApril 2005, on the basis of number of days?

a) Rs. 4,200

b) Rs. 4,300

c) Rs. 4,300.17

d) Rs. 4,200.17

[Hint: The year 2004 being a leap year, will have February of 29 days.]

Key

1.c 2.b 3.c 4.c 5.a 6.d 7.d 8.e 9.c 10.c 11.e 12.c 13.c

14.e 15.c 16.c 17.d 18.d 19.d 20.d 21.b 22.b 23.a 24.c 25.d

1. The basic salary of the teacher is Rs. 7,000 p.m. He contributes 10% of the basic salaryto his provident fund account. His employer also contributes the similar amount. If the interestcredited to the provident fund account is 6% p.a., find the amount of interest after one year.

a) Rs. 5,040

b) Rs. 420

c) Rs. 840

d) Rs. 546

[Hint: Total contribution p.m. = 700 + 700 = Rs. 1,400 interest @ 6% p.a.

.˙. Interest of Re. 1 for 1 year = Rs. 0.06

.˙. Interest of Re. 1 for 1 month = 0.06

12

.˙. Interest on Rs. 1,400 for 1 month = x 1,400 = Rs. 7

Interest on1st month’s contribution for 12 months = 7x12

Interest on2nd month’s contribution for 11 months = 7x11

And so on ……..

Interest on11th month’s contribution for 2 months = 7x2

Interest on12th month’s contribution for 1 months = 7x1

Total interest = 7 (12 + 11 + 10 +9 + 8+ 7 +6+ 5+ 4+ 3+ 2+1) = 7 (78) = Rs. 546.]

2. For a 5-year loan repayment in equal quarterly installments, in which of annuities, the futurevalue of the annuity is higher.

a) Annual annuity

b) Annuity due

c) Special annuity

d) Ordinary annuity


3. When the amount of future value of the annuity is converted into its value as of today at agiven rate of discount, it is known :

a) Present value

b) Current value

c) Value at risk

d) Annuity value


4. When a debt is amortised by equal payment at equal payment intervals, the debt becomes :

a) Annuity

b) Future value of annuity

c) Present value of annuity

d) Discounted value of annuity


5. A person deposited a sum of money in a bank on 12th January 2005 and received back hisfull principal with interest on 24th September 2005. If he got 1,570, what his principal amountwhile the rate of interest is 5% per annum?

a) Rs. 4,509 approx.

b) Rs. 45, 088 approx

c) Rs. 50,000

d) Rs. 30,000

[Hint : No of days 255]

6. A sum of money doubles itself in 16 years at simple interest with yearly rate of –

a) 6.25%

b) 8%

c) 10%

d) 16%

7. Rs. 800 amounts to Rs. 920 in 3 years at simple interest. If the interest rate is increased by3%, it would amount to –––––

a) Rs. 992

b) Rs. 1,056

c) Rs. 1,112

d) Rs. 1,182

8. Total time during which the debt is amortized, is called:

a) annuity period

b) Annuity duration

c) term of annuity

d) Payment period of annuity

9. Which of the following cannot be an objective of creation of sinking fund :

a) To pay off debts

b) To redeem bond issues

c) To replace worn out equipment

d) To buy new equipment


10. X deposited Rs. 11200 with a non- bank finance company at 14% p.a. compounded interestrate for 2 year. What is the amount of interest for the 1st year?

a) 1236

b) 1342

c) 1426

d) 1488

e) 1568

11. In the above problem what is the total amount at the end of 1st year:

a) 11200

b) 12236

c) 12342

d) 13242

e) 12768

12. In the above problem, what is the interest amount in the 2nd year:

a) 1788

b) 1748

c) 1678

d) 1658

e) 1586

13. A certain sum of money at simple interest amounts to Rs. 1,260 in 2 years and to Rs. 1,350in 5 years. The rate percent per annum is –––––

a) 2%

b) 2.5%

c) 3.75%

d) 5%

14. A lent Rs. 6,000 to B for 2 years and Rs. 1,500 to C for 4 years and received altogetherfrom both Rs. 900 as simple interest. The rate of interest is –––––

a) 4%

b) 5%

c) 8%

d) 10%

15. The simple interest on a sum will be Rs. 60,000 after 10 years. If the principal is trebledafter 5 years, the total interest at the end of the tenth year will be ––––

a) Rs. 60,000 b) Rs. 90,000

c) Rs. 1,20,000 d) Rs. 1,50,000

16. X obtains a loan of Rs. 464100 at 10% compounded interest, from Y to be repaid in 4 equalinstallments annually. The amount of annual installment would be :

a) 116025

b) 128214

c) 146410

d) 164140


17. A person lends Rs. 10,000 in four parts. If he gets 8% on Rs. 2,000; 7.5% on Rs. 4,000 and8.5% on Rs. 1,400; what percent must he get for the remainder, if the average rate of interest is8.13%?

a) 6%

b) 7%

c) 9%

d) 10%

18. The simple interest on a sum of money @8% per annum for 6 years is half the sum. Thesum is –––––

a) Rs. 4,000

b) Rs. 4,800

c) Rs. 6,000

d) Data inadequate.

19. A certain sum of money at simple interest amounts to Rs. 1,012 in 2 years and to Rs. 1,067.20 in 4 years. The rate of interest per annum is ––––:

a) 2%

b) 2.5%

c) 3%

d) 4%

20. The rate of interest on a sum of money is 4% p.a. for the first 2 years, 6% p.a. for the next 4years and 8% p.a. for the period beyond 6 years. If the simple interest accrued by the sum ofthe total period of 9 years is Rs. 1,120, what is the sum?

a) Rs. 1,000

b) Rs. 1,500

c) Rs. 2,000

d) Rs. 2,500

21. A money-lender finds that due to fall in the rate of interest from 13% to 12.5%, his yearlyincome from interest falls by Rs. 208. His principal amount is ––:

a) Rs. 42,800

b) Rs. 41,600

c) Rs. 44,600

d) Rs. 48,000

22. A sum of Rs.25, 400 is lent out into two parts, one at 12% p.a. and the other at 12.5% p.a. Ifthe total annual income from interest is Rs. 3,160, the money lent at 12% is ––––––

a) Rs. 10,000

b) Rs. 11,800

c) Rs. 12,400

d) Rs. 13,400

23. A sum of Rs. 26,000 is lent out in two parts in such away that the interest on one part @10% for 5 years is equal to that on another part 9% for 6 years. The sum lent out at 10% is –––––:

a) Rs. 10,500

b) Rs. 11,500

c) Rs. 12,500

d) Rs. 13,500

24. At certain rate of simple interest, a sum doubles itself in 10 years. It will treble itself in ––––

a) 12 years

b) 15 years

c) 18 years

d) 20 years

25. In how many years will a sum of money double itself at 12% per annum simple interest?

a) 6 years

b) 6 years 6 months

c) 7 years

d) 8 years 6 months

Key

1.d 2.b 3.a 4.d 5.b 6.a 7.a 8.c 9.e 10.e 11.e 12.a 13.b

14.b 15.c 16.c 17.c 18.d 19.d 20.c 21.b 22.b 23.d 24.d 25.d

1. In case of simple rate of interest calculations, the term ‘amount’ stands for :

a) Principal amount

b) Interest amount

c) Principal + interest

d) Principal – interest

2. The fixed amount which is to be repaid regularly on a pre-fixed time interval is called:

a) Principal

b) Installment

c) Interest

d) Any of these

3. The simple interest at % for years will be Rs. on a sum of ––––––:

a) Rs.

b) Rs. 100

c) Rs. ( )

d) Rs. ( )

4. Find the compound interest of Rs. 4,000 for 2 years @ 5% p.a.–––––

a) Rs. 400

b) Rs. 410

c) Rs. 420

d) Rs. 430

5. How much will Rs. 50,000 amount to in 2 years at compound interest if the rates for 1st and2nd year be 4% and 5% p.a. respectively?

a) Rs. 27,300

b) Rs. 37,200

c) Rs. 54,600

d) Rs. 35,400

6. The amount of monthly installment of the loan amount can be calculates as:

a) Principal /no. of total months

b) Interest / no. of total months

c) Principal + interest /no. of total months

d) Principal + interest / no. of total years

7. John had raised a loan which he agrees to prepay on a weekly basis. The amount ofinstallment shall be calculated as :

a) Principal /12

b) Principal + interest /52

c) Principal + interest /7

d) Principal /52

8. Interest is calculated as :

a) Amount – principal

b) Amount + principal

c) Principal + (principal x rate)

d) Principal + (rate x time)

9. Find the compound interest on Rs. 5,000 in 2 years 4% p.a., compounded annually.

a) Rs. 516.16

b) Rs. 54.08

c) Rs. 204.00

d)Rs. 258.08

10. What sum of money at a compound interest rate of 5% p.a.?

a) Rs. 1,000

b) Rs. 1,110

c) Rs. 1,120

d) Rs. 1,130

11. A sum of money at a compound interest amounts in 2 years to Rs. 672 and in 3 years to Rs. 714. Find the rate of interest.

a) 5%

b) 6%

c) 6.25%

d) 6.50%

12. Principal x ( l x rt) =

a) Interest

b) Principal

c) Amount


13. An amount of Rs. 20000 gets accumulated to Rs. 32000 at the end of 3rd year simpleinterest. Calculate the rate of interest.

a) 10%

b) 15%

c) 20%

d) 25%

14. X had deposited some amount with the bank at 7% for 3 years, which becomes Rs.48400.What amount was deposited?

a) Rs. 40000

b) Rs. 39000

c) Rs. 36000

d) Rs. 37000

15. A = P ( 1 + r)n is used to calculate the following :

a) Simple interest on annual basis

b) Compounded interest with annual rest

c) Compounded interest with half-yearly rest

d) Compounded interest with quarterly rest

16. Mr. K had deposited Rs. 20000 with his bank at 12% interest for 2 years. What will beamount, he is likely to receive, if compounding is annually:

a) Rs. 25394

b) Rs. 25088

c) Rs. 25250

d) Rs. 25335

17. Mr. K had deposited Rs. 20000 with his bank at 12% p.a. interest for 2 years. What will beamount, he is likely to receive, if compounding is half yearly:

a) Rs. 25394

b) Rs. 25088

c) Rs. 25250

d) Rs. 25335

18. What is the rate percent per annum if a sum doubles itself in 12 years at compoundinterest?

a) 5.2%

b) 5.6%

c) 5.8%

d) 5.9%

19. In how much time a sum of money becomes three times @ 8% compound rate of interestper annum?

a) 14 years

b) 14 years

c) 15 years

d) 15 years

20. Find the difference between simple interest and compound interest on Rs. 50,000 investedfor 4 years at the rate of 5% p.a., where the interest in compounded annually.

a) Rs. 1,550

b) Rs. 5,000

c) Rs. 10,000

d) Rs, 775

21. Mr. K had deposited Rs. 40000 with his bank at 12% p.a. Interest for 2 years. What will beamount, he is likely to receive, if compounding is quarterly:

a) Rs. 50394

b) Rs. 50088

c) Rs. 50250

d) Rs. 50670

22. Mr. K had deposited Rs. 40000 with his bank at 12% p.a. Interest for 2 years. What will beamount, he is likely to receive, if compounding is monthly:

a) Rs. 50789

b) Rs. 50088

c) Rs. 50250

d) Rs. 50670

23. Kumar had deposited Rs. 15000 with the bank at 5% rate of interest. After some time he got Rs. 17543. These amounts are known as :

a) Past value, future value

b) Future value, present value

c) Present value, past value

d) present value, future value

24. If compound interest for 2 years at the rate of 4% of some money is Rs. 102, find thesimple interest at the same rate for 2 years.

