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 – Mar July 2020 – L1 – SA – Q10 – Basics of Business Finance and Financial Markets

Calculating the fixed annual savings required to replace a machine in 7 years.

Question

Fattie Limited wishes to make some savings to replace an existing machine with a better model at a cost of ₦10,000,000 in 7 years’ time. Assuming that the current rate of interest is 9% per annum, what fixed annual amount must the company set aside at the end of each year to achieve its target?
A. ₦1,053,926.50
B. ₦1,064,956.50
C. ₦1,075,926.52
D. ₦1,086,956.52
E. ₦1,093,926.50

Answer

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Tags: Compound Interest, Financial planning, Savings
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAR/JULY 2020

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

Calculating the effective interest rate for an account with quarterly compounding.

Question

What will be the effective rate for an account that pays 8% compounded quarterly?
A. 5.21%
B. 6.24%
C. 7.21%
D. 8.24%
E. 9.21%

Answer

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

Topic: Basics of Business Finance and Financial Markets
Series: MAR/JULY 2020

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

Calculating interest earned on a deposit with compound interest.

Question

What is the amount of interest earned on a deposit of N245,000 for 8.5 years at 5.50% compounded semi-annually?
A. N123,570
B. N133,680
C. N143,570
D. N153,680
E. N155,680

Answer

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

Topic: Basics of Business Finance and Financial Markets
Series: MAR/JULY 2020

BMF – Mar July 2020 – L1 – SA – Q6 – Basics of Business Finance and Financial Markets

Identifying a non-approach in management science.

Question

Which of the following is NOT an approach used in management science?
A. Mathematical models
B. Statistical methods
C. Behavioral techniques
D. Linear programming
E. Critical path analysis

Answer

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Tags: Analytical Methods, Management Science, Operations Research
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAR/JULY 2020

BMF – May 2024 – L1 – SB – Q5c – Basics of Business Finance and Financial Markets

Explanation of the disadvantages of Management by Objective (MBO).

Question

c. State TWO disadvantages of Management by Objective (MBO). (4 Marks)

Answer

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Tags: Disadvantages, Management, Management by Objectives, MBO
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2024

BMF – May 2024 – L1 – SB – Q3c – Basics of Business Finance and Financial Markets

Benefits and limitations of retaining profits in a business and reasons for limiting earnings retention.

Question

c. When companies retain profits in the business, the increase in retained profits adds to equity reserves.
i. Explain TWO benefits of retaining profits in the business. (4 Marks)
ii. Explain THREE reasons why there could be a limit to the amount of earnings available for retention. (6 Marks)

Answer

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Tags: Earnings, Equity, Financial management, Retained Profits
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2024

BMF – May 2024 – L1 – SB – Q2a – Basics of Business Finance and Financial Markets

Explanation of financial engineering, bond markets, and financial concepts.

Question

a. Briefly explain the term “Financial engineering”. (3 Marks)

b. Describe the relationship between financial accounting and management accounting. (4 Marks)

c. State FIVE examples of Nigerian bond markets hosted by the Nigerian Exchange Limited (NGX). (5 Marks)

d. Explain briefly the following financial concepts:
i. Certificate of deposits (CDS);
ii. Commercial paper (CP);
iii. Treasury bills (TB);
iv. Banker’s acceptances (BAs). (8 Marks)

Answer

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Tags: Accounting, Bond Markets, Financial Concepts, Financial Engineering
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2024

BM – May 2024 – L1 – SA – Q20 – Basics of Business Finance and Financial Markets

Understanding the terminology used for the difference between assets and liabilities in nonprofit organizations.

Question

The difference between the assets and liabilities of a not-for-profit organization is called:
A. Net asset
B. Net liability
C. Accumulated fund
D. Working capital
E. Net capital

Answer

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Tags: Business Finance, Financial Accounting, Nonprofit Organizations
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2024

BMF – May 2024 – L1 – SA – Q19 – Basics of Business Finance and Financial Markets

Understanding the role of the statement of changes in equity in financial reporting.

Question

What role does the statement of changes in equity play in a company’s financial reporting and decision-making?
A. It helps in assessing a company’s non-current assets and depreciation methods
B. It provides a detailed breakdown of a company’s cash flows from operating, investing, and financing activities
C. It presents a summary of a company’s equity transactions, aiding stakeholders in understanding financial performance and ownership changes over time
D. It shows the company’s income and expenses, enabling stakeholders to evaluate profitability and cash generation
E. It outlines a company’s long-term debt obligations and interest expense, assisting stakeholders in assessing capital structure and financial stability

Answer

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Tags: Business Decisions, Equity, Financial Reporting
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2024

BMF – May 2024 – L1 – SA – Q18 – Basics of Business Finance and Financial Markets

Identifying what a receipt and payment account represents in accounting.

Question

What does a receipt and payment account represent in accounting?
A. A summary of cash receipts and payments, including both accruals and cash transactions
B. A summary of cash receipts and payments during the accounting period, without considering accruals
C. A record of all revenue transactions in the accounting period, irrespective of cash inflows or outflows
D. A record of all capital transactions, including cash receipts and payments, during the accounting period
E. A record of all non-cash transactions in the accounting period, excluding cash receipts and payments

Answer

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Tags: Accounting, Financial Statements, Receipt and Payment Account
Level: Level 1