51. Which THREE are components of the Green Bond Principles? (Select THREE.)

Multiple response
A) Management of proceeds
B) Use of proceeds
C) Reporting
D) Price floor guarantee
E) Guaranteed tax exemption
F) Process for project evaluation and selection

Correct: B, C, F difficult Green Bond Principles

The four components are use of proceeds, project evaluation and selection, management of proceeds and reporting. Tax exemptions and price guarantees are not components.

52. Which TWO factors would increase a company's cost of debt? (Select TWO.)

Multiple response
A) Weak interest cover
B) Strong security over assets
C) Higher gearing
D) Low risk of default
E) Short repayment period always

Correct: A, C difficult Cost of debt

Higher gearing and weak interest cover increase default risk and therefore the required return.

53. Which TWO are examples of trade risk for an exporter? (Select TWO.)

Multiple response
A) The customer fails to pay by the due date
B) Goods are stolen in transit
C) The customer refuses to accept the goods on delivery
D) The exporter cannot fund the credit period
E) The order is cancelled while the goods are in transit

Correct: C, E difficult Export trade risks

Trade risk is the risk the customer refuses goods or cancels the order. Theft is physical risk, non-payment is credit risk and funding is liquidity risk.

54. Which TWO are features of ordinary shares? (Select TWO.)

Multiple response
A) Holders normally have voting rights
B) Holders always receive a dividend
C) Holders rank last on liquidation
D) Dividends are fixed in advance
E) Holders are creditors of the company

Correct: A, C difficult Features of ordinary shares

Ordinary shareholders usually vote and rank after creditors and preference shareholders. Dividends are not fixed and are not guaranteed.

55. Which TWO are typical features of secured debentures? (Select TWO.)

Multiple response
A) Interest is paid before dividends
B) Holders have voting rights at general meetings
C) Charge over specified assets
D) Dividend is optional
E) Holders are owners of the company

Correct: A, C difficult Secured debt

Debentures are secured by charges, and interest is a contractual obligation ranking before dividends. Debenture holders are creditors, not owners.

56. Which THREE statements about money markets are correct? (Select THREE.)

Multiple response
A) They are the market for ordinary shares
B) They provide a place to invest surplus cash
C) They are used mainly for 30-year equity finance
D) Treasury bills are issued by Bangladesh Bank on behalf of the government
E) They deal in short-term instruments

Correct: B, D, E difficult Money markets

Money markets are short-term wholesale markets. Treasury bills are issued by Bangladesh Bank on the government's behalf.

57. Consider NPV and IRR. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. A project with a positive NPV increases shareholder wealth.   Yes

2. NPV uses the time value of money.   Yes

3. Projects should be accepted if the IRR is below the cost of capital.   No

4. The IRR is the discount rate that gives the highest possible NPV.   No

Correct: Y, Y, N, N difficult NPV and IRR

(1) Yes. (2) Yes. (3) No: accept when IRR exceeds the cost of capital. (4) No: the IRR gives a zero NPV.

58. Consider the cost of capital. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Interest on debt is tax deductible, lowering its post-tax cost.   Yes

2. The cost of debt is usually lower than the cost of equity.   Yes

3. WACC weights each source equally regardless of its proportion.   No

4. Equity has a lower risk for investors than debt.   No

Correct: Y, Y, N, N difficult Cost of capital

(1) Yes. (2) Yes. (3) No: WACC weights by proportion in the capital structure. (4) No: equity is riskier.

59. Consider gearing. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Lenders may impose covenants.   Yes

2. High gearing increases financial risk.   Yes

3. Increasing gearing always lowers the WACC.   No

4. Interest is payable only when the company makes a profit.   No

Correct: Y, Y, N, N difficult Gearing and risk

(1) Yes. (2) Yes. (3) No: beyond a point it raises risk and cost. (4) No: interest is a fixed commitment.

60. Consider forward currency contracts. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. They fix the rate in advance.   Yes

2. They are obligations that must be completed.   Yes

3. A forward contract lets the buyer benefit if the spot rate moves favourably.   No

4. They guarantee the best possible rate.   No

Correct: Y, Y, N, N difficult Forward contracts

(1) Yes. (2) Yes. (3) No: a forward contract is an obligation and removes the chance of gain. (4) No: the exporter may do better unhedged.

61. Consider convertible loan stock. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Conversion dilutes existing shareholders.   Yes

2. It may be exchanged for shares at the holder's option.   Yes

3. It has no effect on the number of shares if converted.   No

4. Convertible loan stock usually carries a higher coupon than ordinary debt.   No

Correct: Y, Y, N, N difficult Convertibles

(1) Yes. (2) Yes. (3) No: shares are issued. (4) No: the conversion option allows a lower coupon.

