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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  • 1 Marks

BMF – Nov 2019 – L1 – SA – Q17 – Basics of Business Finance and Financial Markets-

Calculating the present value of a future amount with a given time preference rate

Assuming a 5% time preference rate, what is the present value of ₦12,000 received at the end of 15 years?
A. ₦3,772.00
B. ₦4,772.00
C. ₦5,772.00
D. ₦6,772.00
E. ₦7,772.00

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  • 1 Marks

BMF – Nov 2019 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Identifying the market where Treasury bills are traded

The market for Treasury bills is known as the:
A. Money market
B. Discount market
C. Financial system
D. Financial market
E. Intermediation market

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  • 1 Marks

BMF – Nov 2019 – L1 – SA – Q15 – Basics of Business Finance and Financial Markets

Identifying a management accounting function among finance functions

Which aspect of these finance functions is generally regarded as a management accounting function?
A. Ratio analysis
B. Budget preparation
C. Managing financial derivatives
D. Maintaining a good system of accounts
E. Setting of financial objectives and targets

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  • 1 Marks

BMF – Nov 2019 – L1 – SA – Q14 – Basics of Business Finance and Financial Markets

Calculating the future value of semi-annual savings with compound interest

Larry wishes to save money towards his new-born daughter’s wedding. He intends to save ₦50,000 on the first day of every 6 months for 18 years, starting immediately. The account pays interest of 6% compounded semi-annually. What will be the balance on the account at the end of 18 years?
A. ₦3,258,748.33
B. ₦4,368,748.34
C. ₦5,278,748.33
D. ₦6,588,748.33
E. ₦6,788,748.33

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  • 1 Marks

BMF – Nov 2019 – L1 – SA – Q13 – Basics of Business Finance and Financial Markets

Calculating the present value of a future amount with compounded interest

What is the present value of N10 million in 8 years, if money could be deposited at 6.5% compounded quarterly?
A. N15.73 million
B. N16.75 million
C. N17.73 million
D. N18.75 million
E. N19.46 million

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  • 20 Marks

BMF – May 2017 – L1 – SB – Q5 – Basics of Business Finance and Financial Markets

Preparation of a cash budget for XYZ Automobiles Nigeria Limited for the three months ending March 31, 2017.

The following projections relate to XYZ Automobiles Nigeria Limited.

Month Sales (N) Purchases (N) Wages (N) Overheads (N)
November 2016 400,000 204,000 76,000 38,000
December 2016 420,000 200,000 76,000 42,000
January 2017 460,000 196,000 80,000 46,000
February 2017 500,000 200,000 84,000 48,000
March 2017 600,000 216,000 90,000 50,000

Additional information:

  1. Cash balance on January 1, 2017, is expected to be N80,000.
  2. A plant will be installed in November 2016 at a cost of N1,000,000 and the monthly installment of N50,000 is payable from January 2017.
  3. A sum of N30,000 will be paid as dividends in the month of March 2017.
  4. Company income tax of N45,000 will be due for payment in March 2017.
  5. Advance payment of N800,000 in respect of a sale of a truck will be received in March 2017.
  6. In line with the company’s policy, 50% of sales are on a cash basis. 50% of credit sales are collected in the month immediately following the month of sales while the balance is paid a month after the payment of the first installment.
  7. All purchases are on credit and the creditors are paid fully two months after the month of purchase.
  8. Wages and overheads are paid as and when due.

Required:

Prepare a cash budget for each of the THREE months ending March 31, 2017.

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  • 1 Marks

BMF – Nov 2019 – L1 – SA – Q12 – Basics of Business Finance and Financial Markets

Calculating the annual compound interest rate from accumulated savings

Suppose Bonde invested N240,000 in a savings account that paid interest twice in a year. After 8 years, the money had accumulated to N380,980. What was the annual compound interest rate?
A. 3.64%
B. 4.75%
C. 5.86%
D. 6.65%
E. 6.76%

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  • 1 Marks

BMF – Nov 2019 – L1 – SA – Q11 -Basics of Business Finance and Financial Markets

Calculating the compound amount for a deposit using compound interest

Suppose N1 million is deposited in a money deposit bank that is paying 7.5% interest per annum compounded annually. What will be the compound amount at the end of the third year?
A. N1,242,300
B. N1,243,400
C. N1,344,500
D. N1,345,600
E. N1,446,700

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  • 1 Marks

BMF – Nov 2019 – L1 – SA – Q10 – Basics of Business Finance and Financial Markets

Calculating the interest due on a loan using simple interest

Jeta borrowed N800,000 at 6% simple interest for 7 months. What is the value of interest due at the end of the period?
A. N25,000
B. N26,000
C. N27,000
D. N28,000
E. N29,000

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  • 1 Marks

BMF – Nov 2019 – L1 – SA – Q5 Basics of Business Finance and Financial Markets-

Identifying an incorrect function of the treasury department

The functions of the treasury department include the following EXCEPT:
A. Managing cash flow
B. Budgeting and forecasting
C. Investment management
D. External auditing
E. Risk management

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