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 12%, the price of the bond
would be :
a. 96.83
b. 94.27
c. 101.58
d. 90.90

2. Given a zero coupon bond of Face Value Rs.1000 and maturity of 10 years. If the Yield to
maturity is 15%, then the price of the bond (Assuming semi-annual compounding) would be:
a. 1000
b. 376.90
c. 235.41
d. 732.16

3. Rs.100 face value bond has a coupon rate of 8% and is trading at Rs.95. 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 3%. The
price of the bond would be:
a. 104.30
b. 105.70
c. 101.20
d. 102.80
5. Which of the following is false?
a. Coupon rate does not change with the change in Yield to maturity
b. Bond price is not related to Yield to maturity
c. Premium bonds trade at a price higher than face value
d. If YTM< Coupon rate then Price >Face Value

6. Treasurer role in a company would not involve which of the following:

a. Investment
b. Credit Management
c. Financial Planning
d. Cost Accounting

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

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

8. Goal of Financial Management is:

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

9. Equity shares in India are traded in the following

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

10. Which of the following statement is not correct?

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

11. In a simple constant growth model, for a given D, G and R. The current stock price is always
more 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 12%. How
much will you pay for Stoneworks today?
a. 19.12
b. 20.37
c. 18.35
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 12 percent return for the stock. Find the
current stock price.
a. 18.18
b. 28.63
c. 20.00
d. 39.00

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 28 %.
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. 39.70

15. The Nearside co is expected to pay a dividend of Rs. 2 per share next year. If investors
require a return of 18 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. 25.06
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 decrease, 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 9 percent and Investment B has the
holding period of 9 years with expected rate of return 11 percent.

a) 52,400; 89,490
b) 42, 955; 69,327
c) 45, 800; 79,390
d) 49,814; 63,950

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

What is EAR? If APR is 11% - compounded quarterly;
What is APR? If EAR is 17.2% - Compounded semi-annually

a) 11.30%;15.97%
b) 11.46%; 16.52%
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 10%. 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) 855,015
c) 62,65,615
d) 41,44,985

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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