Question
No: 1 ( Marks: 1 ) - Please choose one
What
is the long-run objective of financial management?
► Maximize earnings per share (P # 12)
► Maximize the value of the firm's common stock
► Maximize return on investment
► Maximize market share
Question
No: 2 ( Marks: 1 ) - Please choose one
Which of the following statement
(in general) is correct?
► A low receivables turnover is desirable
► The lower the total debt-to-equity ratio, the lower the financial risk for
a firm
► An increase in net profit margin with no change in sales or assets means
a weaker ROI
► The higher the tax rate for a firm, the lower the interest coverage ratio
Question No: 3 ( Marks: 1 ) - Please
choose one
What is the present value of a
Rs.1,000 ordinary annuity that earns 8% annually for an infinite number of
periods?
► Rs.80
► Rs.800
► Rs.1,000
► Rs.12,500
Question No:
4 ( Marks: 1 ) - Please choose one
Companies and individuals running
different types of businesses have to make the choices of the asset according
to which of the following?
► Life span of the project (P # 57)
► Validity of the project
► Cost of the capital
► Return on asset
Question
No: 5 ( Marks: 1 ) - Please choose one
What is the advantage of a longer life
of the asset?
► Cash flows from the asset becomes non-predictable
► Cash flows from the asset becomes more predictable (P # 58)
► Cash inflows from the asset becomes more predictable
► Cash outflows from the asset becomes more predictable
Question No: 6 ( Marks: 1 ) - Please
choose one
Consider two bonds, A and B.
Both bonds presently are selling at their par value of Rs. 1,000. Each
pays interest of Rs. 120 annually. Bond A will mature in 5 years while
bond B will mature in 6 years. If the yields to maturity on the two bonds
change from 12% to 10%, ____________.
► Both bonds will increase in value, but bond A will increase more than bond B
► Both bonds will increase in value, but bond B will increase more than bond
A
► Both bonds will decrease in value, but bond A will decrease more than bond B
► Both bonds will decrease in value, but bond B will decrease more than bond A
Question No: 7 ( Marks: 1 ) - Please
choose one
Given no change in required returns,
the price of a stock whose dividend is constant will__________.
► Remain unchanged
► Decrease over time at a rate of r%
► Increase over time at a rate of r%
► Decrease over time at a rate equal to the dividend growth rate
Question No: 8 ( Marks: 1 ) - Please
choose one
For most firms, P/E ratios and
risk_________.
► Will be directly related
► Will have an inverse relationship
► Will be unrelated
► Will both increase as inflation increases
Question
No: 9 ( Marks: 1 ) - Please choose one
Which of the following statement about
portfolio statistics is CORRECT?
► A portfolio's expected return is a simple weighted average of expected
returns of the individual securities comprising the portfolio. (P # 92)
►
A portfolio's standard deviation of return is a simple weighted average of
individual security return standard deviations.
►
The square root of a portfolio's standard deviation of return equals its
variance.
►
The square root of a portfolio's standard deviation of return equals its
coefficient of variation.
Question No: 10 ( Marks:
1 ) - Please choose one
Which of the following is simply the
weighted average of the possible returns, with the weights being the
probabilities of occurrence?
► A probability distribution
► The expected return (P # 92 – repeated)
► The standard deviation
► Coefficient of variation
Question No: 11 ( Marks: 1 ) - Please
choose one
The square of the standard deviation
is known as the ________.
► Beta
► Expected return
► Coefficient of variation
► Variance (P # 86 & 98)
Question
No: 12 ( Marks: 1 ) - Please choose one
Why companies invest in projects with
negative NPV?
► Because there is hidden value in each project (P # 52 -- repeated)
► Because they have chance of rapid growth
► Because they have invested a lot
► All of the given options
Question No: 13 ( Marks: 1 ) - Please
choose one
An investor was expecting a 18% return
on his portfolio with beta of 1.25 before the market risk premium increased
from 8% to 10%. Based on this change, what return will now be expected on the
portfolio?
► 22.5% (not sure -- 18 x 1.25)
► 20.0%
► 20.5%
► 26.0%
Question No: 14 ( Marks: 1 ) - Please
choose one
Which of the following is the
characteristic of a well diversified portfolio?
► Its market risk is negligible
► Its unsystematic risk is negligible
► Its systematic risk is negligible
► All of the given options
Question No: 15 ( Marks: 1 ) - Please
choose one
How the beta of a stock can be
calculated?
► By monitoring price of the stock
► By monitoring rate of return of the stock
► By comparing the changes in the stock market price to the changes in the
stock market index (P # 102 --- It is a tendency of a Stock
to move with the Market)
► All of the given options
Question No: 16 ( Marks: 1 ) - Please
choose one
Which of the following formula relates
beta of the stock to the standard deviation?
