Paper 1

QUESTION 1 (10 MARKS)

Number 1 Equities issued by a large, well established company

Number 5 Bonds issued by a start-up company

Number 3 Roulette Wheel at the casino

Number 4 Equities issued by a start-up

QUESTION 2
Which of the following is the most accurate about investment banks?

a. They support with large scale capital raising for corporates starting from around $5
million and upwards to around £100 billion. The investment bank will provide advice
to a business looking to raise long-term finance. Capital could be raised in the form of
DEBT or EQUITY. The banks will EXECUTE THE DEAL, if the business decides to
act upon the advice given. They will organise all the paper work and market the deal to
potential investors.

b. This term is mainly used in the US. In the US it encompasses all banks that engage
in attracting deposit and giving out loans. In other countries “Investment bank” bank
may refer solely to banks who provide such services to businesses only (not
individuals). This is also known as Investment banking, since the bank is mainly
dealing with corporate entities.

c. Provide services to retail customers , Banks that provide these customers with services
are known as retail banks. The purpose of the bank is to attract deposits from savers
and lend to borrowers.

d. Banks that specialise in taking deposits and providing loans to businesses and
individuals. In parts of the world outside the US, these are often referred to as
commercial banks and can also provide M $ A.

QUESTION 3 (2 MARKS)
Which of the following is the most accurate about payday loans?

a.
It is a very short-term loan, It needs to be repaid on the borrower’s next payday (usually by the
end of the month), Such loans are often very expensive.

b.
It is a very short-term loan, It needs to be repaid on the borrower’s next payday (usually by the
end of the month), such loans are often very expensive They are extent in exchange for an asset
that is used as a security.

c.
It is a very short term loan, It needs to be repaid on the borrower’s next payday (usually by the
end of the month), such loans are often very inexpensive They are extent in exchange for an
asset that is used as a security.

d.
It is a long-term loan, such loans are often very inexpensive They are extent in exchange for
an asset that is used as a security.

QUESTION 4 (2 MARKS)
Which one of the following is the most accurate about commercial banks?

a.
This term is mainly used in the US. In the US it encompasses all banks that engage in attracting
deposit and giving out loans. In other countries this types of banks may refer solely to banks
who provide such services to businesses only (not individuals).

b.
Individuals are retail customers , Banks that provide these customers with services are known
as retail banks. The purpose of the bank is to attract deposits from savers and lend to borrowers.

c.
Banks that specialise in taking deposits and providing loans to businesses. In parts of the world
outside the US, these are often referred to as commercial banks. These types of banks can also
provide advice on mergers and acquisitions.

d.
They support with large scale capital raising for corporates starting from around $5 million and
upwards to around £100 billion. The investment bank will provide advice to a business looking
to raise long-term finance. Capital could be raised in the form of DEBT or EQUITY. The banks
will EXECUTE THE DEAL, if the business decides to act upon the advice given. They will
organize all the paper work and market the deal to potential investors.

QUESTION 5 (2 MARKS)
Which one of the following is the most precise function of the central banks in the UK?

a.
They are bankers to the government, banker to the banking system, Manages the UK foreign
exchange and gold reserves , and regulate other banks , they set interest rates in the country.

b.
They are bankers to the government, banker to the banking system, Manages the UK foreign
exchange and gold reserves , and regulate other banks , they set interest rates, manage the
National Debt (This is the Debt Management Office in the UK), provide a depositors protection
scheme (This is the Financial Service Compensation Scheme in the UK)

c.
They are banker to the banking system, Manages the UK foreign exchange and gold reserves ,
and regulate other banks , they set interest rates, manage the National Debt (This is the Debt
Management Office in the UK), provide a depositors protection scheme (This is the Financial
Service Compensation Scheme in the UK)

d.
They are bankers to the government, banker to the banking system, they regulate other banks ,
they set interest rates, manage the National Debt (This is the Debt Management Office in the
UK), provide a depositors protection scheme (This is the Financial Service Compensation
Scheme in the UK)

