Finance Answers

Qno # 1 You are a CEO of a company and your company wants to invest $100,000 for the period of five years. One bank name HBL offers interest rate of 5% for the period of 5 years. While other bank name ABL offers the compound interest rate of 4% semi-annually. Being CEO of company what will be your decision either you will invest in HBL or ABL based on the future value of money.

Your firm buys a new equipment for Rs. 80,000. It will give your firm annual savings of Rs. 27,000, for six years, with zero salvage value. It is to be depreciated by the SL method over four years, with placement at the start of the first year. Tax rate will be 12%. However, you decide to sell it early at the end of the third year, for Rs. 23,000. Calculate the after-tax IRR for this?

Determine the after-tax real interest rate, when tax rate is 40%, the real interest rate before tax is 2% and the inflation rate is 8% .

Question 1

a.define the teems expansionary and contractionary monetary policies (10marks)

b.discuss the key motives or damand for money according to the Keynesian theory of demand.(9marks)

c.what are the main roles of the central bank? (9marks)

d.what are the key demerits of the barter system of exchange? (6marks)

e.what are the main determinants of velocity of circulation of money? (6marks)

Question 2

a.discuss four tools used in monetary policy.what is their role and importance? (12marks)

b.what is meant by the financial system in an economy? (4marks)

c.who are the main players in the Zambian financial system? (4marks)

Question 3

a.discuss the origins of money as well as its qualities. (10marks)

b.What are the functions of money? (6marks)

c.define the meaning of real value and official value of money. (4marks)

Question 4

a.discuss the main tenets of the quantity theory of money. (10marks)

b.what is the near money, also known as quasi-money? (4marks)

c.broad money is said to have benefits for decision makers. What benefits does the use or this measure provide? (6marks)

Question 5

a. The IS-LM curve model emphasizes the interaction between the goods and money markets .discuss in detail  (12marks)

b. What is meant by money market equilibrium in relation to the LM curve? (6marks)

c. What is meant by the term liquidity? (2marks)

Question 6

a. Discuss what qualitative and quantitative controls are in monetary policy. (8marks )

b. what role do interest rates play in the control of monetary policy. (6marks)

c.How does credit affect the money supply in an economy? (6marks)

Consider savers are taxed on their nominal income, and explain what happens to the demand curves in the loan market as inflation rises? Draw diagram to explain it..

1 Given the Liquidity Function:

and the real interest rate as 4%, the expected rate of inflation as 2.4%, the price level as 4 and the nominal money supply as 50 answer the followings:

a) What is the equilibrium level of real output in the economy (5 Points).

b) What is the level of velocity in the economy? (5 Points).

24. An injection molding machine has a first cost of $1,050,000 and a

salvage value of $225,000 in any year the machine is sold. The

maintenance and operating cost is $235,000 with an annual gradient of

$75,000. The MARR is 10%. What is the most economic life?

Consider that savers are taxed on their nominal income, and explain what happens to the supply and demand curves in the loan market as inflation rises? (Using graphs).

Assume that you have two investment alternatives: the first project produces $125 for sure, and the second project produces $150 with probability 2/5. You can borrow $110 from your financial institution for one project (investment) if you show an asset as a collateral. Suppose that you maximize your expected profit, what would be the minimum level of collateral that make you select the safe project?