a) Rs. 108. 16

b) Rs. 100

c) Rs. 110

d) Rs. 120

25. What is the rate percent per annum if a sum doubles itself in 12 years at compound rate ofinterest?

a) 5.2%

b) 5.4%

c) 5.5%

d) 5.9%

Key

1.c 2.b 3.c 4.b 5.c 6.c 7.b 8.a 9.a 10.d 11.c 12.c 13.c

14.a 15.b 16.b 17.c 18.d 19.a 20.d 21.d 22.a 23.d 24.b 25.d

1. If a sum of money trebles itself in 2 years at compound interest, then it will be 27 times ofitself in

a) 5 years

b) 6 years

c) 12 years

d) 15 years

2. The Simple interest and compound interest of first year, are –––

a) Equal

b) Unequal

3. When compound interest is calculated half yearly, then the period becomes –––––

a) Half

b) Double

c) One fourth

d) One tenth

4. A sum of money amounts to Rs. 9,261 in 3 years @ 5% p.a. Compound interest. Theprincipal amounts is ––:

a) Rs. 4,000

b) Rs. 6,000

c) Rs. 7,000

d) Rs. 8,000

5. When a customer deposits some amount with a bank and receives the amount on maturity,these are called ––––from customer’s view point:

a) Inflow, inflow

b) Outflow, outflow

c) Outflow, inflow

d) Inflow, outflow

6. The formula FVn = PV (1 + r) n shows the relationship between:

a) Interest and principal for a single cash flow

b) Present value and future value for a single cash flow

c) Interest and principal for a multiple cash flow

7. The formula PV = FVn (1 + r) -n can be written as :

a) PV = FV n / ( 1 + r) n

b) PV = FV n / ( 1 - r) -n

c) PV = FV n / ( 1 + r) -n

d) PV = FV n / ( 1 - r) n

8. The compound interest for 3 years @ 5% p.a. is Rs. 1,261 on a certain sum. The principalis ––––––:

a) Rs. 8,000

b) Rs. 9,000

c) Rs. 10,000

d) Rs. 11,000

9. Simple interest on a sum at 4% p.a. for two years is Rs. 800. The compound interest on thesame sum for the same period is ––––––:

a) Rs. 81.60

b) Rs. 816

c) Rs. 1,600

d) 1,816

10. A sum amounts to Rs. 2,916 in 2 years and to Rs. 3,149.28 in 3 years at compoundinterest. The sum is –––––:

a) Rs. 1,000

b) Rs. 1,500

c) Rs. 2,000

d) Rs. 2,500

11. Z needs Rs. 15 lac for the marriage of his daughter at the end of 5th year. Considering thatthe interest rate is 10% at present, what amount he will have to deposit in the bank FDR withyearly compounding?

a) Rs. 913283

b) Rs. 912283

c) Rs. 983122

d) Rs. 931382

12. Z needs Rs. 15 lac for the marriage of his daughter at the end of 5th year. Considering thatthe interest rate is 10% at present, how much lesser amount he will have to deposit in the bankFDR if he compounding us half-yearly?

a) Rs. 9208

b) Rs. 10512

c) Rs. 10823

d) Rs. 11031

13. X borrowed Rs. 10000 from the bank as personal loan repayable over 5 years at 12% rateof interest. However, he returns the entire amount at the end of 2 years in lump sum. There isno prepayment penalty. What is the amount, X returned to the bank at quarterly compounding?

a) Rs. 12668

b) Rs. 12866

c) Rs. 12689

d) Rs. 12968

14. A sum of money at compound interest amounts to Rs. 10, 648 in 3 years and Rs.9, 680 in 2years. The rate of interest is –––––

a) 5%

b) 10%

c) 15%

d) 20%

15. Rs. 400 at 5% p.a. compound interest will amounts to Rs.441 in –––––

a) 1 years

b) 2 years

c) 3 years

d) 4 years

16. What are the principal amounts which earns Rs. 264 as compound interest for the secondyear @ 10% p.a.?

a) Rs. 2,000

b) Rs. 2,200

c) Rs. 2,400

d) Rs. 2,600

17. If Rs. 7,500 are borrowed at compound interest at the rate of 4% p.a., then after 2 years theamount to be paid is –––––

a) Rs. 7,800

b) Rs. 8,082

c) Rs. 8,100

d) Rs. 8,112

18. Bank has been paying interest at 11% p,a. in the news-payer advertisement the bank wantsto show the effective annual rate of interest for better projection. What it can show as effectiveannual rate of interest on quarterly compounding basis?

a) 11.05%

b) 11.24%

c) 11.46%

d) 11.65%

19. Regular payments are made by a borrower at the end of a fixed period. Such payments arecalled ….. (choose the best answer)

a) Annuities

b) Perpetuities

c) Ordinary annuity

d) Annuity due

20. It is stated in a question paper that the annuity is annuity due. It represents which of thefollowing :

a) Cash flow is at the end of the given period

b) Cash outflow only is at the given period

c) Cash flow in the beginning of the given period

d) Cash inflow only in the beginning of the given period

21. If the true discount on a sum due 2 years hence @ 55 per annum be Rs.300, then the sumdue is –––––a) Rs. 3,000

b) Rs. 3,200

c) Rs. 3,300

d) Rs. 3,500

22. The percent worth of Rs. 7,020 due in two equal half- yearly installments @ 8% p.a. simpleinterest, is –––

a) Rs. 6,500

b) Rs. 6,625

c) Rs. 6,750

d) Rs. 7,000

23. The simple interest and the true discount on a certain sum for a given time and at a givenrate are Rs. 100 and Rs. 80, respectively. The sum is –––––:

a) Rs. 400

b) Rs. 800

c) Rs. 1,000

d) Rs. 2,000

24. A person wants to know as to how much he would get in future by investing some amount atspecified intervals for a certain period at a given interest rate. To know this, what he shouldcalculate?

a) Present value of an annuity due

b) Future value of an ordinary annuity

c) Present value of ordinary annuity

d) Future value of an annuity due

25. A person wants to know as to how much a loan would cost him by paying certain amount ofinstallment at specified intervals for a given interest rate. To know this, what he shouldcalculate?





Key

1.b 2.a 3.b 4.d 5.c 6.b 7.a 8.a 9.b 10.d 11.d 12.a 13.a

14.b 15.b 16.c 17.d 18.c 19.c 20.c 21.c 22.b 23.a 24.b 25.b

1. A person wants to know the present value of the amount; he will get, at the end of aparticular period, if he invests the amount, for that period, in equal installments. What should becalculated for him:





2. A person buys a watch for Rs. 1,950 in cash and sells it for Rs. 2,200 in credit of 1 year. If the rate of interest is 10%, he ––––

a) Loses Rs. 50

b) Loses Rs. 30

c) Gains Rs. 30

d) Gains Rs. 50

3. A has to pay Rs. 22,000 to b after 1 year. B asks to pay Rs. 11,000 in cash immediately anddefer the payment to Rs. 11,000 for 2 years. A agrees to it. Counting the rate of interest at 10%p.a. in this new mode of payment ––––

a) There is no gain or loss to any one

b) A gains Rs. 734

c) A loses Rs. 734

d) A gains Rs. 1,100

4. A owes B Rs. 1,802 due 1 year hence. However, A wants to settle the account after 3months. How cash should he pay, if rate is 8% p,a.?

a) Rs. 1,700

b) Rs. 1,740

c) Rs. 1,750

d) Rs. 1,760

5. A person is interested to know the amount he would get at the end of a given no. of years, ifhe deposits a similar amount of money at the beginning of each year. He should calculate:





6. Z decides to invest Rs. 30000 every year at 10% interest rate for next 4 years. Whatamount he will get at the end of 4 years.

a) Rs. 137800

b) Rs. 139230

c) Rs. 140341

d) Rs. 141804

7. Z wants to invest Rs. 30000 per annum at 10% for 4 years. He is interested to know thepresent value of the amount he would get at the end of 4th year.

a) Rs. 95096

b) Rs. 95296

c) Rs. 96295

d) Rs. 96696

8. You want to sell your fridge. There are two offers, one at cash payment of Rs. 16,200 andanother at a credit of Rs. 16,500 to be paid after 6 months. If money being worth 6.25%per annum simple interest, which offer is better?

a) Both are equally good

b) Rs. 16,200 in cash

c) Rs. 16,500 due 6 months hence

9. A person purchased a watch for Rs.3, 000 and sold it the same day for Rs. 3,600 allowingthe buyer a credit of 9 years. If the rate of interest be 7.5% p.a., he has a gain of –––––:

a) 4.5%

b) 5%

c) 5.5%

d) 6%

10. Goods were bought for Rs. 2,400 and sold the same day for Rs. 2,601 at a credit of 9months and still there was a gain of 2%. The rate percent is –––:

a) 6 %

b) 7 %c) 8 %

d) 9 %

11. To calculate the present value of an ordinary equity, which of the following formula shall beused:

a) C x { 1-(1 + r) –n } / r

b) C x {( 1 + r)n -1 } / r

c) C x {( 1 + r) -n -1 } / r

d) C x { 1-(1 + r) n } / r

12. Z plans to invest Rs. 20000 every year at the beginning of 4 years continuously at 12%.How much he will be getting at the end of 4 years.

a) Rs. 106751

b) Rs. 107057

c) Rs. 107507

d) Rs. 107705

13. Z plans to invest an amount at beginning of each of 3 years at a given rate of interest. He isinterested to know the present value of the amount he would get at the end of three years.Which of the following formula he should use.

a) C x {(1 + r) n -1} ( 1 +r) /r

b) C x { 1-(1 + r) –n } ( 1 +r) /r

c) C x {(1 + r) –n -1} ( 1 +r) /r

d) C x {( 1 + r) –n -1} /r

14. The true discount on Rs. 9,300 due after a certain period at 5% p.a. is Rs. 300. The timeafter which it is due, is –––––:

a) 4 months

b) 6 months

c) 8 months

d) 9 months

15. The true discount on Rs. 5,150 due 4 months hence is Rs. 150. The rate percent is –––––:

a) 5%

b) 6%

c) 7%

d) 9%

16. The true discount on a bill due 10 months hence @ 6% p.a. is Rs. 2,625. The amount ofthe bill is –––:

a) Rs. 50,000

b) Rs. 55,125

c) Rs. 65, 000

d) Rs. 65,125

17. Z plans to invest an amount of Rs. 15000 at beginning of each of 3 years at 10% rate ofinterest. What is the present value of the amount he would get at the end of three years?

a) Rs. 40775

b) Rs. 40865

c) Rs. 77128

d) Rs. 78365

18. Z plans to rise of a loan of Rs. 3 lac for purchase of a car on which he has negotiatedinterest rate of 9%. He has decided to pay the amount in 5 equal yearly installments. Calculatethe amount of installment.

a) Rs. 75129

b) Rs. 76267

c) Rs. 77128

d) Rs. 78365

19. X has taken a loan of Rs. 20000 from bank under a personal loan scheme at 18% p.a.which is repayable in 1 year in monthly installments and to be compounded monthly. Whatis the amount of monthly installment?

a) Rs. 2934

b) Rs. 2815

c) Rs. 2784

d) Rs. 2703

20. Rs. 2, 000 is the true discount on Rs. 26, 000 due after a certain time. What will be the truediscount on the same sum due after half of the former, time, and the rate of interest being thesame?

a) Rs. 1,000

b) Rs. 1,040

c) Rs. 1,300

d) Rs. 1,400

21. A trader paid Rs. 700 to a lender due after 18 months at the rate of 8% p.a. simple interest.The true discount is –––––

a) Rs. 60

b) Rs. 65

c) Rs. 70

d) Rs. 75

22. Z wants to receive Rs.5000 each quarter for 3 years and is ready to deposit the amountwith a bank at 12% p.a. interest rate. How much he should invest now to get desired amount.

a) Rs. 46705

b) Rs. 47998

c) Rs. 48812

d) Rs. 49770

23. Which of the following is the correct formula for amortization of a loan in equal installments?

a) Ar / { 1- ( 1 + r) –n}

b) Ar / { 1- ( 1 + r) n}

c) Ar / { 1+ ( 1 + r) –n}

d) Ar / { 1- ( 1 + r) n}

24. With the help of which of the following formula, the sinking fund annuity value can becalculated?

a) Fn { r / ( 1 + r) n}

b) Fn { r / ( 1 + r) n -1 }

c) Fn { r x ( 1 + r) n -1}

d) Fn { r / ( 1 + r) –n -1 }

25. Which expression does not represent true discount?

a) A – P

b)

c)

d)

