QUESTION ONE
(a) What economic advantages are created by the existence of:

(i) Primary markets. (3 marks)
(ii) Secondary markets (3 marks)
(iii) Portfolio management firms. (4 marks)

(b) Explain how the Capital Authority can ensure:
(i) faster growth and development of the Nairobi Stock Exchange or Stock Exchange in your country. (6 marks)
(ii) development of other stock exchanges in Kenya or in your country. (4 marks)
(Total: 20 marks)

QUESTION TWO
(a)You are given the following price quotations on a Treasury Bond for the close of trading on May 31 and June 30, 2000. As on June 30 this Treasury Bond has a 90-day remaining life.
Treasury bond information
On May 31 On June 30
Maturity Bid Asked Bid Asked
September 28 9.10% 9.00% 9.30% 9.25%

(i)On May 31, the Treasury Bond had a 120-day remaining life. On that day what percentage of par value would you pay to purchase the Treasury Bond?
(3 marks)

(ii)Assume you purchased the Treasury Bond on May 31 and later sold it on June 30. What rate of return did you earn during this one-month period? (4 marks)

(b) (i)What is a stock exchange index? (2 marks)
(ii)Outline four drawbacks of the Nairobi Stock Exchange index. (4 marks)

(c) (i)What is a Commercial Paper? (3 marks)
(ii)State and explain the advantages of using commercial paper by businesses to raise funds (4 marks)
(Total: 20 marks)

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