Corporate Finance: Midterm Exam

Instructions:

1. Mention your name, enrolment no. and section clearly

2. Students should submit question paper along with MCQ answer sheet at the end of the
exam.
3. Each question carries one mark

Name:

Enrolment no.:

Section:

Max Marks:20

1. Reliance Industries has issued a 9% coupon bond (coupons paid annually) of Face Value
Rs.100 for a maturity of 4 years. If the required rate of return is 10%, the price of the bond
would be :
a. 96.83
b. 94.27
c. 101.58
d. 92.92
2. Given a zero coupon bond of Face Value Rs.1000 and maturity of 10 years. If the Yield to
maturity is 10%, then the price of the bond (Assuming semi-annual compounding) would be:
a. 1000
b. 376.90
c. 525.38
d. 732.16
3. Rs.100 face value bond has a coupon rate of 8% and is trading at Rs.105. The Yield to
maturity of the bond will be:
a. More than 8%
b. Equal to 8%
c. Less than 8%
d. Independent of bond price

4. Shriram properties has bonds outstanding of Rs.100 Face Value with a coupon rate of 5%
paid semi-annually and 3 years to maturity. The yield to maturity on the bonds is 4%. The
price of the bond would be :
a. 104.30
b. 103.50
c. 101.20
d. 102.80

5. Which of the following is true?

a. Coupon rate changes with the change in Yield to maturity
b. Bond price is inversely related to Yield to maturity
c. Premium bonds trade at a price lower than face value
d. If YTM< Coupon rate then Price <Face Value
6. Treasurer role in a company would involve which of the following roles?
a. Financial Accounting
b. Tax Management
c. Financial Planning
d. Cost Accounting

7. Agency cost is on account of the conflict between:

a. Stockholder and Manager
b. Customer and vendor
c. Company and Regulator
d. Vendor and Regulator

8. Goal of Financial Management is:

a. Maximize profit
b. Minimize cost
c. Maximize market share
d. Maximize shareholder value

9. Equity shares in India are traded in the following

a. The National Stock Exchange
b. Ministry of Corporate Affairs (MCA)
c. Securities and Exchange board of India (SEBI)
d. Nifty Index

10. Which of the following statement is Correct?

a. The P/E ratio is computed by taking Earnings Per share as the numerator and the Market
price of the share as the denominator.
b. The price of a stock is the present value of past and future cashflows
c. Cash flows grow at a constant rate in the zero growth model.
d. Stock ownership produces cash flows from dividends and capital Gains.

11. In a simple constant growth model, for a given D, G and R. The current stock price is always
less than the price in 5 years.
a. True
b. False
12. Stoneworks has a peculiar dividend policy. The company has just paid of a dividend of Rs. 15
per share. It will pay 11 per share in year 1, 8 per share in year 3, and 5 per share in year 5.
After that, it will never pay any other dividend. If the required rate of return is 10%. How
much will you pay for Stoneworks today?
a. 19.12
b. 20.37
c. 18.73
d. 20.06
13. Bretton just paid a dividend of 3 on its stock. The growth rate in dividends is expected to be
4 percent per year, indefinitely. Investors require a 15 percent return for the stock. Find the
current stock price.
a. 18.18
b. 28.63
c. 20.00
d. 25.00

14. Fuji is growing quickly. Dividends are growing quickly at a rate of 20% for the first 10 years
and after that, the growth rate is 5% from year 11 to infinity. If the discount rate is 25 %.
Find the current stock price. The dividend next year is expected to be Rs. 5.
a. 48.06
b. 54.76
c. 45.28
d. 60.24

15. The Nearside co is expected to pay a dividend of Rs. 2 per share next year. If investors
require a return of 15 percent on the stock. What will be the price in 10 Years? The
dividends are expected to grow at a constant rate of 5% per year indefinitely.
a. 32.58
b. 34.21
c. 31.02
d. 28.50

16. Time value of money indicates that

a) A unit of money obtained today is worth more than a unit of money obtained in future
b) A unit of money obtained today is worth less than a unit of money obtained in future
c) There is no difference in the value of money obtained today and tomorrow
d) None of the above

17. In 3 years you are to receive $5,000. If the interest rate were to suddenly increase, the
present value of that future amount to you would:

a) rise
b) fall
c) remain unchanged
d) Cannot be determined
 18. An investor is considering to invest Rs 25,000 today in Investment A and Investment B. You
are expected to find the value of investments at the end of respective years. Investment A has
the holding period of 8 years with expected rate of return 7 percent and Investment B has the
holding period of 9 years with expected rate of return 12 percent.

a) 52,400; 89,490
b) 42, 955; 69,327
c) 45, 800; 79,390
d) 49,652; 59,891

19. From the following information you are required to calculate:

What is EAR? If APR is 11% - Number of times compounded is semi-annually;
What is APR? If EAR is 17.2% - Number of times compounded is monthly

a) 11.30%;15.97%
b) 11.95%; 14.32%
c) 15. 80%; 19.39%
d) 19.65%; 21.89%

20. You have approached SBI for a 20 year housing loan of Rs. 50lakhs. SBI has agreed to lend at
an APR of 9%. If you can afford a monthly payment of Rs.40,000 per month, how much you
have to pay at the end of loan term to completely pay-off the loan.

a) 33,30,283
b) 18,70,120
c) 27,20,850
d) 5,54,202

Formulas:
1
1−
(1 + 𝑟)𝑡
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑎𝑛 𝑎𝑛𝑛𝑛𝑢𝑖𝑡𝑦 = 𝐶
𝑟

𝑡
1+𝑔
1− 1+𝑟
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑔𝑟𝑜𝑤𝑖𝑛𝑔 𝑎𝑛𝑛𝑛𝑢𝑖𝑡𝑦 = 𝐶
𝑟−𝑔

𝐶
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑝𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦 =
𝑟

𝐶
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑔𝑟𝑜𝑤𝑖𝑛𝑔 𝑝𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦 =
𝑟−𝑔
Name:

Enrolment no.:

Section:

MCQ-Answer Sheet

Question Answer Question Answer

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