vu bt301 Mid Term Subjective Solved Past Paper No.2

Price of bound = p (1+r)*1
=100(1+0.05)*1
=100(1.05)*1
= 100(1.05)
Price of bound = 105 Answer

Be the first to post an answer to earn 100 credits.

PACRA is the Pakistan Credit rating agency which rates different companies in Pakistan who offer bonds or stocks to investors. They rate companies independently to protect investors from companies who might default and not pay the investors. Based on their ratings given to different companies people who want to invest will know which companies to go for investment and which to avoid.

The different types of investment grades given of long term ratings given by them are:

1. AAA : This is highest credit quality and has lowest expectation of risk
2. AA : Very high credit quality and very low expectation of risk
3. A: High credit quality and low expectation of risk
4. BB : Good credit quality and as of now there is low expectation of credit risk.

Sepulative grade means there are possibility of credit risk.

Pacra has B class rating for them.

1. BB shows that there is a possibility of credit risk in making.
2. B Highly speculative in nature. 'B' it shows that that significant credit risk is there, but a limited margin of safety remains.
3. CCC, C,CC High default risk. Chances of deault is a real possibility.

Pakistan Credit Rating Agency

1. A1+: highest capacity for timely repayment
2. A1: Strong capacity for timely repayment
3. A2: satisfactory capacity for timely repayment may be susceptible to adverse economic conditions
4. A3: an adequate capacity for timely repayment. More susceptible to adverse economic condition
5. B: timely repayment is susceptible to adverse changes in business, economic, or financial conditions
6. C: an inadequate capacity to ensure timely repayment
7. D: high risk of default or which are currently in default

The following factors those shift the bond demand are following.

1. 1- Wealth
2. 2- Expected inflation
3. 3- Expected return on stocks and other assets
4. 4- Risk relative to alternatives
5. 5- Liquidity of bonds relative to alternatives

Wealth:

An increase in wealth shifts the demand for bond to the right as wealthier peoples invest more. This will happen as the economy grows during an expansion. This will increase bond prices and lower yields.

Expected inflation: a fall in expected inflation shifts the bond demand curve to the right, increasing demand at each price and lowering the yield and increasing the bonds price.

Be the first to post an answer to earn 100 credits.

In 1992, the Bank of Canada eliminated the reserve requirement entirely. What do you think would happen if the State Bank of Pakistan followed the same courseAlternatively, suppose that following an act of Parliament, the State Bank of Pakistan started to pay interest on required reserves. Would the change have an impact on the market for reserves?

Financial intermediary is naturally an foundations that make easy the control of funds between lenders and borrowers not directly that acts as the middle man between investors and firms raising fund is called financial intermediary.

Financial intermediary will reduce transaction cost because they are specializing in the issuance of standardized securities

Maturity transformation

Converting short-term liabilities to long term assets just like banks deal with large number of lenders and borrowers, and settle their conflicting needs

Risk transformation

Converting risky investments into relatively risk-free ones For example ending to multiple borrowers to spread the risk

Convenience

Matching small deposits with large loans and large deposits with small loans

Stock

This also known as common stocks or equity , are shares in a firm's ownership.

It is the key instrument for holding personnel wealth as well as diversify, this also spread and reduce risk which we face. This is one of the way for companies to obtain the finance.

Stocks and stock market are the main link between financial world and real economy. Stockholder are also entitled to vote at firm's annual meeting such as voting to elect or remove the firm's board of director.
Important characteristics

1. A large number of shares are out standing.
2. Price of individual shares are low.
3. Shareholder can replace managers who are doing bad.
4. Due to limited liability investor only losses do not exceed the amount they paid.
5. An individual share represents only small fraction of value of the company.
6. This allow individual to make relatively small investment.
7. Stockholders receive he proceeds of a firm's activities only after all other creditors are paid.