1. What is Euro bonds?
2. Define capital market.
3. What is call deposit?
4. What is Treasury bills?
5. What is commercial paper?
6. Suppose the business firm purchase Rs. 100000 negotiable CD for six months. How
much the business form receives back at the end of 180 days given the interest rate of
7.5%.?
7. The dealer took an overnight loan of Rs. 100 million at 7 percent repo rate on repurchase
agreement. Find out repo interest income from repurchase agreements.
8. Mrs. Sita is 25 years old. She wants to purchase term life insurance policy for Rs.
100000. Also assume that the probability of dying rate is 0.02 percent. Find the fair
premium if annual cost of money is 10 percent
9. The dealer took an overnight loan of Rs. 100 million at 7 percent repo rate on repurchase
agreement. Find out repo interest income from repurchase agreements.
10. Consider a 180 days treasury bill with a face value of Rs. 1000 and is currently selling for
Rs. 940. What is the discount yield?
Section B
Descriptive Answer Questions
[10x6=60]
11. Justify how financial institutions help in channeling the savings for best uses?
12. Discuss the major contributions of commercial bank to promote business environment of
country.
13. Define bond and stock market. List out and explain different types of bonds.(2+8)
14. Mr. X Purchase a Stock of ABC Company for Rs. 50 under margin purchase and paid
50%of the price as initial margin. The brokerage firm charge 10% interest on the loan. At
the end of year one, ABC Company paid Rs. 2 as dividend and price of stock increased to
Rs. 60.
Calculate:
a. Holding period return. (2)
b. Calculate HPR of Mr. X, if he purchased the stock on cash basis. (3)
c. Calculate the HPR under margin and cash basis if the price decreased to Rs. 40 after
the purchase. (5)
15. A Rs. 100,000 Treasury bill with 91 days maturity sells at a bank discount yield of 3
percent. Assume that the discount is the difference between face value of the Treasury
bill and the market price of the Treasury bill.
a. What is the price of the bill and explain their effects.
b. What is the 91 days holding period return of the bills?
c. What is the bond equivalent yield of the bill?
d. What is the effective annual yield of the bill?
16. An employee makes 40% of first 6% employee contributions. An employee contributes
10% of Rs. 75,000 salary into company's retirement plan. An employee is in 31% tax
bracket and yield 8% rate of return.
a. Find an employee's of net tax contributions.
b. Find an employee's contributions
c. Suppose an employee's investor plan offered of the start of the start of year is Rs.9300.
What is total yield plan investment plan offered?
d. Find an employee's one year return.
e. Find an employee's net of tax contribution for 20 years career
17. Define commercial bank. Discuss on primary and secondary functions of Primary and
secondary function of Commercial bank in Nepal.
Section C
Case Analysis
18. Read the cases situation given below and answer the questions that follow. (20)
Almost every indicator of the market has been in decreasing trend during the last three months.
The number of shares traded and trading volume remained on top of decreasing trend. While
analyzing the latest six months data, during the last three months, trading volume has decreased
by 48 percent and average daily turnover by 42 percent in comparison with the first three
months. Not only trading volume, NEPSE index with the market capitalization has also
decreased by around 16 percent in the last three months. These data shows that the pace of
fluctuation for the indicators of Nepali capital market is high. Can it be considered as too volatile
and risky?
Investors feel more ups and downs in short term. When there is a sharp increasing or decreasing
trend for a short span of time, such investors calculate their profit / loss (realized or unrealized).
So, from the behavioral aspect, ups and downs are more reported and discussed. However,
fluctuation in the market can be observed both in short run and long run. The trend of NEPSE
index for last 12 years shows that the index value has increased by near to three times within one
and half years during the bullish trends of 2007-08 and 2013-14. During 2007-08, it also
reversed at a higher speed. In view of this experience, investors might worry that this time also
the market may slip down in the way for long run fluctuation. But the decrease over last three
months is not same as those of the previous ones and is not risky.
The current decrease in the market may be due to the confusion created by the new depository
service started in the market. However, the situation will be clear in the near future and the new
service may add more confidence to the investors. If operated efficiently, this new service will
add tremendous liquidity in the market. Current economic environment has created some rays of
hope for multi-billion dollar FDI in the hydropower sector; infra-structure development and
some other industries. It will help to create positive environment for investment in the secondary
market. More hydropower companies as well as other companies may create better ground for
proper diversification of the secondary market.
Ups and downs are the cause for speculation. Speculation is the beauty of the secondary market.
Without speculation, investors are not attracted towards primary market whose main
responsibility is to create a pool of low-cost capital. So, it can be said that up to a certain level,
ups and downs are required for a healthy market. But speedy fluctuation and high pace of ups
and downs make the market more volatile and risky. Therefore, the investors should properly
analyze the market and the company before making the decision. Equity investment is not a risk-
free game but normally in a long span of time, the market compensates the investors fairly.
Questions:
1. Why do you think stock market fluctuate? (6)
2. What is speculation? What is its impact in stock market? (6)
3. What do you suggest to investor? (8)
Best of Luck!!!