Topic: Basics of Business Finance and Financial Markets

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BMF – Nov 2020 – L1 – SB – Q6 – Basics of Business Finance and Financial Markets

Explanation of loan covenants, reasons and benefits for share repurchase, and features of a finance lease arrangement.

(a) For many loan agreements, the borrower is required to provide undertakings or guarantees of some kind.
Distinguish between covenants and guarantees. (5 Marks)

(b) State THREE reasons why a company will repurchase its shares and THREE benefits that will accrue to the company for doing so. (6 Marks)

(c) Companies can acquire assets with finance lease instead of buying assets with equity or debt capital.
State SIX main features of a finance lease arrangement. (9 Marks)

(Total 20 Marks)

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Calculate the present value of N12,000 received in one year at a 5% time preference rate.

Assuming a 5% time preference rate, what is the present value of N12,000 received one year from now?
A. N11,428.80
B. N11,539.90
C. N12,428.80
D. N12,539.90
E. N13,528.80

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q15 – Basics of Business Finance and Financial Markets

Identify why banks are considered important financial intermediaries.

Banks are important financial intermediaries because they:
A. Create new debt
B. Are the only source of debt finance
C. Are the only source of long-term finance
D. Operate between investors and borrowers
E. Take deposits from all their customers

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q12 – Basics of Business Finance and Financial Markets

Identify the term for strategies maximizing profits through innovative financial methods.

Strategies adopted by companies to maximize profits using innovative methods to compute the fair value of financial instruments is best described as:
A. Financial accounting
B. Financial engineering
C. Strategic financial management
D. Strategic management accounting
E. Strategic financial accounting

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q10 – Basics of Business Finance and Financial Markets

Calculate the amount to set aside annually to accumulate a sum for a car replacement in 5 years.

How much should Mr. Eaglet set aside at the end of each year to replace his motor car in 5 years’ time if the cost of a new car remains at ₦5 million and the rate of interest stays at 7% per annum?
A. N669,349.23
B. N779,349.23
C. N869,349.23
D. N979,349.23
E. N989,349.23

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

Calculate the present value needed to reach a lump sum in 5 years with compound interest.

Lokoson must pay a lump sum of N960,000 in 5 years. What amount deposited today at 5.8% compounded annually will make up the sum of money?
A. N724,200.36
B. N724,300.37
C. N725,200.36
D. N725,300.37
E. N725,300.37

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q8 – Basics of Business Finance and Financial Markets

Calculate the compound interest earned on a deposit over 11 years at 6.50%, compounded quarterly.

What is the amount of interest earned by a deposit of N414,000 for 11 years at 6.50% compounded quarterly?
A. N427,455
B. N427,467
C. N437,455
D. N437,467
E. N447,467

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q7 – Basics of Business Finance and Financial Markets

Calculate the simple interest rate for a 3-month loan.

Ronny wants to borrow N160,000 from his friend. He is willing to pay back N174,400 in 3 months. What simple interest rate will be applicable?
A. 34%
B. 35.5%
C. 36%
D. 36.5%
E. 37%

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  • 1 Marks

BMF – MAY 2016 – L1 – SA – Q12 – Basics of Business Finance and Financial Markets

Multiple choice question on the functions of a stock exchange.

Which of the following is NOT a function of a stock exchange?

A. Provide a system in which shares can be traded in a regulated manner
B. Enforce rules of business conduct on market participants
C. Ensure availability of shares and bonds to be traded by investors
D. Ensure that there is an efficient system for providing new financial information about companies to investors in the market
E. Provide a system for recording information about the prices at which shares are bought and sold and making them available to participants

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  • 1 Marks

BMF – MAY 2016 – L1 – SA – Q12 – Basics of Business Finance and Financial Markets

Multiple choice question on the functions of a stock exchange.

Which of the following is NOT a function of a stock exchange?

A. Provide a system in which shares can be traded in a regulated manner
B. Enforce rules of business conduct on market participants
C. Ensure availability of shares and bonds to be traded by investors
D. Ensure that there is an efficient system for providing new financial information about companies to investors in the market
E. Provide a system for recording information about the prices at which shares are bought and sold and making them available to participants

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  • 20 Marks

BMF – Nov 2020 – L1 – SB – Q6 – Basics of Business Finance and Financial Markets

Explanation of loan covenants, reasons and benefits for share repurchase, and features of a finance lease arrangement.

