Question 1 Marks 10

Financial managers use financial statements to assess the financial position and performance of a firm. Ratio analysis is one of the most important techniques to evaluate the effectiveness and efficiency of the company management in utilizing its resources. You are required here to briefly describe the ratios, which are used to assess

  • Liquidity of the business
  • Asset management of the business

How would you interpret, if the ratios described above show a constant decline over the years?

Question 2 Marks 10

Irfan Masood, a student of BBA, received Rs 10,000 from his institution as a reward for his outstanding academic performance. Irfan does not intend to spend the money today; he is rather planning to utilize this money three years after to partially finance his higher studies.

Being a student of finance, Irfan is well aware of the fact that this amount would only lose its value over the years, if he puts it under lock and key in his room. So he decided to invest the money with a bank.

He contacted three banks and each of them offered the same interest rate of 4 percent, however, with different terms and conditions for having a three-year deposit account. Bank A compounds interest rate on annual basis, bank B compounds interest twice each year, while bank C compounds interest each quarter.

  1. What amount would Irfan have at the end of the third year in each bank?
  1. If a fourth bank offers continuous compounding at the same interest rate, how much Irfan would receive after three years?
  1. Which investment option should Irfan go for?