Key

1.c 2.d 3.b 4.a 5.d 6.b 7.a 8.b 9.b 10.c 11.a 12.b 13.d

14.c 15.d 16.b 17.d 18.c 19.a 20.b 21.d 22.d 23.a 24.b 25.d

1. True discount is equivalent to ––––

a) Interest

b) Principal amount

c) Amount

d) All of the above

2. Present value is equivalent to –––––

a) Interest

b) Principal amount

c) Amount

d) All of the above

3. A business firm has set up a computer system that will replacement after 5 years. Theydecide to create a sinking fund to get Rs. 2 lac to be used to replace the existing system. At12% p.a. rate of interest, how they will be required to invest in the fund, annually.a) Rs. 30654

b) Rs. 31384

c) Rs. 31870

d) Rs. 32008

4. The term ‘cost of debt, in the context of sinking fund is used for:

a) Interest payment

b) Rate of interest

c) Sinking fund payment


5. The ‘interest payments, in the context of sinking fund is represented by the following term:

a) Book payments

b) Cost of debt

c) Periodic expense

d) Interest payment

6. If the true discount on Rs. 14,500 due after 5 years is Rs. 4,500, then the rate of truediscount will be ––––

a) 5%

b) 6%

c) 7%

d) 8%

7. Write ‘True’ or ‘False’–––––In case of simple interest,

True Discount =

a) True

b) False

8. Banker’s discount is calculated on ––––––

a) Present value

b) Sum due

c) True discount

d) All of the above

9. The amount of sinking fund depreciation can be calculated with the help of which of thefollowing:

a) C x { 1-(1 + r) –n } /r

b) C x {( 1 + r) n – 1 } /r

c) C x { 1 – ( 1 + r) n – 1} / r

d) C x {( 1 +r) n } / r

10. Z is investing Rs. 1 lac every year for the coming 4 years at 8%. What is the presentvalue of the amount, he is to receive at the end of 4 years.

a) Rs. 243524

b) Rs. 283400

c) Rs. 331312

d) Rs. 400000

11. Z borrowed Rs. 20 lac for construction of house which are repayable in 10 years inhalf-yearly installment at 12% p.a. rate of interest. What is the half-yearly repayment athalf-yearly compounding?a) Rs. 172345

b) Rs. 174869

c) Rs. 175998

d) Rs. 176724

12. Banker’s gain is –––––:

a) Amount + Banker’s discount

b) Amount - Banker’s discount

c) Amount – present value

d) Banker’s Discount – True Discount

13. A bill of Rs. 2,000 is due 10 years hence at simple interest rate 5% p.a. Find banker’sdiscount

a) Rs. 200

b) Rs. 225

c) Rs. 300

d) Rs. 1,000

14. The banker’s discount on a bill due 6 months hence at 6% p.a. is Rs. 370.80. The true discount is ––––––:

a) Rs. 61.80

b) Rs. 123.60

c) Rs. 220.00

d) Rs. 360.00

15. A firm has purchased a new car for office use that will need replacement after 5 years. Thefirm decided to create a sinking fund to get Rs. 5 lac to replace the car now purchased. At 10%p.a. rate of interest, how much they will be required to invest in the fund annually.

a) Rs. 81899

b) Rs. 81184

c) Rs. 82372

d) Rs. 82808

Problem: Bank has fixed assets Rs. 200cr, govt. securities Rs. 2000 cr, standard assets in retailloans Rs. 1200 cr, in home loans Rs. 800 cr and other loans Rs. 4000 cr. Substandard securedare Rs. 200 cr, unsecured Rs. 60 cr, doubtful advances are Rs. 340 cr and other assets Rs.400cr. Under the simplified standard approach for risk, compute the following components ofclaims:

16. RWA for retail and home loan segment:

a) 1020 cr

b) 1180 cr

c) 2000 cr


17. Risk weighted assets for NPAs:

a) 700 cr

b) 600 cr

c) 800 cr

d) 900 cr

18. Risk weighted asset for the entire asset portfolio:

a) 6480 cr

b) 6880 cr

c) 6380 cr

d) 6700 cr

19. Risk weighted assets for standard assets:

a) 5020 cr

b) 7180 cr

c) 5180 cr

d) 5000 cr

Problem: Bank B has sanctioned a cash credit facility for Rs. 100 lakh to a large company onconsortium basis. The limit is not unconditionally cancellable. The present balance is Rs. 60lakh (which attract risk weight of 100%). The undrawn portion is Rs. 40 lakh which attracts acredit conversion factor (CCF) of 20%. On the basis of above information answer the followingquestions :

20. What will be risk weight amount for the undrawn portion of this account?

a) 8 cr

b) 10 cr

c) Nil

d) Insufficient information to calculate

21. what will be risk weight amount for this account.

a) 60 cr

b) 68 cr

c) 70 cr

d) Insufficient information to calculate

22. The exposure of bank to SME sectors, attracts a uniform risk weight of ––––– irrespectiveof the individual risk rating of the component of exposure?

a) 50%

b) 75%

c) 80%

d) 100%

23. The difference between banker’s discount and true discount of a bill which is due after 6months is Rs. 75 at the rate of 5% p.a. Find out the ––––

(i) true discount, (ii) banker’s discount, and (iii) value of the bill

(a) Rs.3,075; Rs. 3,000; Rs.1,23,000

(b) Rs.2,075; Rs. 3,000; Rs.2,13,000

(c) Rs.3,000; Rs. 3,075; Rs.1,23,000

(d) Rs.2,500; Rs. 3,075; Rs.3,12,000

24. The true discount of a bill of Rs. 5,400 is Rs. 900. The banker’s discount will be ––––––

(a) Rs. 600

b) Rs. 1,110

(c) Rs. 1,500

d) Rs. 1,800

25. The present worth of a certain bill due sometime hence is Rs. 1,600 and the true discount isRs. 72. The banker’s discount will be ––––––

a) Rs. 68.76

b) Rs. 74

c) Rs. 75.24

d) Rs. 76

Key

1.a 2.b 3.b 4.c 5.c 6.d 7.a 8.b 9.b 10.a 11.b 12.d 13.d

14.d 15.a 16.b 17.a 18.a 19.c 20.a 21.b 22.b 23.c 24.d 25.c

1. The banker’s gain on a sum due 3 years hence at 5% is Rs. 900. The banker’s discount is –––––

a) Rs. 1,500

b) Rs. 6,900

c) Rs. 7,200

d) Rs. 8,100

2. The banker’s discount on a certain sum due 2 years hence 11/10 of the true discount. The rate percent is –––:

a) 5%

b) 5.33%

c) 6%

d) 10%

3. The present worth of a sum due sometimes hence is Rs. 5,760 and the banker’s gain isRs.10. The true discount is ––––––:

a) Rs 160

b) Rs. 180

c) Rs. 240

d) Rs. 320

4. The present worth of a certain sum due sometimes hence is Rs.16, 000 and the truediscount is Rs. 1,600. The banker’s gain is –––

a) Rs. 100

b) Rs. 160

c) Rs. 200

d) Rs. 240

5. The banker’s gain of a certain sum due 2 years hence at 5% p.a. is Rs. 40. The presentworth is –––

a) Rs. 4,000

b) Rs. 4,400

c) Rs. 6,000

d) Rs. 8,000

6. A bill discounted @ 5% p.a. If banker’s discount be allowed, at what rare present mustthe proceeds be invested, so that nothing may be lost?

a) 4%

b) 5%

c) 5 %

d) 6%

7. The banker’s discount on sum money for years is Rs. 600 and the true discount on thesame sum for 2 years is Rs. 750. The rate present is ––––:

a) 3%

b) 3 %

c) 4%

d) 5%

8. The banker’s gain of a certain sum of money is Rs. 72 and the true discount on the samesum for the same time and at the same rate is Rs. 60. The sum is ––––:

a) Rs. 280

b) Rs. 300

c) Rs. 320

d) Rs. 360

9. The banker’s discount on a bill due 1 year 8 months hence is Rs.100 and the true discounton the same sum at the same rate percent is Rs.90. The rare percent is ––

a) 5 %

b) 5 %

c) 5 %

d) 6 %

10. The banker’s discount on Rs. 800 at 6% is the same sum as the true discount for the sametime and at the same rate. The time is ––––––

a) 2 months

b) 3 months

c) 4 months

d) 5 months

11. The banker’s gain in a bill due 1 year hence at 5% is Re. 1. The true discount is ––––

a) Rs.5

b) Rs. 10

c) Rs. 15

d) Rs. 20

12. A person deposits Rs. 100 per month in a Recurring Deposit Account carrying simpleinterest @ 6.5%. Find the amount at the end of one year.

a) Rs. 1,200

b) Rs. 1,278

c) Rs. 1,242.25

d) Rs. 1,300

13. Mr. A borrowed Rs. 10,400. He wants to pay this in two annual equal installments. Therate of compound interest is 8% per annum. Find the amount of each installment.

a) Rs. 2,916

b) Rs. 5,832

c) Rs. 5,200

d) Rs. 5,000

14. A person wants to pay his loan of Rs. 2.522 payable in three equal annual instilments. If therate of compound interest is 5% p.a.; find out the amount of each installment.

a) Rs. 600

b) Rs. 650

c) Rs. 700

d) Rs. 800

15. A lease of Rs. 80,000 was taken in 1st January 2005 for 2 years. Calculate the annuity(Annual Depreciation) If rate of increase is 10% p.a.a) Rs. 40,000

b) Rs. 44,000

c) Rs. 46,000

d) Rs. 46,095.24

16. A lease was taken for 3 years for Rs. 6,620 on 2nd January, 2005. Depreciation FundMethod is used for depreciation. Calculate Annuity (Annual Depreciation) if annual rate ofdepreciation is 10% p.a.

a) Rs. 1,900

b) Rs. 2,000

c) Rs. 2,100

d) Rs. 2,200

17. Sharadha borrowed some money from a money-lender. She returns this in two annual equalinstallments of Rs. 5,832 each. Find the sum, if the rate of compound interest is 8% p.a.a) Rs. 5,832

b) Rs. 5,200

c) Rs. 11,664

d) Rs. 10,400

18. A sum of money was borrowed and paid back in 2 annual installments of Rs. 1,864 and Rs.1,740, respectively. If the rate of compound interest was 16% p.a., find out the sum borrowed.a) Rs. 3,604

b) Rs. 3,202

c) Rs. 2,900

d) Rs. 2,700

19. Calculate the amount of an annuity of Rs. 12,000 for 15 years. Rate of interest is 4 % p.a.

a) Rs. 2,49,912

b) Rs. 1,24,956

c) Rs. 1,00,000

d) Rs. 1,12,000

20. Calculate the present value of an annuity of Rs. 12,000 for 15 years. Rate of interest is 4% p.a.

a) Rs. 1,00,000

b) Rs. 1,20,000

c) Rs. 1,28,880

d) Rs. 2,57,760

21. A women retires at the age of 60 years and her employer gives her a pension of Rs. 12,000a year paid half-yearly instilments for the rest of her life. Supposing her expectation of life to be13 years more and that interest is @ 4% p.a. payable half-yearly, what single sum is equivalentto this pension?

a) Rs. 3,00,000

b) Rs. 2,50,000

c) Rs. 2,41,500

d) Rs. 1,20,750

22. A man deposits Rs. 500 every six months into a bank which allows him interest payablequarterly at the rate of 2%p.a. Find the sum which will stand to his credit at the end of 10 yearsfrom his first payment.

a) Rs. 10,000 approx


c) Rs. 12,000 approx

d) Rs. 13,000 approx

23. A farmer could not pay annual instilments worth Rs. 800 each for four years. If a simple rateof interest is calculated at the rate of 5% p.a., how much has he to pay now?

a) Rs. 3,200

b) Rs. 3,440

c) Rs. 3,640

d) Rs. 3,840

24. A person desires to create an endowment fund to provide for a prize of Rs. 3,000 everyyear. If the fund can be invested at 10% per annum compound interest, find the amount of theendowment.

a) Rs. 3,000

b) Rs. 6,000

c) Rs. 15,000

d) Rs. 30,000

Problem – 1: You are provided the following details regarding the loans portfolio of Rs. 20000 cr(other than agriculture advances) of international Bank Limited as on 31.03.07 as under. (a)Standard assets Rs. 19000 cr, (b) Sub-standard secured Rs. 300 cr and unsecured Rs. 100 cr,(c) doubtful up to 12 months 400 cr, doubtful (DF) for more than 12 months but up to 3 yearsRs. 100 cr and doubtful above 3 years Rs. 60 cr and loss assets Rs. 40cr.

