2nd Semester Final Departmental Examinations Reviewer

A.Y. 2023 - 2024

Subject Code: Financial Markets

Course Subject: ACCO 207

1. An investor wishes to acquire a 10% stake in Jade and Emerald Corp. To facilitate
this, Jade and Emerald purchased 150,000 shares of the company on behalf of the
investor and subsequently provided a copy of the stock certificate. The entry made of
the investor is through ________.

a. Secondary Market
b. Primary Market
c. Broker Market
d. Dealer Market

2. In addition to paying interest, these bonds offers the right to convert the bond into
common stock of the issuer of the bond.
a. Callable Bonds
b. Putable Bonds
c. Protective Covenants
d. Exchangeable Bonds

3. Katy bought a financial instrument from Taylor, representing her claim to a

commercial bank, because she needed immediate funds. This instrument will earn
5% interest per annum and will mature in 90 days. This type of financial
instrument is called _________.
a. Banker’s Acceptance
b. Commercial Paper
c. Negotiable Certificate of Deposit
d. All of the above

4. How do debt instruments differ from debt securities?

a. Not all debt securities are debt instruments, however debt instruments are all debt
securities
b. They can be interchangeably used hence similar
c. Debt instruments are negotiable and tradable debt securities
d. Not all debt instruments are debt securities, however debt securities are all debt
instruments
5. A bond will sell _________ when the stated rate of interest exceeds the required
rate of return, _________ when the stated rate of interest is less than the required
return, and _________ when the stated rate of interest is equal to the required
return.

a. At a premium; at a discount; equal to the part value

b. At a premium; equal to the par value; at a discount
c. Equal to the par value; at a premium; at a discount
d. At a discount; at a premium; at a discount

6. The current governor of the Bangko Sentral ng Pilipinas.

a. Felipe M. Medalla
b. Benjamin E. Diokno
c. Nestor A. Espenilla, Jr.
d. Eli M. Remolona, Jr.

7. Statement 1: Cost of debt refers to the total interest expense a borrower will pay
over the lifetime of the loan
Statement 2: Liquidity is often a more involved strategy than solvency due to it
being a short-term measurement of business.
Statement 3: Pure expectations theory is based on strong estimates of
uncertainty, relies on other factors and not only on terms
Statement 4: There are 3 types of Risk Appetites: Risk Taker, Risk Averse, Risk
Natural

a. True, True, True, True

b. True, True, False False
c. False, True, True, False
d. False, True, False False
e. True, True, True, False

8. ________ also known as the yield curve when graphed, is the relationship
between the interest rate of an asset (usually government bonds) and its time to
maturity
a. Interest Rates
b. Liquidity Preference Theory
c. Term Structure
d. Equity Relations Structure

9. The functions of Philippine Securities and Exchange Commission (SEC) are as

follows, except:

I. Have jurisdiction and supervision over all corporations, partnerships or

associations who are grantees of primary franchises and/or a license or
permit issued by the Government.
II. Ensures that there is seamless transition between closure to liquidation in
order to efficiently dispose assets of the closed banks and use the
proceeds to settle the claims of creditors.
III. Issue cease and desist orders to prevent fraud or injury to the investing
public.
IV. Approve, reject, suspend, revoke or require amendments to registration
statements, and registration and licencsing applications.
V. Adjudication of claims and complaints involving loss, damage or liability
incurred by an insurer under any kind of policy or contract of insurance or
suretyship.
a. II, IV, V
b. II and V
c. I, III, IV
d. All are functions of the SEC

10. For deposit of coins to Bangko Sentral ng Pilipinas, what amount per bag should
a denomination of Php 5.00 is the standard?

a. 7,500
b. 12,000
c. 2,000
d. 1.500

11. A Philippine automobile manufacturer purchased a 30% stake in a U.S.-based

automobile distribution company to support its corporate objectives and expand
its international operations. This is an example of ____________.
a. Horizontal Direct Investment
b. Vertical Direct Investment
c. Mutual Direct Investment
d. Back and Forth Indirect Investment

12. The disadvantages of issuing common stock versus long term debt include all of
the following EXCEPT

a. The potential dilution of earnings

b. The market perception that management thinks the firm is overvalued causing a decline
in stock price.
c. High Cost
d. No maturity date

