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.

Question

(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)

Answer

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Tags: Corporate finance, Finance lease, Guarantees, Loan Covenants, Share repurchase
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

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.

Question

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

Answer

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Tags: Financial Calculations, Present Value, Time Preference Rate
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

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

Identify why banks are considered important financial intermediaries.

Question

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

Answer

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Tags: Banking, Financial Intermediaries, Investment
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

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

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

Question

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

Answer

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Tags: Financial Engineering, Financial instruments, Profit Maximization
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

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.

Question

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

Answer

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Tags: Annuities, Financial planning, Future Value, Savings
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

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.

Question

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

Answer

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Tags: Compound Interest, Lump Sum, Present Value, Time value of money
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

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.

Question

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

Answer

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Tags: Compound Interest, Financial Mathematics, Investment
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

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

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

Question

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%

Answer

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Tags: Interest Rate, Loan Repayment, Simple Interest
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

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

Multiple choice question on the functions of a stock exchange.

Question

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

Answer

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Tags: Financial Markets, Securities Trading, Stock Exchange
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2016

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

Multiple choice question on the functions of a stock exchange.

Question

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

Answer

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Tags: Financial Markets, Securities Trading, Stock Exchange
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2016

BMF – Nov 2022 – L1 – SB – Q3 – Basics of Business Finance and Financial Markets

Candidates are required to prepare a monthly cash budget for a three-month period based on the data provided for Homom Nigeria Limited.

Question

The following information was extracted from the books of Homom Nigeria Limited.

Months	Sales (₦’000)	Materials (₦’000)	Wages (₦’000)	Overheads (₦’000)
February	40,000	20,400	7,600	3,800
March	42,000	20,000	7,600	4,200
April	46,000	19,600	8,000	4,600
May	50,000	20,000	8,400	4,800
June	60,000	21,600	9,000	5,000

Additional details regarding payments, credit sales, machine installation, and dividends are provided.

Required:
Prepare a monthly cash budget for the three months ending June 2022. Show your workings. (20 Marks)

Answer

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Tags: Cash Budget, Machine Installation, Overheads, Sales Collection
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2022

BMF – Nov 2022 – L1 – SB – Q2 – Basics of Business Finance and Financial Markets

This question involves defining corporate objectives and explaining key financial objectives, expectations from banks, and NPV method disadvantages.

Question

Organisations formulate financial plans and policies to guide financial managers on how to make effective financial decisions.

Required:
a. Define the term “Corporate Objective” and explain the THREE commonly used financial objectives in most companies. (10 Marks)
b. State THREE expectations of a bank on how a company should use its overdraft facility. (6 Marks)
c. State TWO disadvantages of the Net Present Value (NPV) method. (4 Marks)

Answer

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Tags: Corporate Objective, Financial Decisions, Net Present Value, Overdraft Facility
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2022

BMF – Nov 2022 – L1 – SA – Q19 – Basics of Business Finance and Financial Markets Basics of Business Finance and Financial Markets

This question asks which factor increases shareholders' wealth alongside dividends.

Question

Shareholders’ wealth could be increased by dividend payments and:
A. Profitability
B. High share price
C. Interest
D. Surplus
E. Productivity

Answer

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Tags: Dividend, Financial management, Shareholders' Wealth
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2022

BMF – Nov 2022 – L1 – SA – Q18 – Basics of Business Finance and Financial Markets

This question tests understanding of the purpose of a sinking fund.

Question

A fixed sum of money set aside by an organization at regular intervals to achieve a specific sum at some future point in time is called:
A. Savings
B. Sinking fund
C. Investment
D. Strategic management
E. Loan notes

Answer

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Tags: Financial management, Investment, Sinking Fund
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2022

BMF – Nov 2022 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

This question asks about periodic payments of equal amounts.

Question

A series of regular periodic payments of equal amount is called:
A. Interest payments
B. Sinking funds
C. Compound interest
D. Simple interest
E. Annuity

Answer

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Tags: Annuity, Financial instruments, Regular payments
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2022

BMF – Nov 2022 – L1 – SA – Q8 – Basics of Business Finance and Financial Markets

This question asks about the concept of perpetuity in finance.

Question

A constant annual cash-flow to infinity is called:
A. Perpetuity
B. Sinking funds
C. Compound interest
D. Loan
E. Annuity

Answer

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Tags: Cash Flows, Financial instruments, Perpetuity
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2022

BMF – Nov 2022 – L1 – SA – Q7 – Basics of Business Finance and Financial Markets

This question asks about the method of issuing new shares to selected investors.

Question

A method of issuing new shares to a relatively small number of selected investors is called:
A. Rights issue
B. Public offer
C. Placing
D. Initial offer
E. General offer

Answer

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Tags: Corporate finance, Issuing shares, Placing, Public offer
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2022

BMF – Nov 2022 – L1 – SA – Q6 – Basics of Business Finance and Financial Markets

This question tests knowledge of financial problem-solving techniques.

Question

The use of mathematical techniques to solve financial problems is called:
A. Financial mathematics
B. Financial engineering
C. Financial accounting
D. Management accounting
E. Financial management

Answer

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Tags: Financial Mathematics, Problem solving, Techniques
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2022

BMF – May 2021 – L1 – SA – Q19 – Basics of Business Finance and Financial Markets

Determines which option is not a source of long-term funds for a public limited liability company.

Question

Which of the following is NOT a source of long-term funds for a public limited liability company?
A. Retained earnings
B. Bonus issue
C. Rights issue
D. Initial public offer (IPO)
E. Further offer

Answer

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Tags: Finance Sources, Long-Term Funds, Public Limited Companies
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2021

BMF – May 2021 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Determines the effective rate for an account that pays 9.0% interest compounded monthly.

Question

What is the effective rate for an account that pays 9.0% compounded monthly?
A. 9.18%
B. 9.28%
C. 9.38%
D. 9.48%
E. 9.58%

Answer

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Tags: Compounded Interest, Effective Rate, Financial Calculations
Level: Level 1