Multiple Choices Problems

1. Consumer Price Index (CPI) and Inflation rate recorded in 2017 is 117 and 3.57%
respectively. What is the CPI recorded in 2016?
a. 113
b. 121
c. 112
d. 120

2. Consumer Price Index (CPI) in 2018, 2017 and 2016 are 120, 115 and 110 respectively.
What is the inflation rate recorded in 2017
a. 4.35%
b. 4.55%
c. 9.09%
d. 4.45%

3. A P2,000 treasury bill with a 35-day tenor can be purchased at P1990. What is the
annualized discount rate?
a. 5.24%
b. 5.21%
c. 5.14%
d. 5.21%

4. A P2,000 treasury bill with a 45-day tenor can be purchased at P1990. What is the
annualized investment rate?
a. 4.08%
b. 4.02%
c. 4.00%
d. 4.06%

5. Compute for the amount the investor is willing to pay (i.e. Market Security Value) given a
one year Treasury bill with an annual interest rate of 3%.
a. P970.48
b. P970.55
c. P701.38
d. P970.87

6. Compute for the amount the investor is willing to pay given a 90-day Treasury bill with an
annual interest rate of 4%. Assume 360 days in a year.
a. P961.54
b. P990.10
c. P970.59
d. P990.05

7. Heart Corporation would like to borrow funds from Heinz Financing. The risk free rate
published by PDS Group is 5% and the current inflation rate is 2%. In the following year, the
inflation is expected to grow to 3%. Heinz assume 4% margin to be relevant. Compute for
the real risk free rate.
a. 3%
b. 2%
c. 6%
d. 5%

8. Heart Corporation would like to borrow funds from Heinz Financing. The risk free rate
published by PDS Group is 5% and the current inflation rate is 2%. In the following year, the
inflation is expected to grow to 3%. Heinz assume 4% margin to be relevant. How much is
the applicable nominal risk free rate?
a. 3%
b. 6%
c. 10%
d. 2%

9. Heart Corporation would like to borrow funds from Heinz Financing. The risk free rate
published by PDS Group is 5% and the current inflation rate is 2%. In the following year, the
inflation is expected to grow to 3%. Heinz assume 4% margin to be relevant. How much is
the interest rate that Heinz should impose to Heart?
a. 3%
b. 6%
c. 10%
d. 2%

10. HHH Corporation issued bonds with 12% nominal rate for a P1,000 par value bond
payable for 10 years. The bond were sold for P1,200. How much is the interest rate of the
bonds in the market?
a. 12.73%
b. 14%
c. 8.33%
d. 9.09%

11. HB Corporation invested in a 10 year 10% bond with a par value of P1,000 traded in the
market. Interest is payable annually. Similar debt instrument is expecting 9% returns in the
market. How much is the value of the bonds?
a. P1,064.18
b. P 1,000.00
c. P 641.77
d. P 422.41

11. HB Corporation invested in a 10 year 10% bond with a par value of P1,000 traded in the
market. Similar debt instrument is expecting 9% returns in the market. How much is the
value of the bonds assuming nominal interest payments is waived for the entire life of
bonds?
a. P1,064.18
b. P 1,000.00
c. P 641.77
d. P 422.41

13. A corporate bond is expecting 10% returns in the market. A credit spread of 300 bps was
used. Compute for the risk free rate.
a. 13.00%
b. 7.00%
c. 10.30%
d. 9.70%

14. A 10-year P100 Treasury bond with 8% coupon rate payable semiannually is being
evaluated for its value. After the first coupon payment, interest rates is expected to grow by
100 BPS every six months. Compute for the value of bonds using traditional approach
assuming 5% rate of return.
a. P 61.03
b. P 123.38
c. P 62.36
d. P 74.88

15. A 3-year P100 Treasury bond with 8% coupon rate payable semiannually is being
evaluated for its value. Compute for the value of bonds using arbitrage free valuation
approach assuming 5% rate of return or published treasury rate. In addition, an average
increase of 100 BPS from first coupon payment is expected every six months also as
published.
a. P 74.88
b. P 123.38
c. P 62.36
d. P 61.03

16. Herbert wants to buy shares of IwantTV Company. When he looked it up at the stock
exchange, IwantTV can be bought at P30 per share. Further research showed that dividends
are stable at P5 per year and it is expected to be resold at P40 per share after a year.
Herbert expects a 10% return on his investments and only expects to hold IwantTV shares
for a year. What is the value of the shares?
a. P36.36
b. P45.00
c. P40.91
d. P40.00

17. Marvin wants to buy 1,000 preference shares, P200 par value from Korean Company.
According to his sources, the preference shares comes with constant dividend of P30 per
share. Marvin intends to hold the preference shares long term and has no plans on selling
this in near future. Marvin requires a 15% return on all of his investment. What is the value
of each preference share?
a. P200
b. P300
c. P250
d. P350

18. Andrew wants to buy 1,000 preference shares, P200 par value from Korean Company.
According to his sources, the preference shares comes with constant dividend of P45 per
share. Andrew intends to hold the preference shares long term and has no plans on selling
this in near future. Andrew requires a 15% return on all of his investment. What is the value
of each preference share?
a. P200
b. P300
c. P250
d. P350

19. Lascano is looking at investing and buying shares from Nutela Company, a publicly
listed company. Based on publicly available information, dividends from 2013 to 2018 are
P2.00, P2.10, P2.24, P2.40, P2.58 and P2.80 respectively. Based on the historical
information, Lascano believed that the historical annual growth is a good indicator of the
future growth rate of the dividends. The compounded average growth for several periods is
measured by CAGR. Compute for future constant growth rate using CAGR formula.
a. 7%
b. 8%
c. 10%
d. 9%

20. Dividend in 2018 is P2.8 per share. Assuming a CAGR of 8% and rate of return on
ordinary share is 15%. What is the value of common stock per share in 2019?
a. P40.00
b. P43.20
c. P20.16
d. P18.67

21. Pup Company is contemplating whether to buy shares in BSA Company. BSA Company
recently paid dividends of P3 per share. After carefully studying the business of BSA
Company, Pup came up with the estimate that dividends may grow at 5% annual rate in the
next 3 years. At the end of 3 years, Pup expected that the market will mature, and organic
growth will only lead to a constant 3% dividend growth in the foreseeable future. Pup uses
12% required return in evaluating his investments. Compute for the value of the shares
using Variable Growth model.

a. P47.59
b. P39.67
c. P39.71
d. none of the above

22. Assuming A Company has market value of debt and preference shares are
P3,000,000.00 and P2,000,000.00 respectively. What is the market value of the entire
company if it has ordinary shares valued at P3,500,000.00?

a. P5,000,000.00
b. P8,500,000.00
c. P4,500,000.00
d. P5,500,000.00

23. At the end of 2018, the balance sheet of Jamar Company showed total assets of P3 M,
total liabilities of P2 M, preference shares of P500 thousand and 100,000 outstanding
ordinary shares. What is the book value per share?
a. P5
b. P7.5
c. P30
d. P10
25. At the end of 2018, the balance sheet of Jamar Company showed total assets of P3 M,
total liabilities of P2 M, preference shares of P500 thousand and 100,000 outstanding
ordinary shares. Liquidation value is P 2.7M. What is the book value per share?
a. P5
b. P7.5
c. P30
d. P2.7