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Sharma traders wants to borrow Rs. 10 lakhs for 3 years, for his business
requirements. He approached 3 banks who quoted him 3 different rates, with
different compounding.
Find out which one would be the best choice for Sharma traders.
Option 1 SYM Bank
Option 2 AVG Bank
Option 3 IDNC Bank
Option 4 IDNC and AVG Both will cost same
Bank
IDNC Bank
Solution AVG Bank
SYM Bank
Out of the three options, least interest is paid in case of SYM bank.
Initial outlay
Solution
After 1 year
Solution Interest Rate
Present Value (2180000/((1+0.1)^1))
NPV (Present Value - Initial Outlay)
Saurabh has bought a life insurance endowment policy for 15 years. He has to
pay an annual premium of INR 60,000 for 15 years. He will receive INR 15
lakhs on maturity. He will also receive INR 20,000 after every 4 years, as 'cash
4 back' bonus. What returns will he get on this policy? If he is getting an interest
of 9% on other investment avenues, will it be advisable for him to go for this
insurance policy? Note: Saurabh wants to use insurance as a pure investment
product.
Option 1 No, as he will get a return of 7.80% on insurance policy
Option 2 No, as he will get a return of 7.92% on his insurance policy
Option 3 Yes, as the return he will get, is 9.8%
Option 4 Yes, as the return he will get, is 8%
Year
1
2
3
4
5
6
7
8
9
Solution 10
11
12
13
14
15
IRR
Since IRR is less than 9%, NPV for this investment at a discount rate of 9% (the alternative
investment) would be negative and Saurabh should not invest in insurance policy.
You have bought shares of Infosys at a price of Rs. 3200. You are exposed to
5
market risk. Now, what can you infer from this?
Option 1 You may incur losses due to change in share price.
Option 2 You may incur losses due to change in market interest rates.
Option 3 You may incur losses due to change in exchange rates.
Option 4 You may incur losses due to change in brokerage rates charged by brokers.
If prices fall below the purchased price, you will incur loss. This is known as
Solution
equity risk/market risk.
Following are the returns of 4 stocks, for the past five years. Manoj, an
investor, wants to invest in a stock which will give him good returns with
minimum risk. Can you suggest in which of the following stocks, should Manoj
invest?
Option 1 Stock A
Option 2 Stock B
Option 3 Stock C
Option 4 Stock D
Solution
Year 1
Year 2
Year 3
Year 4
Year 5
Average
Standard Deviation
Bank will credit its 'interest income' account and a corresponding debit entry
Option 1
will be made, in the 'interest receivable' account.
The bank will not make any accounting entry until Megha actually starts
Option 2
repaying.
When Megha pays, the bank will credit 'interest receivables' account and debit
Option 3
cash account.
The bank will credit its 'interest income' account yearly, and a corresponding
Option 4
debit entry will be made in Megha's loan account.
Bank will create a suspense account for interest receivables till the time Megha
starts repaying.
So, in order to show the interest income annually, Bank will credit the interest
Solution
income account and debit the interest receivables account.
After Megha starts repaying, Bank will make the nullifying credit entry in
interest receivable account and debit the cash account.
AXM Ltd., a software company, has bought computers worth Rs. 20 Lakhs. The
9 payment was made through a cheque. What will be the effect in the books of
AXM Ltd.?
Bank account- Credited,
Option 1
Fixed Assets - Debited
Bank account- Debited,
Option 2
Fixed Assets - Credited
Bank account- Debited,
Option 3
Fixed Assets - Debited
Bank account- Credited,
Option 4
Fixed Assets - Credited
10
RM jewelers sold jewelry worth INR 40 lakhs, out of which 50% was sold on
credit, in the last quarter. It has reported depreciation of INR 2 lakhs for this
11
quarter. PAT for this period was 5 lakhs. Calculate the cash balance of RM
jewelers, assuming no other transactions and zero opening balance.
Option 1 (- INR 13 lakhs)
Option 2 (-INR 23 lakhs)
Option 3 INR 27 lakhs
Option 4 INR 23 lakhs
PNG Bank has total assets of INR 20,000 crore reported in the last fiscal year.
This year, PNG bank earned a net profit of 1000 crores, while their interest
12
expense was 2000 crores. What would be the total assets for this fiscal year for
PNG Bank, assuming no other additions/reductions?
Option 1 INR 21,000 cr
Option 2 INR 18,000 cr
Option 3 INR 20,000 cr
Option 4 INR 23,000 cr
Profit of INR 1000 cr will be added in owner's equity, therefore, total liabilities
will increase by 1000 cr, on the asset side, this will reflect either in the cash
account or the receivables account. So, total assets will also increase by the
same amount.
Solution
Interest Payable
CI= [P*(1+r/m)^mt] - P
380746.0173
378842.8068
378749.897
-2000000
2180000
10%
1981818.18
-18181.82
Cash Flows
-60000
-60000
-60000
-40000
-60000
-60000
-60000
-40000
-60000
-60000
-60000
-40000
-60000
-60000
1440000
7.805%
of 9% (the alternative
rance policy.
Stock A Stock B Stock C Stock D
18% 14% 17% 9%
15% 11% 22% 10%
16% -5% -9% 8%
11% 9% 23% 10%
5% 20% 13% 7%
13% 10% 13% 9%
0.051 0.093 0.130 0.012
440
200.5
67.3
7.5
2.5
167.2
3.4
163.8
41.8
122.00