QUESTION 6 (2 MARKS)
Which one of the following statement is the most accurate about an overdraft?

a.
It is a Flexible, able to be drawn, repaid, drawn again up to the overdraft limit. At a variable
rate of interest. An arrangement fee may also be payable. It is an unsecured and repayable on
demand.

b.
It is a Flexible, able to be drawn, repaid, drawn again up to the overdraft limit. At a fixed rate
of interest. An arrangement fee may also be payable. It is an unsecured and repayable on
demand

c.
It is a Flexible, able to be drawn, repaid, drawn again up to the overdraft limit. At a fixed rate
of interest. An arrangement fee may also be payable. It is an secured and repayable on demand,
the client can be given 14 days.

d.
It is an Flexible, able to be drawn, repaid, drawn again up to the overdraft limit. At a fixed rate
of interest. An arrangement fee may also be payable if the court allows so. It is an secured and
repayable on demand, the client can be given 14 days.

QUESTION 7 (2 MARKS)
Which one of the following statement is the most accurate about bank loans?

a.
A form of debt where a borrower receives a certain amount from a lender, in this case a
bank. The borrower agrees to pay a contracted rate of interest to the lender and also agrees a
date on which the loan will be repaid. It is issued for a period less than 5 years and it is
unsecured.

b.
A form of debt where a borrower receives a certain amount from a lender, in this case a
bank. The borrower agrees to pay a contracted rate of interest to the lender and also agrees a
date on which the loan will be repaid. It is a secured type of a loan. It is issued for a period
less than 5 years and it is unsecured

c.
A form of debt where a borrower receives a certain amount from a lender, in this case a
bank. The borrower agrees to pay a contracted rate of interest to the lender and also agrees a
date on which the loan will be repaid. It is an unsecured type of a loan. It can be issued for
more than 5 years.

d.
A form of debt where a lender receives a certain amount from a borrower, in this case a
bank. The borrower agrees to pay a contracted rate of interest to the lender and also agrees a
date on which the loan will be repaid. It is issued for a period less than 5 years and it is
unsecured.
QUESTION 8 (2 MARKS)
Which one of the following statements is the most accurate about credit cards lending?

a.
It is flexible, able to be used up to the credit limit, at a variable rate of interest, which tends to
be expensive, repayments of at least a minimum amount are required monthly, it is
an unsecured lending.

b.
It is flexible, able to be used up to the credit limit, at a fixed rate of interest, which tends to be
expensive, repayments of at least a minimum amount are required monthly, it is a secured
lending.

c.
It is flexible, able to be used up to the credit limit, at a variable rate of interest, which tends to
be expensive, repayments of at least a minimum amount are required monthly, it is a secured
lending.

d.

It is inflexible, able to be used up to the credit limit, at a fixed rate of interest, which tends to
be cheaper, repayments of at least a minimum amount are required monthly, it is a secured
lending.

QUESTION 9 (2 MARKS)
The central bank in the UK (the Bank of England) increases interest rates. What will happen
to the price of UK government bonds?

a.
All of the provided answers are wrong

b.
An increase in interest rates means that bond yields need to increase too, to keep them less
attractive to investors. The decrease in bond yields is generated by the prices of those bonds

c.
An increase in interest rates means that bond yields need to increase, to keep them less
attractive to investors. The increase in bond yields is generated by the decline in the prices of
those bonds especially when the equities are low

d.
An increase in interest rates means that bond yields need to decrease, to keep them attractive
to investors. The decrease in bond yields is generated by the prices of those bonds

e.
An increase in interest rates means that bond yields need to increase too, to keep them attractive
to investors. The increase in bond yields is generated by the prices of those bonds
falling.