13. This is calculated by multiplying the total outstanding shares by the prevailing
market price per share.

a. Share Valuation
b. Market Capitalization
c. Credit Rating
d. Present Value of Bonds

14. The following are true about Put option, except:

a. Is in the money when the market price of the underlying asset is higher than the strike
price.
b. Option to sell a specified number of shares on or before a specific date at a stated strike
price.
c. The holder can sell the stock at an above-market price.
d. All of these are true about Put Option

15. Statement 1: The PSE requires that material information, which may affect a listed
company’s stock price positively or negatively, be disclosed within 10 minutes
after its occurrence.
Statement 2: The minimum authorized capital requirement a company must have
is 500 million, of which 25% must be subscribed.
Statement 3: A company incurs negative stockholder’s equity for three (3)
consecutive years, shall not be subject to delisting, to ease the burden among
corporations.
a. Only one statement is true
b. Two statements are true
c. Two statements are false
d. All statements are false
e. All statements are true

16. The Eurocurreny Market

a. Developed first in US, as banks needed a market dollar deposits outside Europe
b. Have high rates on loans
c. Are less regulated, but face higher risks, particularly during a run on the banks
d. Is a money market for inside and outside of the country where it is legal tender.

17. To get the capital asset pricing model (CAPM)

a. The risk free rate shall be deducted to the product of beta and expected market rate less
the risk free rate.
b. The beta shall be multiplied first to the expected market rate less the lambda factor
before adding it to the risk free rate
c. The expected market rate shall be added to the product of beta and lamda factor
d. Includes multiplying the beta to the expected market rate less the risk free rate.

18. This is an agreement stipulating standard volume of a specific currency that will
be exchanged on a predetermined settlement date and is usually sold in
exchanges

a. Currency Exchanges
b. Currency Futures
c. Currency Options
d. Forward Transactions
e. Spot Rate

19. A type of mortgage loan that are useful for home buyers who expect their incomes
to rise. It has lower payments in the first few years, then payments rise. The early
payment may not even be sufficient to cover the interest due, in which case the
principal balance increases. As time passes, the borrower expects income to
increase so that higher payment will not be too much of a burden.
a. Graduated-Payment Mortgage
b. Growing Equity Mortgage
c. Shared Appreciation Mortgage
d. Equity Participating Mortgage

20. It is an insurance policy that guarantees to make up any discrepancy between the
value of the property and the loan amount, should a default occur. It is usually
required on loans that have less than 20% down payment.

a. Collateral Insurance
b. Adjustable-Rate
c. Borrower Qualification
d. Private Mortgage Insurance

21. Bloom Corp. has a Php 5 Million project and in order to solicit financing they
issued commercial paper with a commitment to pay the Php 5 Million in 190-days.
The prevailing annual interest rates for the instruments of similar maturity is 2.5%.
The cost of financing of Bloom is __________.

a. 125,000
b. 236,842.11
c. 65,972.22
d. 5,000,000

22. Stella purchase Php100,000 worth of commodities from Dragon Corp. on account.
The terms of the purchase is 3/10, n/30. After five days, Stella issued a commercial
paper amounting to Php 97,000 to earn interest of 3% payable in 30 days. Stella
used the funds generated to avail the discount, the net benefit / (loss) for the
transaction is ______.

a. Net Benefit 90
b. Net Benefit of 3,000
c. Net Loss of 2,190
d. No effect
 23. Several Treasury Bills were published to have the following purchase prices:

ADR AIR

CCC 60 days Php 990 6% 6.14%

FFF 90 days Php 980 8% 8.28%

AAA 182 days Php 880 11.87% 13.67%

If an investor is using the annualized discount rate, and the investor only accepts
a return of 10% and above, which treasury bill will not be accepted?

a. AAA only
b. CCC and FFF
c. CCC, FFF, AAA
d. FFF and AAA

24. Using the same given in item #23, if an investor is using the annualized
investment rate, if an investor only accepts a return of 8% and above, which
treasury bill shall be accepted?

a. AAA only
b. CCC and FFF
c. CCC, FFF, AAA
d. FFF and AAA

25. Ariel issued bonds with 12% nominal rate for a P1,360 par value bonds payable for
25 years. The bonds were sold for P1,450. How much is the interest rate of the
Ariel bonds in the market?

