FIM Past Exam

FIM THEORY JANUARY 2020 EXAM
1. Which of these is not correct?

a) When interest rates are negative, investors prefer to be paid 1 US Dollar today
rather than 1 US Dollar in a year’s time
b) When there is inflation, the real interest rate is lower than the nominal interest
rate
c) When a bond price is at par, the yield equals the coupon rate
d) Real interest rates more accurately reflect the true cost of borrowing
2. When will an investor buy bonds instead of shares?

a) When the liquidity of bonds increase and the expected return of shares increase
b) When the liquidity of bonds decrease and the expected return of shares decrease
c) When the liquidity of bonds increase and the risk of shares increase
d) When the liquidity of bonds decrease and the risk of shares decrease
3. Which rating agency rightly predicted the collapse of the subprime mortgage
market?
a) Moody’s
b) Fitch
c) Standard & Poor’s
d) None of rating agencies mentioned above
4. At a given time, we compare the yields of 10 Year maturity bonds in USD. Below, you
see the yields of high and low credit quality corporate bonds, municipal bonds and
US government bonds on the same day. Which of these yields was the yield of the 10
year maturity US government bond on that date?
a) 1.65%
b) 2.09%
c) 3.53%
d) 4.29%
5. Which U.S. president succeeded in decreasing the national/federal U.S. government

debt during his presidency?
a) Bill Clinton
b) George W. Bush
c) Barack Obama
d) None of the U.S. presidents mentioned above
6. Which bonds will almost certainly see their value going to zero in case of bankruptcy
of the issuer of the bonds?
a) debentures
b) subordinated bonds
c) secured bonds
d) convertible bonds
7. Who ended up in jail for insider trading?
a) Warren Buffet
b) Raj Rajaratnam
c) Jack Bogle
d) Freddie Mac
8. Which of the following is not a characteristic explaining the success of ECN’s

a) Transparency
b) Cost reduction
c) Correct execution
d) After-hours trading
9. You have savings of USD 100,000. What is your cash position, after you bought and
paid 12 shares of Amazon at USD 1,150 and three bonds of Amazon at an issue price
of 101.50% with a redemption price of 100.00% and denominations of USD 1,000
and coupon of 2.00%?
a) USD 83,155
b) USD 83,200
c) USD 85,985.50
d) USD 100,000
10. Which internet company that was already listed in New York obtained a listing on
the Hong Kong stock market in November 2019?
a) Alibaba
b) Amazon
c) Facebook
d) Google
Essay
2. What is the relationship between financial crises, regulation and asymmetric information?
3. You are the CFO of a company and the CEO wants you to tell him which evolution we will
see in interest rates in the near future (say this year and next year). What do you tell him
and why? Should your company issue bonds now? (0.50 points)
4. An insurance company prefers to invest in high quality bonds with a long maturity date
a. Why may the annual return on this investment fluctuate a lot for the insurance company?
(0.50 points)
b. How can the insurance company minimize the final capital loss on this investment? (0.50
points)
5. What happened with the demand and supply of bonds in Japan some 20 years ago when
interest rates of Japanese bonds turned negative? Please explain in words and by
completing the figure.
Price of bonds
Quantity of bonds
6. Explain: “agency debt”

7. What does “ADR” stand for? (just the full name-no explanation needed)
FIM ALGEBRA EXAM JANUARY 2O2O
Question 1 (3 points)
a) Dimi wants to start up his own business. Unfortunately, he doesn’t have a lot of
money. That’s why his bank is offering him a credit cards on December 1, 2015. This
allows him to spend money and only pay it back when it suits him. On January 1, 2016
Dimi spends 3,000 and then on April 1, 2017 another 5,000 euros. On January 1, 2018,
he spends 150 euros every month during one year. Off course a credit card is not
cheap. Dimi will need to pay an annual effective interest rate of 3.2% for the first 12
months and an annual effective interest rate of 16.8% for the period after. What does
Dimi need to repay the credit card company on December 1, 2018?
b) Dimi’s favorite aunt wants to help him to start his business. She is going to sell a
financial product that she once bought and she is going to give him this money. The
financial product she invested in, was a fund that would pay her back after five years
at 𝑟!/# = 0.8%. During the first 2 years, she had to invest 1,000 euros at the beginning
of every month. Then the money would stay in the fund for another three years.
Today, after four years, she is going to sell the product to someone who wants to earn
a quarterly rate of 𝑟!/$ = 3.4%. What sum of money will Dimi receive from his favorite
aunt?
c) Another option is to set up an endowment mortgage. He would also borrow 50,000

