Brief Answer Questions:
[10 × 2 = 20]State the meaning of financial assets.
List out any two functions of merchant bankers.
State any two purposes of capital markets.
What do you mean by financial services?
How does money market differ from capital market?
Outlines the two major functions of commercial banks.
Write down the types of life insurance products used in Nepal.
An open-end mutual fund has 100 shares of ABC Company, currently trading at Rs 140, and 200 shares of XYZ Company, currently trading at Rs 150. Liabilities is Rs 5,000. The fund has 1,000 shares outstanding. What is the net asset value (NAV) of the fund?
Mr. Hari Sharma is now 45 years old. He is willing to purchase one year term life policy of Rs 500,000. Assume that there is probability of 1 percent that a person dump at the age 45 and the cost of money 12 percent. What is the fair amount of premium that Mr. Hari must pay for his policy?
Suppose an employee is in 30 years of service. The percentage annual payment benefit provided is 6 percent. The average salary per month is Rs 30,000. What is the carrier average benefit if he retires in 30 years?
Short Answer Questions: (Attempt any SIX Questions)
[6 × 5 = 30]Briefly explain the importance of financial services in the financial system.
Who are participants of money market? Explain.
Describe the concept and functions of credit rating agencies.
Open end Fund A has 10,000 shares of Himal Company valued at Rs 200 each and 5,000 shares of Tarai Company valued at Rs 150 each. Closed end fund B has 8,000 shares of Himal Company and 4,000 shares of Tarai Company. Each fund has 100,000 shares of stock outstanding.
a. What are the NAVs of both funds using these prices?
b. Assume that in one month the price of Himal stock has increased to Rs 220 and price of Tarai stock has decreased to Rs 140. How do these changes impact the NAV a both funds? If the funds were purchased at the NAV prices in (a) and sold at month end. Compute holding period return. Ignore load fee and brokerage charge.
Assume that the following quote for Mega Company stock obtained from a financial newspaper on 10th December 2024
| 52 weeks | Stock | Div. | Yield % | P/E | Vol 100s | Close | Net chg | |
| Hi | Lo | |||||||
| 260 | 160 | Mega | 10 | 4 | 15 | 340 | 250 | -3 |
Give this information, answer the following questions:
a. What does Hi and Lo mean?
b. What is number of shares traded on quotation day.
c. What is dividend yield and how it is calculated?
d. What does net chg mean? What was the previous trading day's price of the stock?
Consider the following salary data, recorded for Junu Kumal.
Total years of service, upon retirement = 30 years
Average salary, over entire employment = Rs 20,500
Annual salary, year by year, over last four years before retirement:
Year 27 = Rs 28,000; Year 28 = Rs 28,500; Year 29 = Rs 29,000; Year 30 = Rs 30,000
a. Suppose the pension plan uses a flat benefit formula, paying Rs 800 per year of service. Compute Junu's annual pension benefit.
b. Suppose the pension plan uses a career average formula. The annual payout is 4 percent of career average salary, times the total years employed. Compute Junu's annual pension benefit.
c. Suppose the pension plan uses a final pay formula. The annual payout is 3 percent of the average salary of the last four years times the total years employed. Compute Junu's annual pension benefit.
In Pokhara, there are 10,000 policy holder alive at the beginning of age 40. Out of them, 20 are expected to die at the age of 40. Each policy holder has a Rs 100,000 life insurance policy and cost of money is 10 percent.
a. Calculate expected claim.
b. Calculate present value of expected claim.
c. Calculate estimated net premium per policy.
Long Answer Questions: (Attempt any THREE Questions)
[3 × 10 = 30]Four components of the financial system are financial markets, financial institutions, financial assets and regulator. In this connection, explain financial system of Nepal.
Bhumi Bank currently has Rs 350 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Central Bank is increasing this requirement to 11 percent.
a. Show the balance sheet of the Central Bank and Bhumi Bank if Bhumi Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to Bhumi Bank as transaction deposits.
b. Show the balance sheet of the Central Bank and Bhumi Bank if Bhumi Bank converts 75 percent of its excess reserves to loans and borrowers return 60 percent of these funds to Bhumi Bank as transaction deposits.
A treasury bill with 90 days to maturity, a face value of Rs 100,000 is selling for Rs 98,500 on bank discount basis.
a. What is annualized yield of T-bill on the bank discount basis?
b. Calculate its bond equivalent yield.
c. Calculate the holding period return on T-bill.
d. What is the effective annual yield on the T-bill?
Suppose that you have Rs 1,000,000 which you are planning to invest in one of the following investment opportunities.
Bond: A bond that is selling in the market at Rs 1,100. The bond has a Rs 1,000 par value, pays interest at 12 percent, and matures in 15 years. Your required rate of return for the bond of this class is 14 percent.
Common stock: A common stock with Rs 100 par value that recently paid a Rs 20 dividend (D₀ = Rs 20). The growth rate of dividend is 6 percent per year forever. The stock is selling for Rs 90 and you think that the required rate of return on such stock is 20 percent.
Calculate the value of each security and determine the one in which you would invest. Give reasons for your choice.
Comprehensive Answer / Case / Situation Analysis Questions:
[20]Capital adequacy is a measure of the financial strength of a bank expressed as a ratio of its capital to its risk weighted assets. This ratio indicates a bank's ability to maintain adequate capital in the form of equity and subordinated debts to meet any unexpected losses. Directive number 1 of the Unified directives has made provision about the capital adequacy requirement for commercial banks. Under this directive, commercial banks are required to maintain minimum common equity tier I ratio of 5%, Tier I capital ratio of 7.5% and total capital ratio of 10% based on Basel III framework. In this connection, consider the following balance sheet (Rs in million) of an ABC bank with the risk weights in parentheses.
| Assets | Amount Rs | Liabilities and equity | Amount Rs |
| Cash and balance at NRB (0) | 1,000 | Paid up capital | 500 |
| Investment in government securities (0) | 4,000 | General reserves | 700 |
| Balance at local banks (20) | 100 | Capital adjustment reserve | 100 |
| Money at call (20) | 700 | Undistributed profit | 50 |
| Loans against guarantees (20) | 3,000 | Exchange fluctuation reserve | 50 |
| Shares & Bond investment (100) | 50 | Borrowings | 1,300 |
| Loans & Advances (100) | 7,250 | Deposit accounts | 13,000 |
| Fixed assets (100) | 200 | Bills payable | 500 |
| Other assets (100) | 700 | Other liabilities | 800 |
| Total | Rs 17,000 | Total | Rs 17,000 |
In addition, the bank has Rs 130 million general loan loss provisions, Rs 2,100 million advance payment guarantees, and performance bond of Rs 1600 million. The risk weights assigned to the advance payment guarantees and performance bonds are 100 percent and 50 percent respectively.
a. Determine the core capital, supplementary capital and total capital as per NRB rules?
b. What is the risk weighted assets for ABC Bank considering on balance and off-balance sheet items?
c. Does the bank have sufficient capital to meet the NRB capital requirements? Give reasons.
d. Describe the significance of capital adequacy framework 2015.