62. Consider stock markets. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Liquidity of shares is improved by an active market.   Yes

2. The primary market is where new securities are issued.   Yes

3. The secondary market is where new securities are first issued.   No

4. Secondary market trading gives cash to the issuing company.   No

Correct: Y, Y, N, N difficult Stock markets

(1) Yes. (2) Yes. (3) No: new issues occur in the primary market. (4) No: the proceeds go to the selling investor.

63. Consider money markets. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Money market instruments are used by treasurers to manage cash.   Yes

2. Treasury bills are long-term bonds.   No

3. Certificates of deposit are issued mainly by governments.   No

4. Commercial paper is short-term unsecured paper issued by large companies.   Yes

Correct: Y, N, N, Y difficult Money markets

(1) Yes. (2) No: they are short-term. (3) No: CDs are issued mainly by commercial banks. (4) Yes.

64. Consider working capital financing. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Matching uses short-term finance for permanent assets.   No

2. An aggressive policy uses more long-term finance.   No

3. A conservative policy uses more long-term finance.   Yes

4. Short-term finance is generally riskier to refinance.   Yes

Correct: N, N, Y, Y difficult Working capital financing

(1) No: matching uses long-term finance for permanent assets. (2) No: aggressive policies use more short-term finance. (3) Yes. (4) Yes.

65. Consider export finance. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Letters of credit are quick and simple to arrange.   No

2. Export credit insurance transfers some non-payment risk.   Yes

3. A letter of credit is arranged after the goods have been shipped.   No

4. A bill of exchange accepted by the buyer's bank can be discounted.   Yes

Correct: N, Y, N, Y difficult Export finance

(1) No: they are slow and administratively cumbersome. (2) Yes. (3) No: it is arranged before the export sale. (4) Yes.

66. A project needs an outlay of Tk 500m now and is expected to generate net cash inflows of Tk 180m, Tk 200m, Tk 220m and Tk 150m at the end of years 1 to 4. The cost of capital is 10%. What is the NPV, and what is the decision?

A) Positive Tk 150.0m, so the project should be accepted because the undiscounted inflows exceed the initial outlay by that amount
B) Positive Tk 72.1m, so the project should be accepted because it is expected to increase profit in each year of its life
C) Positive Tk 96.7m, so the project should be accepted because it is expected to increase shareholder wealth
D) Negative Tk 11.5m, so the project should be rejected because the discount rate used is the project's internal rate of return

Correct: C complex NPV

PV = 180/1.1 + 200/1.21 + 220/1.331 + 150/1.4641 = 163.6 + 165.3 + 165.3 + 102.5 = 596.7. NPV = 96.7. The undiscounted surplus is 50, not 150; 72.1 is the NPV at 12%, and −11.5 the NPV at 20%.

67. Using the same project (outlay Tk 500m; inflows 180, 200, 220, 150), the NPV is +38.2m at 15% and −11.5m at 20%. What is the approximate IRR, and how should it be used?

A) About 20.0%, which is the rate at which NPV is closest to zero and so supports acceptance only if the cost of capital is 20%
B) About 18.9%, which exceeds the 10% cost of capital and so supports acceptance
C) About 15.0%, which is the rate at which NPV is positive and so supports rejection if the cost of capital is below 15%
D) About 17.5%, which is the midpoint of the two rates and so supports acceptance only if the cost of capital is above 17.5%

Correct: B complex IRR

IRR ≈ 15% + [38.2 / (38.2 + 11.5)] × 5% = 15% + 3.85% = 18.9%. Because the IRR exceeds the cost of capital, the project is acceptable. The midpoint is not an interpolation.

68. A company has market value of equity Tk 600m with cost of equity 14%, and debt Tk 400m with pre-tax cost 10%. Tax is 25%. What is the WACC?

A) 12.0%, because the simple average of the cost of equity and the cost of debt is used for both sources of finance
B) 12.4%, because the pre-tax cost of debt is used and the tax shield is ignored in the weighting of the sources
C) 10.8%, because equity is weighted at 40% and debt at 60% according to the relative costs of the two sources
D) 11.4%, because debt carries an after-tax cost of 7.5% and weights are based on market values

Correct: D complex WACC

WACC = (600×14% + 400×7.5%)/1,000 = (84 + 30)/1,000 = 11.4%. Ignoring tax gives 12.4%. A simple average ignores weights, and weights follow value, not cost.

69. The risk-free rate is 5%, the market return is 11% and a company's equity beta is 1.2. What is the cost of equity, and what would a beta of 0.8 imply?

