1. Explain the difference between a call option and put option as they apply in derivative markets.

2. To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of

1. face value.
2. par value.
3. deflation.
4. discounting the future.

3. Which of the following is the correct formula for computing the present value of an asset given the present value of initial amount invested (PV); interest rate, (i); and the number of periods over which the investment is held (n)?

4. What is the present value of GH500.00 to be paid in two years if the interest rate is 5 percent?

1. GH453.51
2. GH500.00
3. GH476.25
4. GH550.00

5. Hannah Motors bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a GH1,000 par value, and the coupon interest rate is 8 percent. The bonds have a yield to maturity of 9 percent. What is the current market price of these bonds?

1. GH935.82
2. GH961.0
3. GH1039.93
4. GH989.11
5. GH1067.10

6. Bond prices move with interest rates.

1. Directly
2. Asymptotically
3. Together
4. Parallel
5. inversely

7. What is the present value of GH10,000 to be received in 10 years if the interest rate is 15%?

8. The most important difference between money market and bond market instruments lies in their different

1. Default risks
2. Terms of maturity
3. Current yields
4. The issuer
5. The buyer

9. What best describes bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold?

1. Foreign bonds
2. International bonds
3. Eurobond
4. Universal bonds
5. Securitization

10. If the amount payable in two years is GH2420 for a simple loan at 10 percent interest, the loan amount is

GH1000.

GH1210.

GH2000.

GH2200.

11. Investing in Treasury Bill is

1. Borrowing from the government
2. Buying long- term asset from the government
3. A form of paying taxes
4. Borrowing at the risk- free rate
5. Lending to the government

12. In two years, you are to receive GH10,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would

1. Fall
2. Rise
3. Remain unchanged
4. None of the above

13. Thomas Brothers is expected to pay a GH0.50 per share dividend at the end of the year (i.e.. The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, , is 15%. What is the value per share of the companys stock?

14. A corporations dividend has grown annually at the rate of 5 percent. If this rate is maintained and the current dividend is GH5.40, what will the dividend be after ten years?

1. GH8.85
2. GH14.00
3. GH14.33
4. GH11.35
5. GH8.80

15. What happens to the value of a perpetuity when interest rate increase?

1. The value of a perpetuity drops
2. The value of a perpetuity stays the same
3. The value of a perpetuity also increases
4. The value of a perpetuity sometimes increases and sometimes drops
5. The value of a perpetuity is not influenced by interest rates

16. Choose the BEST answer to explain interest

1. Interest is a fee the company pays to borrow money
2. Companies arent required to make interest payment
3. Interest is a fee the investor pays to purchase a bond
4. Interest is the return the company receives for selling bonds.

17. How much are you willing to pay for one share of Jumbo Trout stock if the company just paid a $0.70 annual dividend, the dividends increase by 1.6 percent annually, and you require a 10 percent rate of return?

1. $8.29
2. $8.33
3. $8.47
4. $8.53
5. $8.59

18. Northern Gas recently paid a $2.80 annual dividend on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $26.91 a share. What is the market rate of return?

1. 13.88 percent
2. 14.03 percent
3. 14.21 percent
4. 14.37 percent
5. 14.60 percent

19. Hannah_Jonah Company Ltd based at Nsiana is considering buying a machine to produce fruit juice. The machine costs GH10,000. With the machine, Hannah_Jonah expects to produce and sell 1,000 bottles of fruit juice per year for GH3 per bottle, net of all costs. The machine's life is five years. On the basis of these assumptions and an 8% discount rate,

1. what is the net present value of Hannah_Jonah investment if the salvage value of the machine is zero?
2. what is the net present value of Hannah_Jonah investment if the salvage value of the machine is 10% of the cost of the machine?

20. Aaron has invested in a project that promised to pay GH100, $200, and GH300, respectively, at the end of the next three years. If Hub paid GH513.04 for this investment, what is the project's internal rate of return?

1. The expected returns on three securities are given in the table below.

Name of Security	Expected Returns (%)
A	12
B	20
C	19

The Variance-Covariance matrix of the returns on the three securities is:

1. Calculate the standard deviation of the returns of each stock
2. Compute the correlation coefficient between the returns on:

1. AA and B
2. A and C

3. Assume a portfolio consisting of the three stocks (A, B, C). Assume an investor invests

20 % in A, 40% in MOE, and 40% in C

1. Calculate the portfolios expected return.
2. Compute the portfolio standard deviation\)