a. 19.66%
b. 6.12%
c. 11.36%
d. 3.55%
26. You are considering an investment in 30-year bonds issued by Moore Corporation.
The bonds have no special covenants. The Wall Street Journal reports that 1-year
T-bills are currently earning 3.25 percent. Your broker has determined the
following information about economic activity and Moore Corporation bonds:

Real Risk-Free Rate = 2.25%

Default Risk Premium = 1.15%
Liquidity Risk Premium = 0.50%
Maturity Risk Premium = 1.75%

What is the fair interest rate on Moore Corporation 30-year bonds?

a. 6.65%
b. 8.9%
c. 5.65%
d. 3.25%

27. The interest that Emperor Inc. must pay for the amount borrowed from a financial
institution amounting to Php100,000 that will due in six months with an interest
rate is prime plus 2 percent, based on the market information the prime rate
behave as follows: (i) 8.5% at the beginning of the loan; (ii) 9% after two months
from the issuance of the loan; (iii) 10% after 10 months from the issuance of the
loan, is _______.

a. 1,750
b. 21,552
c. 5,417
d. 10,716

28. Lewis, a corporate financial analyst must calculate the value of an investment
with an annual cash flows of P0 for the first year, P2,300 for the second year,
P3,700 for the third year, and P2,900 for the fourth year. Assuming a discount rate
of 15 percent, what is the value of this investment?

a. 6,704.53
b. 5,830.02
c. 7,739.13
d. 5,088.60
29. If a corporation has an average tax rate of 30 percent, the approximate annual,
after tax cost of debt for a 15-year, 9 percent, P1,000 par value bond selling at
P1,150 is

a. 1.06%
b. 7.44%
c. 2.23%
d. 5.21%

30. Fortnight Inc. was offered with 3 financial instruments namely: Ying, Yang and Yo.
These financial instruments in the form of bond were expected to mature in 5, 8
and 17 years, respectively. Ying Bond has a Php 2,500 par with 9% coupon rate.
Yang Bond has a Php 250 par value with 10% coupon rate. Lastly, Yo Bond has
Php 950 par value with coupon rate of 15%. Based on the foregoing, if Champ Inc.
will purchase 100 units of each bond, the total budgeted amount should be at least

a. 33,300
b. 55,500
c. 370,000
d. 125,800

31. Karma Inc issued a 7 year bond with a face value of P1,000. The bond has a stated
interest of 10%. The prevailing market rate for this type of bond is 15%. Based on
the foregoing the value of the bond should be ______. Use 4 decimal for PV
Factor.

a. 416.04
b. 791.94
c. 772.61
d. 375.90

32. What is the expected market return if the expected return on asset North is 20
percent, its beta is 1.5, and the risk free rate is 5 percent? ________________

a. 15%
b. 2%
c. 5%
d. 20%
33. Flexoffice is looking for an investment from Sigla Inc, a publicly listed company.
Based on available dividend information for the last 5 years:

Year Divident per Share

1 5

2 5.6

3 5.9

4 7.5

5 8.2

Compute the compound annual growth rate:

a. 1.13%
b. 13.16%
c. 10.40%
d. 9.33%

34. Flexoffice is looking for an investment from Sigla Inc, a publicly listed company.
Based on available dividend information for the last 5 years: The risk free rate is
7% applicable for a Philippine USD denominated bond with an expected yield of
7%. While it is the given value, it is expected that the market will provide a return
of 20%. A similar Australian Bond is expected to yield 4.50%, where the standard
deviation for debt and equity are 0.50 and 0.50, respectively. The applicable beta is
1.5. The required return, if the country risk premium is a separate component, the
relative lamda factor is 1.5, is

a. 30.25%
b. 29%
c. 43.5%
d. 22.75%
35. A South Korean USD Bond is expecting a yield of 6.25%. A similar instrument in
Japan has a yield of 3.75%. The country risk premium when the standard deviation
of equity and debt is 0.40 and 0.15, respectively, is ______________.

a. 2.67%
b. 9.38%
c. 6.67%
d. 25%

36. The risk free rate is 5% applicable for a Philippine USD denominated bond with an
expected yield of 5%. While it is the given value, it is expected that the market will
provide a return of 20%. A similar Australian Bond is expected to yield 3.60%,
where the standard deviation for debt and equity are 0.50 and 0.50, respectively.
The applicable beta is 1.5. The required return, if the country risk premium is part
of the market premium, is______________.

