Corporate Finance Quiz 1: 27 October 2024 (September 2024 term)

Consider a bond which pays 500 units in 5 years and 1000 units in 10 years. What is the maturity and duration of the bond, respectively?

The table below relates to the economy of Galaland, where the typical consumer’s market basket consists of 2 clothes and 3 burgers.

If the base year is 2017, then the economy’s inflation rate (as measured by CPI) in 2018 is

Assume Shyam earns Rs. 10000 in period 1 and Rs 12000 in period 2. He spends his earnings on consumption in period 1 and period 2. The prices of consumption in period 1 and period 2 are the same (equal to 1). If prevailing interest rate is 10% then the slope of the intertemporal budget constraint is

The current average price level of goods in the economy of Godzilla is 80 units. The prevailing nominal interest rate is 10%. If expected price level in the next period is 90 units, then the real interest rate in the economy is (approximately)

A company with a AAA bond rating will command a higher interest rate on its bonds than a company with lesser BBB bond rating.

Your portfolio consists of two blue bonds: each has a face value of 100 units and a probability of default $p_b = 20\%$. The blue bonds are perfectly correlated with each other ($\gamma = 1$). Through securitization, you are able to create two new bonds with face values: a senior bond and a junior bond. When none of the blue bond default both new bonds are paid face value of 100. If any one of the blue bond defaults, the senior bond is paid the face value of 100 while the junior bond suffers the loss and is paid 0. In case of both the blue bonds defaulting, none of the new bonds pay off. What is the probability that the senior bond results in default?

Your portfolio consists of two blue bonds: each has a face value of 100 units and a probability of default $p_b = 20\%$. The blue bonds are perfectly correlated with each other ($\gamma = 1$). Through securitization, you are able to create two new bonds with face values: a senior bond and a junior bond. When none of the blue bond default both new bonds are paid face value of 100. If any one of the blue bond defaults, the senior bond is paid the face value of 100 while the junior bond suffers the loss and is paid 0. In case of both the blue bonds defaulting, none of the new bonds pays off. What is the expected payoff of the junior bond?

A basis point is equal to

What is the term for a graphical representation of the relationship between interest rates and the maturities of debt securities?

What should be the rate of interest per year so that your money triples in 15 years?

An investment is expected to yield Rs 3000 in three years, Rs 5000 in 5 years, and Rs 7000 in seven years. What is the present value of this investment if the constant rate of interest is 10% annually? (Rounded off to the nearest integer)

You have been depositing money at the end of each year into an account drawing 8% interest annually. What is the balance in the account at the end of year four if you deposited the following amounts? (Rounded off to the nearest integer)

Which of the following statements about bubbles is correct?

Suppose an asset earns an annual interest rate of 8% which is continuously compounded. If asset sells for 100 units today, what will be its value after 2 years?

What is the present value of a cash flow stream that pays Rs 3000 next year, grows at a rate of 3% per year thereafter and faces a cost of capital of 9% per year?

You discover an antique in your attic that your father purchased 30 years ago for Rs 400. You auction it and receive Rs 80,000 for this item today. What is the annualized rate of return that you earned?

You believe in the power of compounding and decide to save Rs 100 per day by avoiding the junk foods. You deposit the Rs 100 at the end of each day in a bank account that pays 8% annual interest compounded daily. How much money will you have in 5 years, assuming 365 days per years?
(use banking convention: daily interest rate = r/365) (Rounded off to the nearest integer)

The LIC stock is trading at Rs 400 today. LIC is expected to pay dividend of Rs 30 per share next year. If the growth rate of LIC dividend is 4% every year and appropriate rate of return is 10% per year, then according to the Gordon growth model

Suppose an investment cost 5,000 today and pays off Rs 3,000 in the next year and Rs 4,000 in two years. What is the internal rate of return on this investment?

Which of the following statements is correct regarding internal rate of return (IRR)?

There is a project which requires an initial investment of 500 units today. This project pays off 500 units after 5 years, 500 units after 10 years and 500 units after 15 years. If the prevailing constant interest rate in the economy is 10% then what is the profitability index of the project?

Consider the following three projects which have initial cost of Rs 1000 today:
Project 1: It pays out Rs. 500 next year and Rs 1000 two years from today.
Project 2: It pays Rs. 100 starting next year and pays the same amount for 50 years.
Project 3: It pays Rs. 4000 five years from today. There are no interim payments.
Assume that the prevailing interest rate is 5%. Which project has the least payback period?

A project earns a total of 50% return in two years. If annual return in the first year is 30%, then what is the annual return in the second year? (Round off to nearest integer)

What is the annualized rate of return of an investment of 100 units that promises to return 200 units in 10 years?

A financial advisor tells you that you can become a millionaire if you start investing early. You start to deposit 25,000 units every year in a savings account which earns 8% annual interest. What is the earliest year at which your account balance reaches a million units? (Assume you don’t make any withdrawals in between)