Insurance and Risk Management 12

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Objective Questions and Answers of MBA: Insurance and Risk Management 12

Subject: Objective Questions and Answers of MBA: Insurance and Risk Management 12

Part 12: Objective questions and answers of Insurance and Risk Management


Q1. If market interest rates fall to 5%, the market price of the CD in question 5, when it has

40 days to maturity will be:

a) $101,195

b) $100,760

c) $101,750

d) $100,806

e) $100,246


Q2. If redemption yields on one year bonds are 4.5 per cent while yields on two year bonds are 5.3 per cent, this suggests that the rate on one year bonds in one year's time will be (approximately):

a) 1.8%

b) 6.1%

c) 9.8%

d) 4.9%

e) 3.7%


Q3. If savers decide to save more, ceteris paribus, the loanable funds theory predicts:

a) A reduction in investment and interest rates

b) A fall in the exchange rate

c) A reduction in interest rates and more investment

d) An increase in investment and interest rates

e) Higher economic growth


Q4. If the demand for money is interest-elastic, an increase in interest rates:

a) Would have little impact on the rest of the economy

b) Would increase the liquidity of financial assets other than money

c) Would cause the supply of money to fall

d) Would have a powerful impact on the rest of the economy

e) Would have no impact on the rest of the economy


Q5. If the required rate of return on a company's shares is 15 per cent, its last dividend payment was 8p and earnings are expected to continue their steady growth of 9 per cent

p.a., the price of the shares (to the nearest whole p) will be:

a) 133p

b) 120p

c) 53p

d) 145p

e) 114p


Q6. If the risk free rate is 5 per cent while the market risk premium is 10 per cent, the required return on shares where the beta-coefficient is 0.8 is:

a) 13%

b) 8%

c) 10%

d) 18%

e) 9%


Q7. Imagine a banking system with a reserve ratio of 0.1 and a public's cash ratio is 0.05.

According to the base-multiplier approach, an open market purchase of £20m bonds from the general public by the central bank should:

a) Reduce the money supply by £20m

b) Reduce the money supply by £140m

c) Increase the money supply £20m

d) Increase the money supply by £200m

e) Increase the money supply by £140m


Q8. In 2008 you are advising someone with £1000 to invest. Their sole investment objective is to earn a rate of return which is absolutely guaranteed over the next four years. Which of the following would you recommend?

a) Buy corporate bonds maturing in 2010 and then reinvest for two years

b) Buy government bonds maturing in 2012

c) Buy company shares now and sell in 2012

d) Buy perpetual bonds and sell in 2012

e) Put the money on deposit with a bank for four years


Q9. In June 2008, UK banks held approximately £6bn in notes and coin, £26bn in operational deposits at the Bank of England, £475bn in money market loans and £3,958bn in sterling and foreign currency deposits. Their collective reserve ratio was:

a) 0.15%

b) 0.6%

c) 0.8%

d) 12.8%

e) 8%


Q10. In the course of a year a pension fund buys £15m of UK government bonds, £30m of UK company shares, £10m of ordinary company shares. It also sells £5m of overseas government bonds and £9m of UK preference shares. Its net acquisition of assets during the year was:

a) £30m

b) £55m

c) £69m

d) £14m

e) £41m


Q11. In the loanable funds theory of interest determination, an increase in the productivity of capital equipment should lead to:

a) Higher prices

b) A reduction in interest rates

c) A reduction in the amount of saving

d) Higher interest rates

e) More employment


Q12. Interest rates are 7.5 per cent. A 9% corporate bond, maturing in three years time for

£100 and paying annual coupons will have a price of:

a) £83.33

b) £833.33

c) £103.90

d) £120

e) £80.50


Q13. Long dated government bonds tend to have higher yields than short-dated bonds because:

a) There is a smaller market for them

b) They are less liquid

c) They carry higher capital risk

d) There is less demand

e) They carry higher income risk


Q14. Mutual and co-operative banks in France charge lower interest rates (than commercial banks) because:

a) They have no shareholders

b) They offer limited services

c) They use cheap premises

d) Of official regulations


Q15. Other things being equal, a high p/e ratio shows?

a) The share is overpriced

b) The firm operates a low dividen policy

c) The share is underpriced

d) Investors expect rapid earnings growth

e) The firm earns low profits


Q16. Other things being equal, according to the base multiplier analysis of money supply determination, a decrease in banks' reserve ratios will lead to:

a) A larger multiplier and decrease in the money supply

b) A reduction in demand for deposits

c) A smaller multiplier and reduction in money supply

d) A rise in interest rates

e) A larger multiplier and increase in the money supply


Q17. Other things being equal, lenders prefer to lend for short periods because:

a) They can earn higher interest

b) The future is uncertain

c) They have more choice

d) They can reinvest frequently

e) This suits borrowers


Q18. Pension and life insurance funds hold few short-term assets because:

a) Their cash flows are predictable

b) Most people live for a long time

c) Long-term assets are more profitable

d) Short-term assets are too dear

e) Short-term assets are too risky


Q19. Standard and Poor's bond rating agency reduces your firm's bond rating from AA+ to AA. The likely effect on your firm's bonds will be:

a) The price will rise

b) Investors will prefer your company's shares

c) Investors will not hold them

d) Your firm will find new bond issues impossible

e) The price will fall


Q20. Suppose that the β-coefficient of ABC shares (in Q6) increases to 1.1. Other things being equal, the new share price would be:

a) 62p

b) 95p

c) 141p

d) 68p

e) 154p


Part 12: Objective questions and answers of Insurance and Risk Management


Q1. Answer a


Q2. Answer b


Q3. Answer c


Q4. Answer a


Q5. Answer d


Q6. Answer a


Q7. Answer e


Q8. Answer b


Q9. Answer c


Q10. Answer e


Q11. Answer d


Q12. Answer c


Q13. Answer c


Q14. Answer a


Q15. Answer d


Q16. Answer e


Q17. Answer b


Q18. Answer a


Q19. Answer e


Q20. Answer e

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