On the basis of above information, you are required to choose the correct answer, for thefollowing:

25. Provisioning requirement for sub-standard account would be:

a) Rs. 40 cr

b) Rs. 80 cr

c) Rs. 50 cr

d) Rs. 70 cr

Key

1.b 2.a 3.c 4.b 5.a 6.c 7.b 8.d 9.d 10.b 11.d 12.c 13.b

14.d 15.d 16.b 17.d 18.c 19.a 20.c 21.d 22.b 23.b 24.d 25.c

1. If the realizable value of security for doubtful advances is Rs. 300 cr, the provision requiredon doubtful up to 12 months (DF – 1) accounts would be :

a) Rs 80 cr

b) Rs. 240cr

c) Rs. 60 cr

d) Rs. 160 cr

2. If the realizable value of security for doubtful advances is Rs. 60 cr, the provision requiredon doubtful more than one year but up to 3 years (DF-2) accounts would be :

a) Rs 40 cr

b) Rs. 58 cr

c) Rs.72 cr

d) Rs. 70 cr

3. If the realizable value of security for doubtful advances is Rs. 60 cr, the provision requiredon DF-3 accounts would be :

a) Rs. 50 cr

b) Rs.60 cr

c) Rs. 40 cr

d) None

4. Provision for total NPAs would be :

a) Rs. 368 cr

b) Rs. 328 cr

c) Rs. 300 cr

d) None

Problem-2: A bank has total advances of Rs. 20000, gross NPA of 8% and net NPA 5%.Based on the above facts, answer the following questions:

5. Total provisions amount would be :

a) 400 cr

b) 600 cr

c) 673.60 cr

d) Inadequate information

6. Net NPA amount would be:

a) 1100 cr

b) 800 cr

c) 1000 cr


7. Provision required for standard assets would be, if all standard accounts are in generalcategory:

a) 73.60 cr

b) 50 cr

c) 80 cr


8. My daughter is 5 years old. In order to provide a sum of Rs. 1, 00,000 when she completes21 years, I have decided to invest a fixed sum of money every year beginning immediately andthe last payment will be when she completes 21 years. Find the fixed sum of money assumingthe money earns compound interest at the rate of 8% p.a.

a) Rs. 1,483 approx

b) Rs. 1,400 approx

c) Rs. 1,500 approx

d) Rs. 2,966 approx

9. The rate of interest in a bank is 5% compound annually. What should I invest per year to get Rs. 6, 00,000 at the end of 20 years?

a) Rs. 8,000 approx

b) Rs. 9,073 approx


d) Rs. 36, 292 approx

10. A firm has leased leasehold property for 3 years on 1st January 2005 for Rs. 1, 00,000 andhas decided to replace it by creating a deprecation fund. The rate of compound interest oninvestments is 5% p.a. Calculate the annual depreciation (i.e., the amount to be invested).

a) Between Rs. 30,000 and Rs. 31,000

b) Between Rs. 31,000 and Rs. 32,000

c) Between Rs. 32,000 and Rs. 33,000

d) Between Rs. 33,000 and Rs. 34,000

11. Debt capital mainly consists of which of the following :a) Bank borrowing

b) Term loans and bank borrowing

c) Bank term loans and debentures

d) Bonds and debentures

12. The bond or debenture holder, in return for providing debt capital to a company gets:a) Fixed dividend

b) Variable dividend

c) Commission

d) Discount

e) Coupon interest

13. A bond carries a specific rate of interest which is known as :a) Fixed dividend

b) Variable dividend

c) Commission

d) Discount

e) Coupon interest

14. A machine costs Rs. 5, 00,000 and it’s effective to be 10 years. Its scarp value is Rs. 50,000. What amount should be retained out of profits at the end of each year toaccumulate at 5% p.a. with compound interest for 10 years to replace the machine by anotherone costing Rs. 5, 00,000?

a) Rs. 33,771

b) Rs. 34,771

c) Rs. 35,771

d) Rs. 36,771

15. What annual installments will discharge a debt of Rs. 92,400 due in 5 years at 5% simpleinterest?a) Rs. 20,000

b) Rs. 21,000

c) Rs. 22,000

d) Rs. 23,000

16. A certain sum @ 4% simple interest per annum becomes Rs. 31,360 in 3 years. What willbe amount of installments per year to repay the loan in 3 years?a) Rs. 10,051 approx

b) Rs. 11,000 approx



17. The amount represented by the bond, that a company has to pay back to the bond holder atthe end of term of the bond, is called:

a) Premium on bond

b) Value of the bond

c) Maturity value of the bond

d) Face value


18. The value at which a bond is traded on a stock exchange is called:

a) Face value

b) Net asset value

c) Net present value

d) Market value

e) Cost price

19. The present value of the benefits associated with an asset (say a bond) is called:

a) Face value

b) Net asset value

c) Net present value

d) Market value

e) Intrinsic value20. A person borrowed Rs. 6,560 at 5% compound interest to repay in two equal annualinstilments. Find the amounts of each installment.

a) Rs. 2,835

b) Rs. 3,285

c) Rs. 3,320

d) Rs. 3,528

21. Neeta, Anita and Sunita are equal partners in a firm. They have agreed that in case of deathof anyone of them, an annuity in 10 annual equal installments will be paid her husband carrying

compound interest @ 10% p.a. Calculate the annuity to be paid to Sunita’s husband after herdeath if her capital is Rs. 6, 00,000.

a) Rs. 79,406 approx


c) Rs. 64, 697 approx

d) Rs. 97, 460 approx

22. Mr. A purchased machinery from Mr. B on hire-purchases system, the cash price of which isRs. 1, 00,000. Payments are to be made in 3 equal annual installments including interest on theunpaid balance @ 10% per annum. Each installment is to be paid at the end of each year.Calculate the amount of annual installment.

a) Rs. 33,333.33

b) Rs. 45,000

c) Rs. 66,666.67

d) Rs. 40,211.50

23. A mix of debt and equity capital raised by a company is known as:a) Funds mix

b) Capital structure

c) Capital contribution

d) Funds structure


24. The coupon interest divided by the current market price of a bond gives:

a) Rate of interest

b) Discount rate

c) Earning per share

d) current yield

d) Dividend on the bond

25. Rate or return that an investor earns when he purchases the bond and holds it till maturity,is called:

a) Rate of interest

b) Discount rate

c) Yield to maturity

d) current yield

e) Dividend on the bond

Key

1.d 2.b 3.b 4.a 5.d 6.c 7.a 8.d 9.c 10.b 11.d 12.e 13.e

14.c 15.b 16.a 17.e 18.d 19.e 20.d 21.b 22.d 23.b 24.d 25.c

1. A washing machine worth Rs. 10,000 is purchased on installment payment system underwhich 10 equal annual installments including interest at 10% p.a. are payable. Find the amountof annual installment.

a) Rs. 1,627.43

b) Rs. 1,000.00

c) Rs. 1,333.00

d) Rs. 1,225.00

2. A shopkeeper advertises the cash price of a color T.V. as Rs. 8,500. The same T.V. canalso be purchased by paying Rs. 1,600 immediately and the balance in equal 8 installmentsmonthly of Rs. 900 each. Find the rate of interest.

a) 5% p.a.

b) 6% p.a.

c) 8% p.a.

d) 12% p.a.

3. A company has issued debentures for Rs. 1, 00,000 on 1st January 2005 which areredeemable on 31st December 2008. The company has created Debenture Redemption fundfor the redemption of debentures at the end of the year. 10% annual interest will be received onthe investment. Calculate the annuity amount.

a) Rs. 17, 547 approx

b) Rs. 18,547 approx

c) Rs. 21, 547 approx


4. ––––– is the discount rate, which equals the present value of promised cash flows to thecurrent market price/purchase price….

a) Rate of interest

b) Discount rate


d) current yield


5. In case the expected rate of return is equal to coupon rate, the value of a bond is equal toits:

a) Net asset value

b) Yield to maturity

c) Current yield

d) Par value

e) Face value

6. In case the expected rate of return is greater than the coupon rate, the value of a bond is :

a) Equal to net asset value

b) Less than yield to maturity

c) More than current yield

d) Less than par value

e) Equal to face value

7. The cost price of a Rs. 100 bond at a discount of 5%, when broker- age is %, will be –––:

a) Rs. 95

b) Rs. 100

c) 95 + = Rs. 95.25

d) 95 - = Rs. 94.75

8. The income derived from a 6 % bond at Rs. 95 is –

a) Rs. 1.50

b) Rs. 6.30

c) Rs. 6.50

d) Rs. 11.50

9. How much stock at Rs. 85 can be purchased for Rs. 1,360?

a) Rs. 1,360 stock

b) Rs. 1,400 stock

c) Rs. 1,560 stock

d) Rs. 1,600 stock

10. In case the expected rate of return is less than the coupon rate, the value of a bond is :

a) Equal to net asset value

b) Greater than yield to maturity

c) More than current yield

d) greater than par value

e) Less than face value

11. The price of a bond is inversely proportionate to the – of the bond:

a) Rate of interest

b) Discount rate


d) current yield


12. When interest rates on the bonds rise, there is :

a) Gain on liquidation

b) Gain on re-investment

c) Loss on re-investment

d) Loss on liquidation

e) b and d

13. The holding period of a bond for which interest rate risk disappears is called:

a) Maturity period of the bond

b) Duration of the bond

c) Risk less period of the bond

d) Holding period


14. The income form a 6% stock of Rs. 18,360 is Rs. 720. Find the price of stock of Rs. 100.

a) Rs. 125

b) Rs. 130

c) Rs. 135

d) Rs. 153

15. What income will be derived from Rs. 75,000 of 4 % Stock?

a) Rs. 3,357

b) Rs. 3,537

c) Rs. 3,573

d) Rs. 3,375

16. What income can be derived from an investment of Rs. 11,628 in the 6 % stock at Rs. 153?

a) Rs. 722

b) Rs. 756

c) Rs. 345

d) Rs. 543

17. By investing in 6% stock at 96, an income of Rs. 100 will be derived by making aninvestment of –––:

a) Rs. 1,504

b) Rs. 1,600

c) Rs. 1,667

d) Rs. 3,200

18. The sensitivity of bond price to changes in interest rates is called:

a) Sensitivity price

b) Yield to maturity

c) Bond volatility

d) Price fluctuation

e) Bond fluctuation

19. An investment of Rs. 12,000 in a stock quoted at 120 produces and income of Rs. 780. Findthe rate of interest.

a) 6.5%

b) 7.8%

c) 8.0%

d) 8.3%

20. To produce an annual income of Rs. 1,000 in a 4% stock at 90, the amount of stock neededis –––:

a) Rs. 22,500

b) Rs. 25,000

c) Rs. 27,500

d) Rs. 36,000

21. A man invests in a 4.5% stock at 96. The interest obtained y him is –––––

a) 0.5%

b) 1%

c) 4%

d) 4.96%

22. By investing Rs. 3,300 in a 5.5% stock, a man earns Rs. 231. The stock is then quoted at ––––

a) Rs. 78

b) Rs. 78

c) Rs. 93

d) Rs. 97

23. A invested some money in 4% stock 96.B wants to invest in equally good 5% stock. Bmust buy a stock worth –––––

a) Rs. 77

b) Rs. 80

c) Rs. 100

d) Rs. 120

e) Rs. 125

24. Sharadha wants to purchase a 6% stock which must yield 5% on her capital. At what pricemust she buy the stock?

a) Rs. 100

b) Rs. 105

c) Rs. 110

d) Rs. 120

25. Which is better investment: 3% stock at 81 or 4% stock at 135?

a) 3% stock at 81

b) 4% stock at 135

c) Both are equally good

Key

1.a 2.d 3.c 4.c 5.d 6.d 7.c 8.c 9.d 10.d 11.c 12.e 13.b

14.d 15.d 16.a 17.b 18.c 19.b 20.b 21.d 22.b 23.d 24.d 25.b

1. If a 7% coupon bond is trading for Rs. 975.00 it has a current yield of ––––––– percent.

a) 7.00

b) 6.53

c) 7.24

d) 8.53

e) 7.18

2. If a 6% coupon bond is trading for Rs. 950.00, it has a current yield of –––– percent.

a) 6.5

b) 6.3

d) 6.1

d) 6.0.

e) 6.6

3. If an 8% coupon bond is trading for Rs. 1025.00, it has a current yield of –––– percent.

a) 7.8

b) 8.7

d) 7.6

d) 7.9

e) 8.1

4. If a 7.5% coupon bond is trading for Rs. 1050.00, it has a current yield of –––– percent.

a) 7.0

b) 7.4

c) 7.1

d) 6.9

e) 6.7

5. A coupon bond pays annual interest, has a par value of Rs. 1,000, matures in 4 years, hasa coupon rate of 10%, and has a yield to maturity of 12%. The current yield on this bond is ––––:a) 10.65%

b) 10.45%

c) 10.95%

d) 10.25%


6. A coupon bond pays annual interest, has a par value of Rs. 1,000, matures in 12 years,has a coupon rate of 11%, and has a yield to maturity of 12%. The current yield on this bond is––––a) 10.39%

b) 10.43%

c) 10.58%

d) 10.66%


7. At issue, coupon bonds typically sell–––––a) Above par value

b) Below par

c) At or near par value

d) At a value unrelated to par

8. Which is better stock: 5% at 286 or 3.5% at 186?

a) 5% at 286

b) 3.5% at 186


d) Exceeding ten years

9. Which is better investment: 4% stock at par with an income-tax at 5% or 4.5% stock at 110free from income- tax?a) 4% stock at par

b) 4.5 % stock at 110


10. By investing in 3.75% stock at 96, Shubhra earns Rs. 1,000. The investment made is–––––:

a) Rs. 9,600

b) Rs. 10,000

c) Rs. 25,600

d) Rs. 30,000

11. An 8% coupon U.S. Treasury note pays interest on May 30 and November 30 and istraded for settlement on August 15. The accrued interest on the Rs. 100,000 face value of thisnote is –––––a) Rs. 491.80

b) Rs. 800.00

c) Rs. 983.61

d) Rs. 1,66,1.20

12. A coupon bond id reported as having an ask price of 113% of the Rs.1, 000 par value in theWall Street journal. If the last interest payment was made two months ago and the coupon rateis 12%, the invoice price of the bond will be –––––

a) Rs. 1,000

b) Rs. 1,110

c) Rs. 1,150

d) Rs. 1,160

13. The ––––– is a measure of the average rate of return an investor will earn if the investorbuys the bond now and holds until maturity.