QUESTION 10 (2 MARKS)
The European Central Bank decreases interest rates in the eurozone. What is likely to
happen to the bond prices of German and French government bonds? Select the accurate
answer from below:

a.
When interest rates, in general go down, bondholders are willing to refuse a lower return when
they buy bonds, so the price of the bonds will go dowq. This brings about a rise in yield.

b.
When interest rates, in general go down, bondholders are willing to accept a lower return when
they buy bonds, so the price of the bonds will go up. This brings about a fall in yield.

c.
When interest rates in general go down, bondholders are willing to defer selling the bonds, so
the price of the bonds will go down. This brings about a fall in yield.

d.
When interest rates in general go down, bondholders are willing to accept a higher return when
they sell bonds, so the price of the bonds will go up. This brings about a fall in yield.

e.
When interest rates in general go down, bondholders are willing to accept a lower return when
they buy bonds, so the price of the bonds will go down. This brings about a rise in yield.

QUESTION 11 (1 MARKS)
What is the Home of a DAX index?
QUESTION 1Answer

a.
Germany

b.
Japan

c.
Italy

d.
UK

e.
US

QUESTION 12 (2 MARKS)
What is the home of the Hang Seng?

a.
The greater Asia

b.
Japan

c.
none of the provided answers is correct

d.
US

e.
China

QUESTION 13 (2 MARKS)
What is the home of S & P?

a.
UK

b.
UK

c.
France

d.
Italy

e.
US

QUESTION 14 (2 MARKS)
Which one of the following is the benefit of Benefits of Funds?

a.
Syndication, Pooling of liquidity, access to expertise and diversification.

b.
Syndication, Pooling of credit, access to expertise and diversification

c.
Pooling of funds, Diversification, Access to expertise

d.
All of the provided answers are inaccurate

e.
Syndication, Pooling of credit, access to expertise, reinsurance and diversification

QUESTION 15 (2 MARKS)
Dividends can be expressed as a percentage of the share price

True
False

QUESTION 16 (2 MARKS)
A secondary market is a market in which newly issued securities are traded.

True
False
QUESTION 17 (2 MARKS)
An investor receives capital gains on an share investment if the price of a share falls

True
False

QUESTION 18 (2 MARKS)
An IPO is applicable for the secondary market

True
False

QUESTION 19 (2 MARKS)
Bonds can be treaded on the stock exchanges

True
False

QUESTION 20 (2 MARKS)
Dividends are calculated based on interest rate prevailing in the market

True
False

QUESTION 21 (2 MARKS)

Equity holders are the last to be paid in a case of bankrupcy

True
False

QUESTION 22 (3 MARKS)
Peter is a South African farmer who intends to buy a tractor from the US. The tractor cost is
USD 90,000.00; assume the exchange rate between the USD and Rand is USD: ZAR 1: 19.
How much will the tractor cost Peter in rands?

QUESTION 23 (3 MARKS)
Lebogang is a Farmer based in Botswana. He intends to buy cow feed from South Africa. The
price of the feed is R120,000.00. Assume the exchange rate between the Pula and the Rand is
Pula: Rands : P1: ZAR 5. Determine the price of cow feed in Pulas.
QUESTION 24 (3 MARKS)
Leonard intends to invest R150,000.00 for three years when the market rate is 22%. Using
simple interest rate, determine how much the investment will be at maturity.

QUESTION 25 (3 MARKS)
Mapika has 12,000.00 dollars in his account after travelling to the US. If the exchange rate
between the US and Rand is as follows: USD: ZAR 1: 12, indicate how much he will have in
Rands after the conversation.

QUESTION 26 (3 MARKS)

What is the effective annual rate of 10 percent compounded semi-annually? The answer
is............Percent

QUESTION 27 (3 MARKS)

What will be the compounded interest of R2,500.00 at 4% for 2 years?

QUESTION 28 (3 MARKS)

The Kobe family would like to take a trip to the US from South Africa. There are eight members
in the family. The price of one ticket is USD 10,000.00. Assume the exchange rate between the
USD and the Rand is USD: ZAR = 1: 20. Determine the total cost of the family's flight tickets.