A) 12.2%, and a beta of 0.8 would imply a lower required return of 9.8%
B) 11.0%, and a beta of 0.8 would imply a higher required return of 11.8%
C) 13.2%, and a beta of 0.8 would imply a lower required return of 10.8%
D) 7.2%, and a beta of 0.8 would imply a lower required return of 5.8%

Correct: A difficult CAPM

Ke = 5% + 1.2×(11% − 5%) = 12.2%. With beta 0.8: 5% + 0.8×6% = 9.8%. Using 7.2% omits the risk-free rate.

70. A share trades at Tk 120. The dividend just paid was Tk 8, and dividends are expected to grow by 5% a year indefinitely. What is the cost of equity?

A) 6.7%, calculated as the dividend just paid divided by the share price without the growth rate
B) 12.0%, calculated as the dividend expected next year divided by the share price plus the growth rate
C) 13.0%, calculated as the dividend just paid divided by the share price multiplied by the growth rate
D) 11.7%, calculated as the dividend just paid divided by the share price plus the growth rate

Correct: B difficult Dividend growth model

D1 = 8 × 1.05 = 8.40. Ke = 8.40/120 + 5% = 7% + 5% = 12%. Using D0 gives 6.67% + 5% = 11.7%.

71. A company has 4 million shares at Tk 200 each. It offers a 1-for-4 rights issue at Tk 150. What are the theoretical ex-rights price and the value of a right attached to one existing share?

A) Tk 190 and Tk 40
B) Tk 175 and Tk 10
C) Tk 195 and Tk 5
D) Tk 190 and Tk 10

Correct: D complex Rights issue

TERP = (4×200 + 1×150)/5 = 190. The right to buy at 150 is worth 190 − 150 = 40 per new share, or 40/4 = 10 per existing share. Averaging the two prices gives 175.

72. A three-year bond with nominal value Tk 100 pays an annual coupon of 8%. Investors require a yield of 10%. What is the price, and why is it below nominal value?

A) Tk 80.00, because the price is the annual coupon divided by the required yield, ignoring redemption
B) Tk 100.00, because a bond always trades at nominal value whenever interest is paid annually
C) Tk 104.97, because the coupon is lower than the required yield, so the bond must be priced at a premium
D) Tk 95.03, because the coupon is lower than the required yield, so the bond must be priced at a discount

Correct: D complex Bond valuation

Price = 8/1.1 + 8/1.21 + 108/1.331 = 7.27 + 6.61 + 81.14 = 95.03. When required yield exceeds the coupon the bond trades below par.

73. A supplier offers terms '2/10 net 40'. A buyer is deciding whether to pay on day 10 and take the discount. Using the simple annualised method and a 365-day year, what is the approximate cost of not taking the discount, and what should the buyer do if its overdraft costs 12%?

A) About 18.4%, so the buyer should take the discount only if the overdraft rate exceeds 20%
B) About 12.2%, so the buyer should ignore the discount because it is similar to the overdraft rate
C) About 24.8%, so the buyer should take the discount and finance payment by overdraft
D) About 2.0%, so the buyer should ignore the discount because it is lower than the overdraft rate

Correct: C complex Settlement discounts

Cost = 2/98 × 365/30 = 24.8%, much higher than 12%, so paying early and borrowing is cheaper. 18.4% would apply to 1/99 over a 20-day gain.

74. A loan carries a nominal annual rate of 12% with interest compounded quarterly. What is the effective annual rate, and what does it show?

A) 13.00%, which shows the true annual cost after adding an arrangement fee to the nominal rate
B) 12.55%, which shows the true annual cost after interest is compounded within the year
C) 12.00%, which shows that compounding within the year has no effect on the annual cost of the loan
D) 12.68%, which shows the true annual cost when interest is compounded monthly instead of quarterly

Correct: B difficult Effective annual rate

EAR = (1 + 0.12/4)^4 − 1 = 1.03^4 − 1 = 12.55%. Monthly compounding would give 12.68%.

75. A project costs Tk 300m and yields Tk 120m, Tk 130m, Tk 140m and Tk 100m in years 1 to 4. The cost of capital is 10%. What is the discounted payback period, and how does it compare with simple payback?

A) About 2.8 years, which is longer than the simple payback of about 2.4 years
B) About 2.4 years, which is longer than the simple payback of about 2.8 years
C) About 2.8 years, which is shorter than the simple payback of about 3.0 years
D) About 3.2 years, which is shorter than the simple payback of about 3.6 years

Correct: A complex Discounted payback

Simple: 120 + 130 = 250 after 2 years; 50/140 = 0.36 → 2.4 years. Discounted: cumulative PV after 2 years is 216.5, shortfall 83.5; year 3 PV is 105.2, so 2 + 83.5/105.2 = 2.8 years. Discounting lengthens payback.