At 10 percent 3 4 fans10000 face value discount bond

at 10 percent.
(3)
4. \faNS$10,000 face-value discount bond maturing in one year is selling for NS7,000,
what is its yield to maturity?
5. Ifthe interest rate is 5%, what is the present value of a security that pays
then
(3)
you N$1,050
>

next year and NS$1,102.50 two years from now?
6. Briefly discuss and illustrate with a diagram how the bond market would
increase in the expected rate of inflation.
QUESTION 3
(4)
respond to an
(12)
[25 Marks]
1. Why is it important to understand the bond market?
2. What crucial role do financial intermediaries perform in an economy?
3. Distinguish between direct finance and indirect finance.
4. Alocal economist makes a statement in the newspaper that interest rate rise
everyone. Do you agree with the statement? Explain.
5. Your bank has the following balance
Assets (in Millions NS) Liabilities (in millions
Reserves 50 Checkable
Deposits
securities 50
Loans 150 Bank Capital
If the required reserve ratio is 10%, what actions should the bank manager
is an unexpected deposit outflow of NS50 million?
QUESTION 4 [25 Marks]
1. Briefly discuss three goals a bank pursues in managing its
2. Why do equity holders care more about ROE than about
3. State any three players in the money supply process.
4. If the central bank sells NS$1 million of bonds and commercial banks
borrowings from the central bank by N$1 million, predict what will happen
money supply. (7)
5. List the four factors that determine money demand under the portfolio
(3)
(3)
(4)
is bad for
(4)
sheet:
NS)
200
50
take if there
(11)
assets. (6)
ROA? (5)
(3)
reduce their
to the
theory. (4)
TOTAL = 100 MARKS