Management Sciences Test 1 Nddc Scholarship
Question 31
In 2 years you are to receive ₦T10,000. If the interest rate were to suddenly decrease, the present value of that future amount to you would __________.
B. Rise
If the interest rate decreases, the discounting factor is smaller, so the present value of a future amount increases.
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Question 32
Effective interest rate is different from nominal rate of interest because:
C. Periodic interest rate ignores the effect of inflation
The effective interest rate reflects the true cost of borrowing, including inflation and compounding, while the periodic interest rate does not consider the impact of inflation.
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Question 33
What is a legal agreement, also called the deed of trust, between the corporation issuing bonds and the bondholders that establish the terms of the bond issue?
A. Indenture
An indenture is the legal agreement or deed of trust between the corporation issuing bonds and the bondholders, specifying the terms and conditions of the bond issue.
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Question 34
Which of the following would generally have unlimited liability?
C. The owner of a sole proprietorship
In a sole proprietorship, the owner has unlimited liability, meaning personal assets can be used to cover business debts and obligations.
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Question 35
Why we need Capital rationing?
B. Because, companies do not always have access to all of the funds they could make use of
Capital rationing occurs when a company has limited funds and cannot invest in all positive NPV projects, requiring prioritization of the most valuable investments.
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Question 36
What is the present value of ₦3,500,000 to be paid at the end of 50 years if the correct risk adjusted interest rate is 18%?
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Question 37
When the zero coupon bond approaches to its maturity, the market value of the bond approaches to which of the following?
C. Par value
As a zero-coupon bond nears maturity, its market value converges to its par value, which is the amount the issuer will pay the bondholder at maturity.
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Question 38
Which of the following would be considered a cash-flow item from an "operating" activity?
A. Cash outflow to the government for taxes
Operating activities include cash flows related to the core business operations, such as receiving revenue and paying expenses, including taxes.
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Question 39
Which of the following refers to the risk associated with interest rate uncertainty?
C. Market risk premium
Market risk premium reflects the additional return required by investors for taking on systematic risks, including interest rate uncertainty, compared to a risk-free investment.
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Question 40
Which of the following refers to a highly competitive market where good business ideas are taken up immediately?
B. Efficient market
An efficient market is one where information is quickly reflected in asset prices, and good business ideas are adopted immediately by investors and competitors.
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