Question

MCQ

1. Upon retirement, Jason wants to invest his super in a fund where the manager buys only blue chip companies that pay a regular and high dividend. He is happy for the manager to constantly search for the best stocks which fit this profile and is happy for the portfolio composition to be changed to include the best opportunities of this type. Jason does not require liquidity in the investment. Given the following advertisements of funds, which fund is best suited to his investment preferences?

Select one:

a. Fund E: Passively managed, open-ended, Index Fund earning 6%

b. Fund B: Actively managed, close-ended, Income Fund earning 7.5%

c. Fund C: Actively managed, open-ended, Growth Fund earning 8%

d. Fund A: Passively managed, closed-ended, Balanced Fund earning 10%

e. Fund D: Actively managed, closed-ended, Aggressive Growth Fund earning 10%

2. Given that government 5-year bonds have a current yield to maturity of 3.5%, with no other consideration, which of the following investments should you invest in? Select all correct answers only. Assume all percentages given in this question are per annum.

Select one or more:

a. I would invest in all investments here.

b. Telstra shares paying a dividend yield of 3%.

c. NAB bond which has a coupon of 3.5%.

d. Property lease returning 4%.

e. Bank term deposit earning 2%.

3. Which of the following characteristics correctly apply to preference shares? Select all correct answers only.

Select one or more:

a. Receives a dividend before all other shareholders.

b. Has the lowest risk of residual claim among shareholders.

c. Voting rights at the Annual General Meeting.

d. Has the highest risk of residual claim among shareholders.

e. Do not have limited liability

4. Brian is considering investing in a fast food franchise which is forecast to earn Net Cash Flows of $60,000 per annum for the foreseeable future. The price to invest is $1 million. However, the Australian economy is weakening and in recession, which sharply increases the risk of the franchise. Which of the following conclusions reflects an appropriate adjustment to the risk-return relationship? Select all correct answers only.

Select one or more:

a. Decrease the price to $800,000, to increase the return to 7.5%

b. Decrease the price to $900,000, to increase the return to 6.7%

c. Decrease the price to $1 million, to increase the return to 6%

d. Increase the price to $1.1 million, to increase the return to 5.5%

e. Increase the price to $1.2 million, to decrease the return to 5%

5. Paul has a variable rate mortgage with NAB costing 3.5% per annum. If the RBA increases the official cash rate by 25 basis points, what is the most likely shift in cost of Paul’s home loan?

Select one:

a. 3%

b. 4.3%

c. 3.3%

d. 3.8%

e. 3.48%

6. Which of the following currency movements would benefit a Chinese importer of wool from Australia? Select all correct answers only. Wool is priced in AUD.

Select one or more:

a. Depreciation of the AUD compared to the CNY.

b. Appreciation of the AUD compared to the JPY.

c. Appreciation of the AUD compared to the CNY.

d. Depreciation of the AUD compared to the CAD

e. Appreciation of the CNY compared to the AUD.

7. NAB earns 4% on $2 billion of interest earning assets and pays 3% on $1.5 billion of interest liabilities. With total capital of $4 billion. Calculate NAB's Interest Rate Margin.

Select one:

a. Not enough information provided

b. 0.68%

c. None of the answers here.

d. 1.08%

e. 0.98%

8. Which home loan attributes would you choose if you wanted to benefit from both falling interest rates and lock in interest rates while paying off the loan in full by the final loan repayment. Select all correct answers only.

Select one or more:

a. Interest-only

b. Fully amortising

c. Fixed rate only

d. Variable rate only

e. Split rate

9. As the CFO of Monash Inc., you decrease the proportion of capital financed through debt. Which of the following impacts upon the cost of equity is the most correct?

Select one:

a. K_e will decrease due to higher risk of residual claim.

b. None of the above.

c. K_e will increase due to lower risk of residual claim.

d. K_e will increase due to higher risk of residual claim.

e. K_e will decrease due to lower risk of residual claim.

10. Property developer Lendlease issues 90 day bank bills that have a yield-to-maturity (YTM) of 3% p.a. that you as a potential buyer value at a price of $95,000.

The latest analyst report comes out showing a growing shortfall in working capital for the remainder of the year. This is due to the inability of lendlease to collect on accounts receivable due to customers inability to pay in the COVID economy.

Which of the following best describes how you would revalue the investment?

Select one:

a. Improving collections on customer debts causes a fall in liquidity risk, which increases the YTM, increasing the value of the bill where you would pay a price lower than $95,000.

b. Falling earnings causes a increase in interest rate risk, which increases the YTM, increasing the value of the bill where you would pay a price higher than $95,000.

c. Falling collections on customer debt causes an increase in liquidity risk, which increases the YTM, reducing the value of the bill where you would pay a price lower than $95,000.

d. Rising earnings causes a fall in credit risk, which reduces the YTM, increasing the value of the bill where you would pay a price higher than $95,000.

e. Falling credit risk causes a rise in earnings, which increases the YTM, reducing the value of the bill where you would pay a price lower than $95,000.

I need this now can you answer please!!

Answer 1

Part 1) Answer: b. Fund B: Actively managed, close-ended, Income fund earning 7.5%

Explanation: Jason does not require liquidity in the investment, so selected close-ended fund. Income fund pay regular and high dividend.

Part 2) Answer: d. Property lease returning 4%

Explanation: Government 5-years bond gives 3.5% as risk free return. Telstra shares & Bank term deposit returns are less than Government 5-years bond return & NAB bond return equals to Government 5-years bond return hence reject all the 3 options. Property lease return is more than Government 5-years bond return.

Part 3) Answer: a & b

Receives a dividend before all other shareholders. Has the lowest risk of residual claim among shareholders

Part 4) Answer: a. Decrease the price to $800,000, to increase the return to 7.5%

Risk-return is positively related. During recession risk increases, so required return also increases. In the options available option a gives higher return.