a) Current yield

b) Dividend yield

c) P/E ratio

d) Yield to maturity

e) Discount yield

14. A man purchased 9,500 shares at Rs. 12 per share in the open market; the face value ofshares being Rs. 10. The company declared a dividend of 8%. What amount of dividend will hereceive?

a) Rs. 7,600

b) Rs. 9,120

c) Rs. 10,000

d) Rs. 9,500

15. A person purchased 40 shares of Rs. 50 each at a discount of 55, the rate of dividendbeing 4.75%. The rate of income on invested amount is –––––:

a) 3.25%

b) 4.25%

c) 4.50%


16. A man wants to buy Rs. 20 shares, the dividend being 9%. He wants to have an income of12% on his investment. At what market price should he purchase each share?

a) Rs. 12

b) Rs. 15

c) Rs. 18

d) Rs. 20

17. A––––– bond is a bond where the bondholder has the right to cash in the bond beforematurity at a specified price after a specific date.

a) Callable

b) Coupon

c) Put

d) Treasury

e) Zero-coupon

18. Callable bonds:a) are called when interest rates decline appreciably

b) Have a call price that declines as time passes

c) Are called when interest rates increase appreciably

d) a and b

e) b and c

19. Floating – rate bonds are designed to ––––– while convertible bonds are designed to –––––––a) Minimize the holders’ interest rate risk; give the investor the ability to share in the priceappreciation of the company’s stock.

b) Maximize the holders’ interest rate risk; give the investor the ability to share in the priceappreciation of the company’s stock.

c) Minimize the holders’ interest rate risk; give the investor the ability to benefit from interestrate changes.

d) Maximize the holder’s interest rate risk; give investor the ability to share in the profits of theissuing company

20. A man invested Rs. 3,880 in a stock at 97 to obtain an income of Rs. 220. The rate ofdividend of stock is – ––––:

a) 25%

b) 22.5%

c) 15%

d) 5.5%

21. Maya invested Rs. 8,910 in Rs. 10 shares quoted at Rs. 8.25. If the rate of dividend is 6%,her annual income is –––––:

a) Rs. 208

b) Rs. 534

c) Rs. 648

d) Rs. 656

22. A woman invests some money partly in 4% stock at 120 and partly in 3% stock at 96. To getequal dividends from both, she must invest the money in the ratio ––––

a) 1:2

b) 2:3

c) 3:4

d) 15:16

23. A coupon bond that pays interest annually is selling at par value of Rs.1, 000, natures in 5years, and has a coupon rate of 9%. The yield to maturity on this bond is:a) 8.0%

b) 8.3%

c) 9.0%

d) 10.0%

24. A coupon bond that pays interest annually has a par value of Rs.1, 000, natures in 5years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be –– If thecoupon rate is 7%.a) Rs. 712.99

b) Rs. 620.92

c) Rs. 1,123.01

d) Rs. 886.28

e) Rs. 1,000.00

25. A coupon bond that pays interest annually has a par value of Rs.1, 000, natures in 5years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be ––If thecoupon rate is 12%.a) Rs. 922.77

b) Rs. 924.16

c) Rs. 1,075.82

d) Rs. 1,077.20

Key

1.e 2.b 3.a 4.c 5.a 6.d 7.c 8.b 9.b 10.c 11.d 12.c 13.d

14.a 15.d 16.b 17.c 18.d 19.a 20.d 21.c 22.d 23.c 24.d 25.c

1. A coupon bond that pays interest semi-annually has a par value of Rs. 1,000, matures in 5years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be –––– ifthe coupon rate is 8%.

a) Rs. 922.77

b) Rs. 924.16

c) Rs. 1,075.82

d) Rs. 1,077.20

2. Cash flow each year is equal to -––––

a) Accounting profit only

b) Accounting profit minus tax

c) Accounting profit minus tax plus depreciation

d) All of the above

3. Capital budgeting involves –––––

a) Selection of projects for implementation

b) Estimation of cost-benefit of projects

c) Generation of investment ideas

d) All of the above

4. A coupon bond that pays interest semi-annually has a par value of Rs. 1,000, matures in 5years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be –––– ifthe coupon rate is 12%.

a) Rs. 922.77

b) Rs. 924.16

c) Rs. 1,075.82

d) Rs. 1,077.22

5. A coupon bond that pays interest of Rs. 100 annually has a par value of Rs. 1,000, maturesin 5 years, and is selling today at a Rs. 72 discount form par value. The yield to maturity on thisbond is from:

a) 6.00%

b) 8.33%

c) 12.00%

d) 60.00%

6. You purchase an annual interest coupon bond one year ago that now has 6 yearsremaining until maturity. The coupon rate of interest was 10% and par value was Rs. 1,000. Atthe time you purchased the bond, the yield to maturity was 8%. The amount you paid for thisbond one year ago was:

a) Rs. 1,057.50

b) Rs. 1,075.50

c) Rs. 1,088.50

d) Rs. 1,092.46

e) Rs. 1,104.13

7. Consider two bonds, A and B. Both bonds presently are selling at their par value of Rs.1,000. Each pays interest of Rs. 120 annually. Bond A will mature in 5 years while bond B willmature in 6 years. If the yields to maturity on the two bonds change from 12% to 10%.

a) Both bond will increase in value, but A bond will increase more than bond B

b) Both bond will increase in value, but B bond will increase more than bond A

c) Both bond will increase in value, but A bond will decrease more than bond B

d) Both bond will increase in value, but B bond will decrease more than bond A

8. Capital expenditure decision involve the generating benefits for a period ––––

a) exceeding one years

b) Exceeding two years

c) Exceeding five years


d) Exceeding ten years

9. Payback period is applicable ––––

a) In evaluating a single project

b) In evaluating mutually exclusive projects

c) in evaluating term loan proposals

d) in evaluating single project or mutually exclusive projects

10. A zero-coupon bond has a yield to maturity of 9% and a par value of Rs.1, 000. If the bondmatures in 8 years, the bond should sell for a price of –––– today.

a) Rs. 422.41

b) Rs. 501.87

c) Rs. 513. 16

d) Rs. 483.49

11. You have just purchased a 10-year zero-coupon bond with a yield to maturity of 10% andpar value of Rs. 1,000. What would your rate of return at the end of the year be if you sell thebond? Assume the yield to maturity on the bond is 11% at the time you sell.

a) 10.00%

b) 20.42%

c) 13.8%

d) 1.4%

12. A treasury bill with a par value of Rs. 100,000 due one month from now is selling today forRs. 99,010. The effective annual yield is –––––––

a) 12.40%

b) 12.55%

c) 12.62%

d) 12.68%

13. A treasury bill with a par value of Rs. 100,000 due two months from now is selling today forRs. 98,039, with an effective annual yield is –––––––

a) 12.40%

b) 12.55%

c) 12.62%

d) 12.68%

14. While evaluating capital investment proposals, the time value of money is considered incase of ––:

a) Payback period method

b) Discounted cash flow method

c) Accounting rate of return method

d) All of the above

15. Depreciation is included in costs in case of ––––

a) Payback period method

b) Present value index method

c) Accounting rate of return method

d) All of the above

16. A treasury bill with a par value of Rs. 100,000 due three months from now is selling todayfor Rs. 97,087, with an effective annual yield is –––––

a) 12.40%

b) 12.55%

c) 12.62%

d) 12.68%

17. A coupon bond pays interest semi-annually, matures in 5 years, has par value of Rs.1, 000and a coupon rate of 12%, and an effective annual yield to maturity of 10.25%. The price thebond should sell for today is –––––:

a) Rs. 922.77

b) Rs. 924.16

c) Rs. 1,075.80

d) Rs. 1,077.20

Use the following to answer questions

Consider the following Rs. 1,000 par value zero-coupon bonds:

Bond Period of maturity PriceA 1 909.09B 2 811.62C 3 711.78D 4 635.52

18. The yield to maturity on bond A is ––––– a) 10%

b) 11%

c) 12%

c) 14%

19. The yield to maturity on bond B is ––––– a) 10%

b) 11%

c) 12%

c) 14%

20. The yield to maturity on bond C is ––––– a) 10%

b) 11%

c) 12%

c) 14%

21. The yield to maturity on bond D is ––––– a) 10%

b) 11%

c) 12%

c) 14%

22. The return after the pay-off period is not considered in case of ––––:

a) Payback method

b) Internal rate of return method

c) Present value index method

d) All of the above

23. The cash inflows on account of operations are presumed to have been re-invested at thecut-off rate in case of –––– :

a) Payback method

b) Accounting rate of return method

c) Discounted cash flow method

d) All of the above

24. The current yield on a bond is equal to ––––––:a) Annual interest divided by the current market price

b) The yield to maturity

c) Annual interest divided by the par value

d) The internal rate of return


25. Value of bond issued by the Govt. represents which of the following value?

a) Market value

b) Present value of future cash flow

c) Issue price of the bond

d) Face value of the bond

Key

1.a 2.a 3.d 4.d 5.c 6.e 7.b 8.a 9.d 10.b 11.d 12.d 13.c

14.b 15.c 16.b 17.d 18.a 19.b 20.c 21.c 22.a 23.c 24.a 25.b

1. The par value (face value) of a bond is Rs. 10000, its coupon rate 15% and maturityperiod 6 years. The required rate of return on the bond is 12%. What is the value of the bond?

a) Rs. 10743

b) Rs. 10437

c) Rs. 10037

d) Rs. 11022

2. The par value (face value) of a bond is Rs. 15000, its coupon rate 10% and maturity period 8 years. The required rate of return on the bond is 15%. What is the value of the bond?

a) Rs. 10987

b) Rs. 11032

c) Rs. 11635

d) Rs. 11967

3. Time value of money is considered under––––

a) Payback method

b) Accounting rate of return method

c) Internal rate of return method

d) All of the above

4. The method of appraisal based on accounting projects rather than cash flows, is ––––––

a) Payback method

b) Average rate of return

c) Discounted payback period

d) Benefit-cost ratio

5. The par value of a bond is Rs. 20000, its coupon rate 8% and maturity period 5 years.The required rate of return on the bond is 8%. What is the value of the bond?

a) Rs. 19131

b) Rs. 19395

c) Rs. 19716

d) Rs. 20000

6. The par value of a bond is Rs. 25000, its coupon rate 8% and maturity period 10 years. The required rate of return on the bond is 10%. What is the value of the bond?

a) Rs. 21929

b) Rs. 21354

c) Rs. 21012

d) Rs. 23873

7. The par value of a bond is Rs. 25000, its coupon rate 8% and maturity period 10 years andinterest is payable semi-annually. The required rate of return on the bond is 10%. What is thevalue of the bond?a) Rs. 22829

b) Rs. 21354

c) Rs. 23012

d) Rs. 23873

8. A bond has the face value Rs. 10000 and coupon rate of 10%. It is quoted at Rs.9200 inthe secondary market. What is current yield on the bond?a) 10%

b) 10.19%

c) 10.35%

d) 10.87%

9. A bond has the face value Rs. 10000 and coupon rate of 10%. It is quoted at Rs.10600 inthe secondary market. What is current yield on the bond?

a) 10.87%

b) 10.12%

c) 9.43 %

d) 9.12 %

10. Ranking of projects under NPV and IRR may differ if–

a) The period of life of the projects is different

b) The timing of the cash flows is different

c) Either (a) or (b) is present

d) Both (a) and (b) are present

11. Internal rate of return is the rate at which –––––:

a) The net present value is nil

b) The net present value is positive

c) The discount rate equals the firm’s net profit rate

d) The income generated by the project meets the cost of the funds

12. A bond has the face value Rs. 1000 and coupon rate of 10%. It is quoted at Rs.10000 inthe secondary market. What is current yield on the bond?