a. 27.50%
b. 22.10%
c. 32.9%
d. 31.11%

37. The risk free rate is 5% applicable for a Philippine USD denominated bond with an
expected yield of 5%. While it is the given value, it is expected that the market will
provide a return of 20%. A similar Australian Bond is expected to yield 3.60%,
where the standard deviation for debt and equity are 0.50 and 0.50, respectively.
The applicable beta is 1.5. The lambda factor is 1.2. The required return, if the
country risk premium is treated as a separate risk factor, is______________.

a. 37.50%
b. 22.10%
c. 27.50%
d. 31.82%

38. Jaime Manuel is buying a P350,000 home and will pay the mortgage monthly for 30
years. She has a good credit score and has qualified for a 5.125% loan interest.
How much will she be paying monthly for the home?
a. 1,318.69
b. 975.88
c. 2,013.67
d. 1,905.70

39. Raymond could take out a 15-year mortgage at a 6.0 percent per annum payable
monthly rate on a P200,000 mortgage amount, or hecould finance the purchase
with a 30-year mortgage at a 7.5 percent annual rate payable monthly. How much
total interest over the entire mortgage period could she save by financing his
home with the 15-year mortgage?

a. 199,369.52
b. 199,645.99
c. 503,434.45
d. 303,788.46

40. Kirby bought a house for P300,000. She paid 20 percent down but decided to
finance closing costs of 5 percent of the mortgage amount. If Ms. Kirby took out a
30-year fixed-rate mortgage at a 7.5 percent annual interest rate payable monthly,
how much balance would she have after 5 years?

a. 1,762.02
b. 634,327.20
c. 52,860.60
d. 238,435.86
.
Summary of Answers
Theories Problems
1. D 21. C
2. D 22. A
3. B 23. B
4. D 24. D
5. A 25. C
6. D 26. A
7. B 27. C
8. C 28. B
9. B 29. D
10. A 30. C
11. A 31. B
12. D 32. A
13. B 33. B
14. A 34. A
15. A 35. C
16. C 36. C
17. D 37. D
18. B 38. D
19. A 39. D
20. D 40. B
 Summary of Answers - Explanation / Solutions (Problems)

21. C. 65,972.22
5,000,000 x 2.5% x 190/360 = 65,972.22
22. A. Net Benefit 90
Discount Benefit = 100,000 x 3% = 3,000
Interest Expense = 97,000 x 3% = 2,910
3,000 - 2,910 = 90 Net Benefit
23. B. CCC and FFF
Only CCC and FF has annualized discount rate (ADR) that is below 10% which will not be
accepted.
24. D. FFF and AAA
Only FFFand AAA has annualized investment rate (AIR) that is above 8% which will be
accepted.

25. C. 11.36%

26. A. 6.65%
T-bill Rate= Risk Free Rate + Inflation Premium
3.25= 2.25+ x
3.25 - 2.25 = x
X=1
Fair Interest Rate = 2.25% +1.15% +0.50% +1.75% +1% + 0 = 6.65%
27.C. 5,417
First 2 months Interest: 100,000 x 10.5% x 2/12= P1,750
3rd - 6th months Interest: 100,000 x 11% x 4/12= P3,667
Total interest: P1,750 + P3,667 = P5,417

28. B. 5,830.02
29. D. 5.21%

30. C. 370,000
Total Par Value: 2,500 + 250 + 950 = 37,000
Total units each: 100
37,000 x 100 = 370,000

31. B. 791.94
1,000 x 0.3759 = 375.90
100 x 4.1064 = 416.04
375.90 + 416.04 = 791.94

32. A. 15%
20% = 5% + 1.5 (x - 5%)
20% = 5% + 1.5x - 7.5%
20% = 1.5x - 2.5%
22.5% = 1.5x
22.5% / 1.5 = 15%

33. B. 13.16%

34. A. 30.25%

35. C. 6.67%

36. B. 22.10%
37. D. 31.82%

38. D. 1,905.70

39. B. 199,645.99

503,434.45 - 303,788.46 = 199,645.99

40. D. 238.435.86