(a) For many loan agreements, the borrower is required to provide undertakings or guarantees of some kind.
Distinguish between covenants and guarantees. (5 Marks)

(b) State THREE reasons why a company will repurchase its shares and THREE benefits that will accrue to the company for doing so. (6 Marks)

(c) Companies can acquire assets with finance lease instead of buying assets with equity or debt capital.
State SIX main features of a finance lease arrangement. (9 Marks)

(Total 20 Marks)

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Calculate the present value of N12,000 received in one year at a 5% time preference rate.

Assuming a 5% time preference rate, what is the present value of N12,000 received one year from now?
A. N11,428.80
B. N11,539.90
C. N12,428.80
D. N12,539.90
E. N13,528.80

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q15 – Basics of Business Finance and Financial Markets

Identify why banks are considered important financial intermediaries.

Banks are important financial intermediaries because they:
A. Create new debt
B. Are the only source of debt finance
C. Are the only source of long-term finance
D. Operate between investors and borrowers
E. Take deposits from all their customers

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q12 – Basics of Business Finance and Financial Markets

Identify the term for strategies maximizing profits through innovative financial methods.

Strategies adopted by companies to maximize profits using innovative methods to compute the fair value of financial instruments is best described as:
A. Financial accounting
B. Financial engineering
C. Strategic financial management
D. Strategic management accounting
E. Strategic financial accounting

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q10 – Basics of Business Finance and Financial Markets

Calculate the amount to set aside annually to accumulate a sum for a car replacement in 5 years.

How much should Mr. Eaglet set aside at the end of each year to replace his motor car in 5 years’ time if the cost of a new car remains at ₦5 million and the rate of interest stays at 7% per annum?
A. N669,349.23
B. N779,349.23
C. N869,349.23
D. N979,349.23
E. N989,349.23

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

Calculate the present value needed to reach a lump sum in 5 years with compound interest.

Lokoson must pay a lump sum of N960,000 in 5 years. What amount deposited today at 5.8% compounded annually will make up the sum of money?
A. N724,200.36
B. N724,300.37
C. N725,200.36
D. N725,300.37
E. N725,300.37

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  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q8 – Basics of Business Finance and Financial Markets

Calculate the compound interest earned on a deposit over 11 years at 6.50%, compounded quarterly.

What is the amount of interest earned by a deposit of N414,000 for 11 years at 6.50% compounded quarterly?
A. N427,455
B. N427,467
C. N437,455
D. N437,467
E. N447,467

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You're reporting an error for "BMF – Nov 2020 – L1 – SA – Q8 – Basics of Business Finance and Financial Markets"

  • 1 Marks

BMF – Nov 2020 – L1 – SA – Q7 – Basics of Business Finance and Financial Markets

Calculate the simple interest rate for a 3-month loan.

Ronny wants to borrow N160,000 from his friend. He is willing to pay back N174,400 in 3 months. What simple interest rate will be applicable?
A. 34%
B. 35.5%
C. 36%
D. 36.5%
E. 37%

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You're reporting an error for "BMF – Nov 2020 – L1 – SA – Q7 – Basics of Business Finance and Financial Markets"

  • 1 Marks

BMF – MAY 2016 – L1 – SA – Q12 – Basics of Business Finance and Financial Markets

Multiple choice question on the functions of a stock exchange.

Which of the following is NOT a function of a stock exchange?

A. Provide a system in which shares can be traded in a regulated manner
B. Enforce rules of business conduct on market participants
C. Ensure availability of shares and bonds to be traded by investors
D. Ensure that there is an efficient system for providing new financial information about companies to investors in the market
E. Provide a system for recording information about the prices at which shares are bought and sold and making them available to participants

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You're reporting an error for "BMF – MAY 2016 – L1 – SA – Q12 – Basics of Business Finance and Financial Markets"

  • 1 Marks

BMF – MAY 2016 – L1 – SA – Q12 – Basics of Business Finance and Financial Markets

Multiple choice question on the functions of a stock exchange.

Which of the following is NOT a function of a stock exchange?

A. Provide a system in which shares can be traded in a regulated manner
B. Enforce rules of business conduct on market participants
C. Ensure availability of shares and bonds to be traded by investors
D. Ensure that there is an efficient system for providing new financial information about companies to investors in the market
E. Provide a system for recording information about the prices at which shares are bought and sold and making them available to participants

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