a) 10.87%

b) 10.00%

c) 9.43%

d) 9.22 %

13. The face value of a bond is Rs. 10000 and its current price is Rs.9000. If the investor wantsto hold the bind till maturity and coupon rate is 10% and remaining maturity is 5 years, what isthe yield to maturity (YTM)?

a) 12.88%

b) 12.56%

c) 12.24 %

d) 12.03%

14. Bank has Bond A and B with face value of Rs.1000 and coupon rate 8% each. The remaining period of maturity is 2 years and 3 years respectively. If YTM is increased by 1%point (100 basis point), what will be the change in price of these bonds.

a) 2.5%, 1.8%

b) 2.5%,2.5%

c) 1.8%, 2.5%

d) 1.8%, 1.8%

15. Bank has Bond A and B with face value of Rs.1500 and coupon rate 8% each. The remaining period of maturity is 4 years and 6 years respectively. If YTM is increased by 2%point (i.e. 200 basis points), what will be the change in price of these bonds.

a) 5.07,7.2%

b) 6.07%,8.2%

c) 7.2%, 5.07%

d) 6.07%, 7.2%

16. Profitability Index is also known as ––––––

a) Benefit-cost ratio

b) Desirability factor

c) Both (a) and (b)

d) All of the above

17. A machine costs Rs. 5, 00,000 and would fetch Rs. 2,50,000 in the first year., Rs. 1,50,000in second year and Rs. 1,00,000 in third year. Payback period would be –––––:

a) 1 year

b) 2 years

c) 2 years

d) 3 years

18. The face value of a bond is Rs.10000, its coupon rate 10% and time to maturity is 4 years.Calculate the duration of this bond.

a) 3.49

b) 3.29

c) 3.20

d) 3.12

19. The face value of a bond is Rs.10000, its coupon rate 10% and time to maturity is 4 years.If the YTM is 10%, calculate the modified duration.

a) 3.49

b) 3.29

c) 3.20

d) 3.12

20. The face value of a bond is Rs.10000, its coupon rate 10% and time to maturity is 4 years Ifthe YTM is 10% it falls by 1%, what will be %age change in the price of bond.

a) 2.3%

b) 2.8%

c) 3.2%

d) 3.4%

21. The face value of a bond is Rs.5000, its coupon rate 8% and time to maturity is 5 years.Calculate the duration of this bond. If the YTM is 9%., calculate the modified duration. If theYTM increases by 1%, what will be % age change in the price of bond?

a) 3.67%

b) 3.94%

c) 4.14%

d) 4.30%

22. The face value of a bond is Rs. 5000, its coupon rate 8% and time to maturity is 5 years. Ifthe YTM is 9%, calculate the modified duration.

a) 3.94

b) 3.79

c) 3.60

d) 3.42

23. The economic life of a plant is 8 years and its cost is Rs. 10, 00,000. Annual savings (cashinflow) is Rs. 2, 00,000. Post payback profit would be ––––

a) Rs. 2,00,000

b) Rs. 3,00,000

c) Rs. 4,00,000

d) Rs. 6,00,000

24. The total cash flows of a plant after tax but before depreciation for 5 years are Rs. 45,800and total depreciation amounts to Rs. 32,000. Initial investment in the plant is Rs. 30,000. Theaverage rate of return would be ––––

a) 6.3%

b) 9.2%

c) 18.4%

d) 20%

25. Time value of money is taken into account, in which of the following capital budgetingappraisal method?

a) Net present value method

b) According rate of return method

c) Payback period method

d) Only a and c and not b

Key

1.a 2.c 3.c 4.b 5.d 6.a 7.c 8.d 9.c 10.c 11.a 12.b 13.a

14.c 15.b 16.c 17.d 18.a 19.c 20.c 21.d 22.a 23.d 24.c 25.a

1. In which of the following capital budgeting appraisal methods, the time value of money isnot taken into account (i) net present value (ii) payback period method (iii) internal rate of return (iv) accounting rate of return method.

a) Only i

b) Only ii and iv

c) Only i, iii and iv

d) All the above

2. X wants to calculate the present value of the amount he is expecting to receive at the endof 3 years. Which of the following formula, he should use?

a) FV x ( 1 + r ) n

b) FV x ( 1 + r ) -n

c) FV / ( 1 + r ) n

d) PV x ( 1 + r ) n

3. X wants to calculate the amount he will receive after 4 year if he deposits some amountnow. This process is called:

a) Squaring

b) Compounding

c) Discounting

d) Rounding

4. Calculating future value of cash flows is known as ––

a) Compounding

b) Discounting

c) Hedging

d) Yielding

5. Calculating present value of a future sum of money is known as ––––

a) Compounding

b) Discounting

c) Hedging

d) Yielding

6. The difference between the original amount of investment in a project and present value ofcash inflows of future from the project is called:

a) Squaring

b) Compounding

c) Discounting

d) Rounding

7. The difference between the original amount of investment in a project and present value ofcash inflows of future from the project is called:

a) Cash flows from the project

b) Net present value of the project

c) Future value of the project

d) According rate of return

8. The net present value of future cash flows from a project is higher than the initialinvestment. The investment in the project will be considered as:

a) Unviable

b) Viable

c) Not desirable


9. Under net present value method, a project will be accepted for investment if:

a) Net present value is equal to zero

b) Net present value is positive

c) Net present value is Negative

d) No conclusion can be drawn on the basis of this statement

10. Present value of Re.1 (lumpsum) and present value of annuity of Re.1 are the types of –––––

a) Annuity tables

b) Compounding tables

c) Discounting tables

d) Future value tables

11. If the total of the present value is less than the cash outlay of a project, the project is ––––

a) viable

b) not viable

c) at no risk

d) Nothing can be concluded

12. The discount factor at 10% rate of interest p.a. is 0.909 at the end of 1st year, 0.826 at theend of 2nd year, 0.751 at the end of 3rd year. If the cash inflow for 2nd and 3rd yearfrom a project is Rs.10000 each, what is the present value of cash flow for 3rd year?

a) Rs. 10000

b) Rs. 9090

c) Rs. 8260

d) Rs. 7510

13. The discount factor at 10% rate of interest p.a. is 0.909 at the end of 1st year, 0.826 at theend of 2nd year, 0.751 at the end of 3rd year. If the cash inflow for 2nd and 3rd yearfrom a project is Rs.10000 each, what is the present value of total cash flow for 2nd year and3rd year?

a) Rs. 20000

b) Rs. 18180

c) Rs. 15770

d) Rs. 15100

14. The discount factor at 12% rate of interest p.a. is 0.893, 0.797, 0.712, and 0.636 for 1st

year, 2nd year, 3rd year and 4th year respectively. If the cash inflow from the project is Rs.10000 in each of these years, calculate the present value of cash flows.

a) Rs. 40000

b) Rs. 36260

c) Rs. 32980

d) Rs. 30380


year, 2nd year, 3rd year and 4th year. If the initial investment is Rs. 30000 and cash inflowfrom the project is Rs. 10000 in each year, calculate the net present value of the project.

a) Rs.380

b) Rs. 1250

c) Rs. 1360 (-)

d) Rs. 1540

16. On the basis of NPV calculated at different discount rates, the internal rate of return (IRR)can be calculated with the help of which of the following?

a) Lower discount rate + difference between 2 discount rates (NPV) at lower discountrate/different between 2 discount rates)

b) Higher discount rate + difference between 2 discount rates (NPV) at lower discountrate/different between 2 discount rates)

c) Lower discount rate + difference between 2 discount rates (NPV) at higher discountrate/different between 2 discount rates)

d) Higher discount rate + difference between 2 discount rates (NPV) at higher discountrate/different between 2 discount rates)

17. The risk adjusted discount rate approach for NPV determination makes a balance between ––––

a) Average risk and average return

b) Degree of profitability and investment

c) Degree of risk and rate of return

d) Degree of risk and degree of return


year, 2nd year, 3rd year and 4th year. If the initial investment is Rs. 30000 and cash inflow

from the project is Rs. 10000 in each year. Whether the project can be taken up for investmentor not.

a) Information not inadequate to make the calculation

b) The investment can be made as the cash inflow is Rs. 40000 in 4 years and cash outflow isRs. 30000

c) The investment can be made as the present value of cash inflow is positive

d) The investment cannot be made because NPV is negative

19. The discount factor at 10% rate of interest p.a. is 0.909 at the end of 1st year, 0.826 at theend of 2nd year, 0.751 at the end of 3rd year. If the cash inflow for 2nd and 3rd yearfrom Project-A is Rs. 10000 each (total 30000). In case of Project-B, the cash flow is Rs.6000,Rs.8000 and Rs. 16000(total 300000 in 1st, 2nd and 3rd year respectively. What is the presentvalue of cash inflows from these projects?

a) 24860,24078

b) 25700, 25960

c) 24200, 24800

d) 24801, 24000

20. The discount factor at 10% rate of interest p.a. is 0.909 at the end of 1st year, 0.826 at theend of 2nd year, 0.751 at the end of 3rd year. If the cash inflow for 2nd and 3rd year fromProject-A is Rs. 10000 each (total 30000). In case of Project-B, the cash flow is Rs.6000,Rs.8000 and Rs. 16000(total 300000 in 1st, 2nd and 3rd year respectively. Which project shallbe preferred for investment, if the initial investment is Rs. 24500?

a) Project A as it has positive NPV

b) Project B as it has positive NPV

c) Project A as it has lower negative NPV

d) Project A as it has higher positive NPA

21. The discount factor at 10% rate of interest p.a. is 0.909 at the end of 1st year, 0.826 at theend of 2nd year, 0.751 at the end of 3rd year. If the cash inflow for 2nd and 3rd yearfrom Project-A is Rs. 10000 each (total 30000). In case of Project-B, the cash flow is Rs.6000,Rs.8000 and Rs. 16000(total 300000 in 1st, 2nd and 3rd year respectively.

What is the net present value from both these projects, if the initial investment is Rs. 24500?

a) 467, 652

b) - 654, 1354

c) 360, - 422

d) - 454, 122

22. The decision tree analysis for NPV estimation recognizes that ––––

a) Environment is uncertain

b) Environment is dynamic

c) Environment is always certain

d) Both (a) and (b)

23. Which of the following statements is ‘True’?

a) The working capital released on the termination of a project is not cash flows

b) Depreciation on asset is included in cost in computing discounted cash flows

c) Increase in working capital due to investment proposal is included in the cost of newinvestment

d) Cost of investment in the new plant is the cost of new plant plus the net sales proceeds ofthe plant.

24. The discount factor at 15% rate is 0.870, 0.756, 0.658, and 0.572 for 1st year, 2nd year, 3rd

year and 4th year. At 20% it is 0.833, 0.694, 0.579 and 0.482 for 1st year, 2nd year,3rd yearand 4th year respectively. The initial investment is Rs. 9000 each in project A and Project B.Year wise cash inflow from project A is Rs.3000, 3000, 4000 and 4000 and from project BRs.5000,. Rs.4000, Rs.3000 and Rs. 2000 respectively. Calculate net present value (NPV) fromboth the projects

a) Rs. 798,-322

b) Rs. -965, 215

c) Rs. 965 , -215

d) Rs. 965 , 215


year and 4th year. At 20% it is 0.833, 0.694, 0.579 and 0.482 for 1st year, 2nd year,3rd yearand 4th year respectively. The initial investment is Rs. 9000 each in project A and Project B.Year wise cash inflow from project A is Rs.3000, 3000, 4000 and 4000 and from project BRs.5000, Rs.4000, Rs.3000 and Rs. 2000 respectively. On the basis of net present value(NPV), which project can be taken up or investment?

a) Project B as it has higher NPV

b) Project A as it has higher NPV

c) Both the project can be taken as the NPV is positive

d) None of the project can be taken as the NPV is negative

Key

1.b 2.c 3.b 4.b 5.a 6.c 7.b 8.b 9.b 10.c 11.c 12.d 13.c

14.d 15.a 16.a 17.c 18.c 19.a 20.a 21.c 22.d 23.c 24.a 25.b


year and 4th year. At 20% the discount factor it is 0.833, 0.694, 0.579 and 0.482 for 1st year,2nd year, 3rd year and 4th year respectively. The initial investment is Rs.9000. The year-wisecash inflow from the project is Rs.3000, 4000 and 4000. Calculate the internal rate of returnof the project.

a) 17.81%

b) 18.25%

b) 18.72%

d) 19.10%

2. Which one of the following statements is ‘True’?

a) The internal rate of return and net present value are synonymous terms

b) Cash flows from a project can be estimated accurately.

c) The inflation and deflation factors need not be taken into account while estimating futurecash inflows since it is difficult to predict future price changes.

d) Cash flows from a project can be worked out only on the basis of certain probabilities.

