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 – May 2021 – L1 – SA – Q15 – Basics of Business Finance and Financial Markets

Calculates the simple interest rate Blake will pay when borrowing N120,000 from Jerry and repaying N127,000 in 3 months.

Question

Blake wants to borrow N120,000 from Jerry. Blake is willing to pay back N127,000 in 3 months, what simple interest rate will he pay?
A. 21.33%
B. 22.33%
C. 23.33%
D. 24.33%
E. 25.33%

Answer

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Tags: Financial Calculations, Interest Rate, Simple Interest
Level: Level 1

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

BMF – May 2021 – L1 – SA – Q14 – Basics of Business Finance and Financial Markets

Calculates the simple interest on a loan of N150,000 at 6% p.a. for 18 months.

Question

Brown borrowed N150,000 at 6% p/a simple interest for 18 months, what is the value of interest due at the end of the period?
A. N13,200
B. N13,500
C. N13,800
D. N14,000
E. N14,200

Answer

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Tags: Financial Calculations, Loan Repayment, Simple Interest
Level: Level 1

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

BMF – Nov 2023 – L1 – SB – Q6 – Basics of Business Finance and Financial Markets

Discuss economic stagnation, macroeconomic policy approaches, operations research techniques, and safeguards in accounting.

Question

a. Briefly explain the concept “Economic stagnation.” (2 Marks)

b. State the THREE policy approaches used by governments to meet macroeconomic objectives. (3 Marks)

c. List and explain briefly FOUR operations research techniques. (8 Marks)

d. Safeguards are actions or other measures that may eliminate threats or reduce them to an acceptable level. Explain SEVEN safeguards created by the Profession in this regard. (7 Marks)

Answer

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Tags: Economic Stagnation, Macroeconomics, Operations Research Techniques, Safeguards
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2023

BMF – Nov 2023 – L1 – SB – Q5b – Basics of Business Finance and Financial Markets

explain difficulties in accounting for sustainable development.

Question

Sustainable development has been defined as the “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” A problem with accounting for sustainable development is to identify what “sustainable development” actually means.

Identify FOUR practical difficulties with this definition. (10 Marks)

Answer

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Tags: Sustainable Development
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2023

BMF – Nov 2023 – L1 – SB – Q5a – Basics of Business Finance and Financial Markets

Discuss non-financial considerations in make-or-buy decisions

Question

Managers think about non-financial issues as well as financial issues when making outsourcing decisions.

i. Explain SIX non-financial considerations that will be relevant to a make-or-buy decision. (6 Marks)

ii. Describe with the aid of an example in each case, two non-financial benefits from outsourcing work to an external supplier. (4 Marks)

Answer

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Tags: Make or buy decision, Non-Financial Considerations, Outsourcing
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2023

BMF – May 2023 – L1 – SA – Q19 – Basics of Business Finance and Financial Markets

Identify an option that is not an example of money market transactions and instruments.

Question

Which of the following is NOT an example of money market transactions and instruments?

A. The interbank market
B. Treasury bills
C. Certificates of Deposit
D. The repo market
E. Bank deposits

Answer

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Tags: Banking, Financial instruments, Money market, Short-term Financing
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2023

BMF – May 2023 – L1 – SA – Q18 – Basics of Business Finance and Financial Markets

Identify the term used for separating risk and return characteristics from individual investment decisions.

Question

Separating the risk and return characteristics of market investments from the individual investment decisions is known as (the):

A. Risk transformation
B. Separation Theorem
C. Financial intermediation
D. Maturity transformation
E. Amortisation

Answer

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Tags: Financial Theory, Investment decisions, Separation Theorem
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2023

BMF – May 2023 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Identify a financial decision that can impede organizational objectives.

Question

Which of the following financial decisions can impede the achievement of organisational objectives?

A. Investing short-term cash surpluses
B. Rewarding equity holders appropriately
C. Protecting the organisation against financial risks
D. Financing long-term expenditure with short-term sources of funds
E. Maintaining a balance between long-term and short-term finance

Answer

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Tags: Financial Decisions, Long-term Financing, Organizational Objectives, Short-term Financing

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2023

BMF – Nov 2019 – L1 – SB – Q5c – Basics of Business Finance and Financial Markets

State and explain three approaches to measuring and evaluating team performance.

Question

(c) Measuring and evaluating team performance is essential, especially in a system that rewards success.
State the THREE basic approaches to measuring and evaluating team performance and explain any TWO of the approaches. (6 Marks)

Answer

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Tags: Effectiveness, Evaluation, Measurement, Team Performance
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2019

BMF – Nov 2019 – L1 – SA – Q20 – Basics of Business Finance and Financial Markets

Identifying a short-term funding source that is not used for long-term financing of public limited companies

Question

Public limited liability companies (Plc) obtain funds from a variety of sources. Which of the following is NOT a source of long-term funds for a public limited liability company?
A. Public offer
B. Commercial paper
C. Rights issue
D. Offer for Sale
E. Retained earnings

Answer

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Tags: Financing, Long-Term Funding, Public Companies
Level: Level 1