euros, but pay off the full amount after 10 years. In order to be able to pay this amount
after 10 years, he will deposit money each month in a fund which will earn him 0.7%
monthly. What is the interest rate charged by the bank for this loan if you know that
the total monthly installment is 300 euros? (1 point)
Question 2 (3 points)
a) A few years ago Dimi bought himself a house. He received a loan from his bank of
250,000 euros that he needed to pay back with constant monthly payments during
20 years at 𝑟!/!# = 0.12% . After five years of paying back the loan, Dimi wants to
borrow an additional amount to buy a warehouse for his business. The amount is
equal to the principal that has been repaid in that period. How much can he
borrow? (0.5 points)
b) He finally decides to borrow 50,000 euros on top of his existing loan. It is also
agreed that the interest rate will not change and that the remaining maturity
remains 15 years for both loans. They agree that he will pay 1,400 euros as a
monthly installment which is always paid at the end of the month in those 15
years. How much will he have pay to the bank to pay off both loans (1.5 points)
c) Dimi will put 20,000 euros from the money he receives from his aunt on an
account. During the first year he is going to withdraw an amount every month. The
second year he will withdraw the double of that amount every month. And then
in the third year the triple of that amount. What amount will Dimi be able to
withdraw when the monthly rate is 𝑟!/!# = 0.15%
Question 3 (1.5 points)
a) When Dimi was a student, he was inspired by Professor Paepen to buy a bond.
He bought a bond which is redeemable at par after 3 years with coupons of 5%
at a yield of maturity of 5.5%. What is the duration of this bond? (0.5 points)
Question 4 (1.5 Points)

Dimi regrets that he didn’t buy stocks. He thinks it would be better to buy a stock
of Air France-KLM with a price of 9 euros and combine it with selling (writing) a
call option has a strike price of 9.50 euros and costs 0.40 euros.
a) What is the intrinsic value and the time value of the option? (0,5 points)
b) Show the payoff at maturity of this strategy for stock prices between 8.5 euros
and 11 euros (steps of 0.50 euros) and show the result of this strategy
graphically. Why would he choose this strategy (1 point)
PART 2
Below you see the portofolio of a stock exchange game of week 2 and week 3.
Answer to the questions below on the basis of the data in these portofolios. (5
points?)
a) What is the face value of bond OLO0.2%22OCT23?
b) Calculate the missing numbers for week 3:
-Total value stocks= 23838,60
-Total value bonds= 23885,30
- Cash= 1339,96
- Total value portofolio= 49063,80
$%&'(,*&+$%$*(,%&
- Weekly return= $%$*(,%&
= -0.85%
$%&'(,*&+,&&&&
-Total return= ,&&&&
= -1,87%
Answer Keys MCQ
1) A
2) C
3) D
4) B
5) D
6) B
7) B
8) C
9) A
10) B

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FIM THEORY JANUARY 2020 EXAM

1. Which of these is not correct?

2. When will an investor buy bonds instead of shares?

5. Which U.S. president succeeded in decreasing the national/federal U.S. government

8. Which of the following is not a characteristic explaining the success of ECN’s

6. Explain: “agency debt”

c) Another option is to set up an endowment mortgage. He would also borrow 50,000

Question 4 (1.5 Points)

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