3. Which one of the following statements is ‘False’?

a) Discounted cash flows technique takes into account the time value of money

b) Depreciation is considered while calculating the return on a project according to theAccounting Rate of Return Method

c) Internal rate of Return determines the maximum rate of interest that a firm can afford to payon the borrowings for a particular project.

d) Tax concessions have no role to play in estimating the cash flows from a project.

4. XYZ limited wants to make an investment of Rs. 39000 in a project. The cash inflows fromthe project shall be 8000, 14000, 16000 and 12000 in 1st year,2nd year, 3rd and 4th yearrespectively. At 9%, the discount factor is 0.917.0.842, 0.772 and 0.708 for first 4 years and at11% these are 0.901, 0.812, 0.731, and 0.659 respectively. What is the net present value fromthe project for these two different rates of discount?

a) 972, -820

b) 872, -920

c) -972, 820

d) -780, -1230

5. XYZ limited wants to make an investment of Rs. 39000 in a project. The cash inflows fromthe project shall be 8000, 14000, 16000 and 12000 in 1st year,2nd year, 3rd and 4th yearrespectively. At 9%, the discount factor is 0.917.0.842, 0.772 and 0.708 for first 4 years and at11% these are 0.901, 0.812, 0.731, and 0.659 respectively. Calculate the internal Rate ofReturn.

a) 9.2%

b) 10.08%

c) 10.9%

d) 11.12%

6. Which one of the following statements is ‘False’?

a) NPV and profitability index always yield identical results

b) Profitability index is also known as benefit- cost ratio

c) Payback method disregards cash flows after the payback period

d) Mathematical techniques are available for dealing with risk and uncertainty factors involved indetermining future cash inflows from a project.

7. A machinery worth Rs. 2 lac with expected life of 10 years is purchased. The depreciationon it is charges as Rs. 20000 every year. The depreciation method is :

a) Written down value method

b) Straight line method

c) Both the above


8. On the same machinery, depreciation @ 10% is Rs. 20000 for the 1st year, Rs. 18000during the 2nd year. What will be the amount of depreciation for 3rd year?

a) Rs. 20000

b) Rs. 16200

c) Rs. 17200

d) Rs. 15200

9. The above method is known as:

a) Straight line method

b) Fixed installment method

c) Written down value method

d) Original cost method

10. The main objective of providing deprecation is:

a) To calculate true profits

b) To show the financial position of balance sheet

c) To reduce tax burden

d) To provide funds for replacement of fixed asset

e) All the above

11. On the same machinery, depreciation @ 10% is Rs. 20000 for the 1st year, Rs. 18000during the 2nd year. What will be the amount of depreciation for 3rd year?a) Rs. 20000

b) Rs. 16200

c) Rs. 17200

d) Rs. 15200

12. The above method is known as:a) Straight line method

b) Fixed installment method

c) Written down value method

d) Original cost method

13. The main objective of providing deprecation is:a) To calculate true profits

b) To show the financial position of balance sheet

c) To reduce tax burden

d) To provide funds for replacement of fixed asset

e) All the above

14. Depreciation is the process of ––––a) Valuation of a fixed asset

b) Apportionment of the cost of the fixed asset over its useful life

c) Maintenance of asset in a state of efficiency

d) All of the above

15. Under the straight line method depreciation, amount of depreciation –––––

a) Increases every year

b) Decrease every year

c) Is constant every year

d) Increases for some years.

16. Under the diminishing balance method, depreciation is calculated on –––––a) The original cost

b) The written down value

c) The scarp value

d) The market value.

17. Depreciation arises because of:

a) Fall in the value of money

b) Fall in the market value of a fixed asset

c) Fall in the utility of a fixed asset

d) Fall in the value of a fixed asset owing to wear and tear

18. Under the diminishing balance method, depreciation is calculated on:a) The original cost

b) Written down value

c) The scarp value


19. Under the diminishing balance method of depreciation –––––

a) The amount on which depreciation is calculated is reduced from year to year.

b) The rate % declines from year to year

c) The rate % as well as amount reduces every year

d) All of the above.

20. The amount of depreciation charged on machinery will be credited to ––––––

a) Machinery a/c

b) Depreciation a/c

c) Cash a/c

c) P & L a/c

21. machine Hour Rate Method of providing depreciation is useful when –––––

a) output can be effectively measured

b) Utility of the asset can be directly related to its productive use

c) Use of the machine can be measured in terms of time

d) All of the above

22. A diminishing balance method of providing depreciation is one, according to which:

a) The amount on which depreciation is calculated, is reduced from year to year

b) The rate % declines from year to year, at which depreciation is charged

c) The rate percent as well as amount reduces every year

d) All the above

23. The amount of depreciation charged on machinery will be credited to:

a) Machinery account

b) Depreciation account

c) Cash account

d) Asset account

24. Loss on sale of plant and machinery should be written off against:

a) Share premium account

b) Depreciation fund account

c) Depreciation account

d) Profit and loss account

25. In case of Annuity Method of depreciation, the amount of depreciation ––––––

a) Increases every year

b) Decrease every year

c) Remains constant every year

d) All of the above

Key

1.d 2.d 3.d 4.a 5.b 6.a 7.b 8.b 9.c 10.e 11.b 12.c 13.e

14.b 15.c 16.b 17.b 18.b 19.a 20.a 21.c 22.a 23.a 24.b 25.c

1. For providing depreciation on leasehold property, the appropriate method of depreciation is –––––

a) Fixed Installment Method

b) Written down Value Method

c) Revolution Method

d) Replacement Method

2. Depletion Method of depreciation is used in ––––

a) Machinery, Building, Furniture, etc,

b) Cattle

c) Loose tools. Etc

d) Mines, Quarries, etc.

3. Depreciation is a process of :

a) Valuation

b) Allocation

c) Both the above


4. X and Y purchased 2nd hand machine for Rs. 8000 on April1, 1993 and spent Rs. 3500 onover-hauling and installation. Depreciation is written off @ 10% on original cost. On June 30,1996 the machine was found to be unsuitable and sold for Rs.6500. What is the loss to bewritten off?

a) Rs. 1200

b) Rs. 1125

c) Rs. 1085

d) Rs. 975

5. a company purchased machinery worth Rs. 20000 on January01, 2000 which is depreciatedat 10% per annum on the original cost. On July 01, 2002, the machinery was sold for Rs.12000. What is the amount of loss written off assuming that the books are closed on December31st.?

a) 2500

b) 3000

c) 3500

d) 4000

6. Depreciation is charged by allocating depreciable cost in proportion of the annual output tothe probable life-time output under the –––––

a) Working Hours Method

b) Production Units Method

c) Valuation Method

d) All of the above

7. A machinery worth Rs. one lakh with expected life of 10 years is purchased. Thedepreciation on it is charged equally every year. The method of depreciation is ––––

a) Straight Line Method

b) Written down Value Method

c) Sinking Fund Method

d) Annuity Method

8. The interest lost on the acquisition of an asset is taken into account in calculating theamount of depreciation in –––––

a) Straight Line Method

b) Revaluation Method

c) Diminishing Balance Method

d) Depletion Method.

9. On January 01, 2000, M/s Shiv Mohan Enterprises purchased a plant costing Rs. 41000and spent Rs. 4000 on its erection. The estimated effective life of the plant is 10 years andscrap value of Rs.5000. Advise the depreciated value at the end of 3rd year under straight linemethod.

a) 30000

b) 33000

c) 36000

d) 39000

10. On January 01, 2000, a firm purchased machinery worth Rs. 50000 and on July 1st 2002, itbuys additional machinery worth Rs. 10000 and spends Rs.1000 on its erection. The accountsare closed on December 31. Assuming that the annual depreciation will be 10% on SLM basis,what will be written down value at the end of 5th year?

a) 51000

b) 47250

c) 33250

d) 31550

11. A firm had purchased machinery worth Rs.50000 on April 10, 2002. It is useful economic lifeexpected as 5 years at the end of which it will have a scarp value of Rs. 14000. What will be amount of depreciation?

a) 10000

b) 12800

c) 8000

d) 7200

12. On a machinery, depreciation @10% is Rs. 30,000 for the first year, Rs. 27,000 for thesecond year. What will be the amount of depreciation for the third year?

a) Rs. 30,000

b) Rs. 24, 300

c) Rs. 20,400

d) Rs. 22,600

13. Mr. A purchased a second hand machinery for Rs. 80,000 on 1st April, 2008 and spent Rs.35,000 on its over-hauling and installation. Depreciation is charged @ 10% on original cost. On30th June, 2011, the machinery was sold off for Rs. 65,000. What is the amount of loss to bewritten off, presuming the accounting year ends on 31st March every year?

a) Rs. 15,500

b) Rs. 12,625

c) Rs. 13,095

d) Rs. 13,505

14. Mr. X purchased a machine worth Rs. 2, 00,000 on 1st January 2009. The machine isdepreciated at 10% p.a. on original cost. On 1st July, 2011, the machinery was sold for Rs.1,20,0000. What is the amount of loss to be written off, assuming that the books are closed on31st December?

a) Rs. 25,000

b) Rs. 30,000

c) Rs. 35,000

d) Rs. 40,000

15. A firm had purchased a truck a sum of Rs.2 lac on January 01, 2001 and it chargesdepreciation at 20% per annum as per written down value method. The truck was sold on July01, 2002 for Rs.1.60 alc. Advise the amount of profit on sale of the truck.

a) 12000

b) 14000

c) 16000

d) 18000

16. A firm had expected the useful life of 5 years for a machinery of Rs.2 lac with scarp value of Rs. 20000. What is the profit or loss to the firm on this sale if deprecation is charged on SLMbasis?

a) No loss

b) No profit

c) Profit 2000

d) Loss 2000

17. When salvage value of asset is given, the depreciation is calculated:

a) Without giving consideration to the salvage value

b) By deducting the salvage value from depreciated cost of the assets

c) By adding the salvage value from depreciated cost of the assets

d) By deducting the salvage value from original cost of the assets

18. A company purchases a car for Rs. 2, 00,000 on 1st January, 2010. Depreciation ischarged at 20% p.a. under written down value method. The car was sold on 1st July, 2011 forRs. 1, 60,000. Calculate the amount of profit/loss on the sale of the car.

a) (-) Rs. 10,000

b) (-) Rs. 12,000

c) Rs. 14,000

d) Rs. 16,000

19. A firm purchased a machine for Rs. 5, 00,000 on 1st April, 2011. Its estimated effectivelife is 5 years at the end of which it will have a scarp value of Rs.1,40,000. What will be theamount of depreciation each year if charged under straight line method?

a) Rs. 60,000

b) Rs. 72,000

c) Rs. 80,000

d) Rs. 1,00,000

20. A machinery costs Rs. 2 lac. Its economic life is given as 5 years for a firm. Its salvagevalue is Rs.40000. What is the amount of annual depreciation?

a) 30000

b) 32000

c) 36000

d) 40000

21. A machinery costs Rs. 2 lac. Its economic life is given as 5 years for a firm. Its salvagevalue is Rs. 40000. What is the written down value after 3 years?

a) Rs. 200000

b) Rs. 104000

c) Rs. 96000

d) Inadequate information to make the calculation

22. In –––––– method, to calculate the depreciation, the percentage rate is applied to theresidual balance instead of original cost.

a) Written down value method

b) Straight lien method

c) Declining balance method

d) Accelerated depreciation method

23. On 1st January, 2008, a firm purchased machinery worth Rs. 1 lakh, and on 1st July, 2010,it buys additional machinery worth Rs. 20,000 and spends Rs. 2,000 on its erection. Annualdepreciation is 10% on straight line method. What will be the written down value at the end of5th year?

a) Rs. 66,000

b) Rs. 66,500

c) Rs. 90,000

d) Rs. 50,000

24. Mr. X purchased a machinery for Rs. 1 lakh, its effective life being 5 years and scarp valueat the end of 5 years Rs. 10,000. The machinery is sold at the end of 3rd year for Rs. 45,000. Ifdepreciation is charged on straight line method, what is the profit/loss on this sale?

a) Profit Rs. 36,000

b) Profit Rs. 18,000

c) Profit Rs. 1,000

d) Loss Rs. 1,000

Solution: Rs.

