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CS001 - Computer Proficiency License Solved Past Papers

VU CS001 - All Subjective Solved Past Papers 2021 - Computer Proficiency License

Answer: Suggest Edit

Default Risk

It is define as that "there is no guarantee that a bond issuer will make the payment which he promised.

When there is higher default risk the higher the probability that those who have the bond will not receive the promised payments and thus higher the yield.

The investor which are risk averse require some compensation for risk, more compensation is require for higher risk.

For example
Suppose risk free rate is 10%
ABC corp. issue one year bond at 10%
Price without risk= (100 +10)/1.1= Rs.100
Suppose, there is probability that ABC corp. goes bankrupt, get nothing than two possible payoffs: Rs.110 and Rs.0

Answer: Suggest Edit

There are two type of in Insurance companies
  1. Life insurance
  2. Property and casualty insurance

Which makes a payment to the insured's beneficiaries upon the death of the policy holder.

Company can get group insurance for their employees.

Whole life insurance

It is combination of life insurance and fix saving account.

We pay fix amount for a fixed period of time and in case of death of policy holder his/her beneficiary gets the money.

If the policy holder decides to discontinue the policy

Property and casualty Insurance

The policyholder pays fixed amount in exchange for protection to its property or assets. For example. Insuring the building against the fire.

Insurance of house for theft.

auto insurance.

Answer: Suggest Edit

Transaction Demand for money: The quantity of money people hold for transaction purposes is called transaction demand for money. It depend on following factors

Nominal income of people: As the nominal income increases spending increases which causes

an increase in the demand for money holding.

Cost of holding money: The cost of money holding is the interest foregone in holding the money in hand. So if the nominal interest rate is higher people will prefer keeping money in banks etc so demand for money holding decreases.

Availability of substitutes: If people have cheaper alternative means of payment they will hold less money.

Portfolio Demand for Money: Money is one instrument that people can hold in their investment portfolio. The demand for holding money in portfolio is dependent on following factors:

Wealth: An increase in wealth increases the demand for money Return on alternative investments: As the return on alternative investments fall people hold more money.

Expected future interest rate: An increase in expected future interest rate increases holding demand for money

Riskiness of alternatives: Riskier the alternative investments greater the demand for money.

Liquidity: If alternative investments become more liquid demand for money decreases

Answer: Suggest Edit

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