Machine purchased 1,00,000

-Scarp Value 10,000

Effective cost 90,000

Annual depreciation = 90,000 = Rs. 18,000

5

Depreciation value of machine at the end of the third year = 1,00,000 – (18,000 x 3 )

= 1,00,000 – 54,000 = Rs. 46,000

Thus, the machine having depreciated value of Rs. 46,000 has been sold for Rs. 45,000.Hence, there is a loss of

46,000 – 45, 000 = Rs. 1,000

Note – At the end of the third year, total depreciation of Rs. 54,000 will be deducted from theoriginal cost of Rs. 1, 00,000 and not Rs. 90,000 (which is the effective cost).

25. Original cost of an asset is Rs. 4 lac and rate of depreciation is 20%. Under decliningbalance method, what is the amount of depreciation in the 3rd year?

a) Rs. 80000

b) Rs. 64000

c) Rs. 51200

d) Rs. 38600

Key

1.a 2.d 3.b 4.d 5.b 6.b 7.a 8.c 9.b 10.c 11.d 12.b 13.b

14.b 15.c 16.d 17.d 18.d 19.b 20.b 21.b 22.c 23.b 24.d 25.c

1. Original cost of an asset is Rs. 4 lac and rate of depreciation is 20%. Under decliningbalance method, what is the amount of depreciation in the 2nd year?

a) Rs. 400000

b) Rs. 320000

c) Rs. 256000

d) Rs. 144000

2. Original cost of truck is Rs. 4 lac and rate of deprecation is 20%. Under the decliningbalance method, what will be the profit or loss on sale of the truck if it is sold for Rs. 250000 atthe end of 2nd year?

a) Rs. 12400 profit

b) Rs. 12400 loss

c) Rs. 6000 profit

d) Rs. 6000 loss

3. ––––––– is maintained for known liabilities.

a) Provision

b) Reserve

c) Reserve Fund

d) Capital Reserve

4. Provision is also known as –––––

a) Capital Reserve

b) Contingency Reserve

c) Reserve

d) Specific Reserve

5. –––––––– is created for unknown liability.

a) Provision for depreciation

b) Provision for bad and doubtful debts

c) Provision for taxation

d) General Reserve

6. A machinery costs Rs. 2 lac and its life is 5 years. What is the amount of depreciation tobe charged on this, under double declining balance method, in the first year?

a) Rs. 40000

b) Rs. 60000

c) Rs. 80000

d) Rs. 48000

7. A machinery costs Rs. 2 lac and its life is 5 years. What is the amount of depreciation to becharged on this, under double declining balance method, in the second year?

a) Rs. 40000

b) Rs. 48000

c) Rs. 60000

d) Rs. 80000

8. A machinery costs Rs.1 lac its life is 4 years at SLM. Its salvage value is Rs. 20000. Whatwill be the amount of depreciation in the 3rd year?a) Rs. 20000

b) Rs. 16000

c) Rs. 19200

d) Rs. 11520

9. Profit or loss on Depreciation Fund Investment is transferred to –––––a) Profit & Loss a/c

b) Fixed asset a/c

c) Depreciation Fund a/c

d) General Reserve

10. The profit on depreciation policy is transferred to ––

a) Profit & Loss a/c

b) Fixed Asset a/c

c) Insurance policy a/c

d) Depreciation Reserve

11. Depreciable assets are the assets which –––––

a) Have a limited useful life

b) Are held by the enterprise for use in the production or supply of goods and services

c) Are expected to be used during more than one accounting period

d) All of the above

12. A machinery costs Rs.80000 with salvage value of Rs.20000 and life of 3 years.

a) Rs. 20000

b) Rs.19980

c) Rs. 13326


13. Which of the following method is more appropriate for equipment like computers, which getobsolete more quickly?a) SLM method

b) WDV method

c) Accelerate depreciation method

d) Double declining balance method

14. An asset has useful life of 5 years and its original cost is Rs. 10000. What is the rate ofdepreciation in 4th year under sum of the years’ digits?

a) 20%

b) 18.67%

c) 13.33%

d) 10.67%

15. The appropriate method of depreciation in the case of livestock is –––––

a) Straight line Method

b) Diminishing Balance Method

c) Depletion Method

d) appraisal Method

16. Which of the following factors has a bearing on the useful life of a fixed asset?

a) Physical wear and tear

b) Obsolescence

c) Legal or other limits on the use of the asset

d) All of the above

17. The economic factors causing depreciation, are –––

a) Depletion

b) Wear and tear

c) Effluxion of time

d) Obsolescence and inadequacy.

18. a machinery is having useful life of 5 years and its original cost is Rs. 40000. What is theamount of depreciation in 2nd year under sum of the years’ digits?

a) Rs. 8000

b) Rs. 9546

c) Rs. 10061

d) Rs. 10667

19. The modified accelerated cost recovery system (MACRS) is an illustration of which of thefollowing methods of depreciation?

a) SLM method

b) Accelerated depreciation method

c) WDV method

d) Double declining balance method

20. A car costs Rs. 1 lac and its salvage (residual) value is Rs. 20000. It is expected to have auseful life of 100000 km and has run 40000 km in the first year. On SLM basis, what is theamount of depreciation?

a) Rs. 32000

b) Rs. 30000

c) Rs. 28000

d) Rs. 25000

21. In London market, the US$ and Euro rate is 1US$= 0.70 Euro. In Mumbai, the US $ andrupee (INR) rate is 1 US$ = Rs. 46.20. Calculate the EURO/Rupee rate.

a) Rs. 46.20

b) Rs. 49.10

c) 59.22

d) Rs. 66.00

22. Which one of the following assets does not require provision for depreciation?

a) Land

b) Leased assets

c) Livestock

d) Loose tools

23. Accountants prefer to use the historic cost rather than any other cost for computingdepreciation because of the accounting convention of ––––

a) Consistency

b) Conservation

c) Cost

d) Disclosure

24. Accelerated methods of depreciation are favored because of ––––––

a) The provisions in the companies Act

b) Considerable savings in taxes

c) The possibility of raising more resources for replacement of assets

d) The fact that assets are more productive in earlier years rather than in the later years

25. The inter-bank foreign exchange rates for US$ are Rs. 45.10/20. A customer requests forencashment of FC demand draft for US $ 5000. If there are other no charges or commission,what amount will the customer be receiving?

a) Rs. 226000

b) Rs. 225500

c) Rs. 225000

d) Rs. 220000

Key

1.c 2.d 3.a 4.d 5.d 6.c 7.b 8.b 9.c 10.d 11.d 12.b 13.c

14.c 15.d 16.d 17.d 18.d 19.b 20.a 21.d 22.a 23.c 24.d 25.b

1. An exporter offers a FC export bill of Euro 10000. The US$ / Euro rate in London is 1 Euro= 1.70/1.75 USD and USD rupee rate in Mumbai is Rs. 50.00/30. If there are no other charges,how much amount will be credited to the account of exporter?

a) Rs. 850000

b) Rs. 842300

c) Rs. 825600

d) Rs. 825000

2. The spot Euro 1 = US$ 1.4250/70. The forward premium is 30-25 for one month, 70.65 for 2months, 110-105 for 3 months. What rate will be charged for 2 months’ forward sale by bank?

a) 1.4335

b) 1.4300

c) 1.4200

d) 1.4205

3. The home currency price of one unit of foreign currency is called:

a) Selling rate

b) Buying rate

c) Direct rate

c) Indirect rate

4. 1 Us D = Rs. 45.90 is an example of:

a) Selling rate

b) Buying rate

c) Direct rate

c) Indirect rate

5. Which one of the following statements is ‘True’?

a) The terms ‘depreciation’, ‘depletion’ and ‘amortization’ refer to ne and the same thing

b) No method of depreciation accurately calculates the charge to be made in respect of theasset

c) Depreciation base refers to the amount on which the rate of depreciation is applied forcomputing the amount of depreciation.

d) The total amount of depreciation to be allocated over the useful life of the asset is thedifference between the total acquisition cost and the replacement value

6. Which one of the following is a ‘False’ statement?

a) Depreciation is a part of the operating cost.

b) Depreciation is provided to know the correct profit

c) Depreciation is a fall in the value of fixed assets

d) Fall in the market price is the main cause of depreciation

7. When direct rate of a foreign currency is not available, the rate calculated through acommon currency, is called:

a) Floating rate

b) Cross rate

c) Fixed rate

d) Direct rate

8. The chain rule method is used in case of which of the following types of rates?

a) Floating rate

b) Cross rate

c) Fixed rate

d) Direct rate

9. When the exchange of currencies takes place on next working day (T + 1) i.e. tomorrow,which of the following type of exchange rate will be applicable?

a) Cash or ready rate

b) TOM rate

c) Spot rate

d) Forward rate

10. 2nd working day (T + 2) i.e. tomorrow, which of the following type of exchange rate will beapplicable?


b) TOM rate

c) Spot rate

d) Forward rate

11. A currency is said to be at a premium, when:

a) Future rate is lower and spot rate is higher

b) Future rate is higher and spot rate is lower

c) Future rate and spot rate are same


12. To calculate a forward rate in case of direct quote, if there is discount:

a) The discount is added to purchase rate and deducted from selling rate

b) The discount is deducted from purchase rate and added to selling rate

c) The discount is added to purchases rate and selling rate

d) The discount is deducted from purchase rate and added to selling rate.

13. Spot Euro = USD 1.4200 / 10. One month forward 40-35, 2 month forward 75-70, 3 monthforward 105-100.2 month USD can be purchased at

a) Euro 1 = USD 1.4235b) Euro 1 = USD 1.4175c) Euro 1 = USD 1.4160d) Euro 1 = USD 1.4240

14. Spot Euro = USD 1.4200 / 10. One month forward 40-35, 2 month forward 75-70, 3 monthforward 105-100.1 month Euro can be sold at:

a) Euro 1 = USD 1.4160

b) Euro 1 = USD 1.4165

c) Euro 1 = USD 1.4175

d) Euro 1 = USD 1.4240

15. The spot rat is euro 1 = USD 1.3300 and 2 month forward Euro 1 = USD 1.3400. Theforward points are equal to:

a) 100

b) 200

c) 300

d) 350

16. –––––– is an operation, thorough which a person can make risk free profits by undertakingoffsetting transactions (say borrow foreign currency in one market and lend in other market.)

a) Swap

b) Arbitrage

c) Forward

d) Spot

17. Forward differential is known as:

a) Swap rate

b) Arbitrage rate

c) Forward rate

d) Spot rate

18. Interest differential can be calculated as:

a) (100 x no. of days in the year x forward points)/ (spot rate x forward period)

b) (100 x no. of days in the year x) / (spot rate x forward period)

c) (100 x no. of days in the year x) / (forward points x forward period)

d) (100 x no. of days in the year x forward period) / (spot rate x forward points)

19. Spot Euro = 1.6000 USD. Interest on euro = 4% and on USD = 8% p.a. What will be theforward differential between spot and one year forward?

a) 0.516

b) 0.651

c) 0.615

d) 0.561

20. Spot exchange rate of Euro/USD = 1.8000 and interest rate differential is 4%. The forwardperiod is 90 days (no. of days in a year to be taken 360 days). Calculate the forward points.

a) 0.0360

b) 0.0280

c) 0.0240

d) 0.0180

21. Spot exchange rate of USD Re = 45.00 and interest rate differential is 5%. The forwardperiod is 180 days (no. of days in a year to be taken 360 days). Calculate the forward points.

a) 0.01125

b) 0.01175

c) 0.01225

d) 0.01275

22. The forward points = 0.01500 and spot rate 1US$ = 46.50. If the forward period is 90 daysand no. of days in a year is assumed at 360, calculate the interest differential.

a) 10%

b) 10.7%

c) 11.5%

d) 12.9%

23. The forward points = 0.011500 and spot rate 1US$ = 44.00. If the forward period is 180days and no. of days in a year iare assumed at 360, calculate the interest differential.

a) 5.23%b) 5.43%c) 5.81%

d) 6.10%

24. The amount of depreciation is credited to depreciation Fund account in the DepreciationFund Method.

a) True

b) False

25. When the exchange of currencies takes place on date of deal, which of the following type ofexchange rate will be applicable?


b) TOM rate

c) Spot rate

d) Forward rate

Key

1.a 2.c 3.c 4.c 5.b 6.d 7.b 8.b 9.b 10.c 11.b 12.d 13.b

14.a 15.a 16.b 17.a 18.a 19.c 20.d 21.a 22.d 23.a 24.a 25.a

Documents

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