► Covariance of stock with market * variance of the market
► Covariance of stock with market / variance of the market (P # 108)
► Variance of the market / Covariance of stock with market
► Slope of the regression line
Question
No: 17 ( Marks: 1 ) - Please choose one
A beta greater than 1 for a stock
shows:
► Stock is relatively more risky than the market
► If the market moves up by 10% the stock will move up by 12%
► As the market moves the stock will move in the same direction
► All of the given options (P #
109)
Question No: 18 ( Marks: 1 ) - Please
choose one
If stock is a part of totally
diversified portfolio then its company risk must be equal to:
►
0 (P # 109)
► 0.5
► 1
► -1
Question No: 19 ( Marks: 1 ) - Please
choose one
If risk and return combination of any
stock is above the SML, what does it mean?
►
It is offering lower rate of return as compared to the efficient stock
► It is offering higher rate of return as compared to the efficient stock (P
# 113)
► Its rate of return is zero as compared to the efficient stock
► It is offering rate of return equal to the efficient stock
Question No: 20 ( Marks: 1 ) - Please
choose one
An arbitrage opportunity exists if an
investor can construct a __________ investment portfolio that will yield a sure
profit.
► Positive
► Negative
► Zero
► All of the given options
Question No: 21 ( Marks: 1 ) - Please
choose one
Which of the following factors might
affect stock returns?
► The business cycle
► Interest rate fluctuations
► Inflation rates
► All of the
given options (P # 68 -- investment for
long term period there are more chances of fluctuation in interest rate and the
inflation rate.)
Question No: 22 ( Marks: 1 ) - Please
choose one
If arbitrage opportunities are to be
ruled out, what would be the expected excess return of each well-diversified
portfolio?
► Inversely proportional to the risk-free rate
► Inversely proportional to its standard deviation
► Proportional to its standard deviation
► Proportional to its beta coefficient
Question No: 23 ( Marks: 1 ) - Please choose
one
Which of the following represent all
Risk –Return Combinations for the efficient portfolios in the capital market?
► Parachute graph (P # 117)
► CML straight line equation
► Security market line
► All of the given options
Question
No: 24 ( Marks: 1 ) - Please choose one
What should be used to calculate the
proportional amount of equity financing employed by a firm?
►
The common stock equity account on the firm's balance sheet
►
The sum of common stock and preferred stock on the balance sheet
►
The book value of the firm
►
The current market price per share of common stock times the number of shares
Outstanding
Question No: 25 ( Marks:
1 ) - Please choose one
Which of the following is the market
for short term debt?
► Money market (repeated)
► Capital market
► Real asset market
► Equity market
Question No: 26 ( Marks: 1 ) - Please
choose one
Bonds are issued in the market at
_________.
► Premium
► Discount
► Both premium and discount (P # 124)
► None of the given options
Question No: 27 ( Marks: 1 ) - Please
choose one
Why debt is a less costly source of
fund?
► Because additional interest creates a new form of tax shield
► Because additional money creates a new form of tax shield
► Because banks extend loan at lower interest rates
► None of the given options
Question No: 28 ( Marks: 1 ) - Please
choose one
Which of the following is as EBIT?
► Funds provided by operations
► Earnings before taxes
► Net income
► Operating profit
Question No: 29 ( Marks: 1 ) - Please
choose one
Calculate the degree of operating
leverage (DOL) at 400,000 units of quantity sold. The firm has Rs.1, 000,000 in
fixed costs. The firm anticipates selling each unit for Rs.25 with variable
costs of Rs.5 per unit.
►
3.33
►
1.25
►
1.14
►
There is not sufficient information provided to calculate the degree of
operating leverage (DOL).
Question No: 30 ( Marks: 1 ) - Please
choose one
A firm has a DOL of 3.5 at Q units.
What does this tell us about the firm?
► If sales rise by 3.5% at the firm, then EBIT will rise by 1%
► If EBIT rises by 3.5% at the firm, then EPS will rise by 1%
► If EBIT rises by 1% at the firm, then EPS will rise by 3.5%
► If sales rise by 1% at the firm, then EBIT will rise by 3.5%
Question No: 31 ( Marks: 1 ) - Please
choose one
Which of the following represents
financial leverage?
► Use of more debt capital to increase profit
► Debt is not used in capital to increase profit
► High degree of solvency
► Low degree of solvency
Question No: 32 ( Marks: 1 ) - Please
choose one
Which of the following best describes
the statement; “The value of an asset is preserved regardless of the nature of
the claims against it”?
► Law of diminishing marginal returns
► Law of conservation of value
► Law of return on equity
► Law of return on assets
Question No: 33 ( Marks: 1 ) - Please
choose one
Firm ABC has Rs.5 million in
outstanding debt, currently has 200,000 shares outstanding priced at Rs.60 a
share, and has a borrowing rate of 10%. If the firm's return on equity is 15%,
what is the firm's WACC?
► 5.00%
► 3.23%
► 4.25%
► 2.16%
Question No: 34 ( Marks: 1 ) - Please
choose one
Which of the following statements
regarding the M&M Propositions without taxes is true?
► The total value of the firm depends on how cash flows are divided up between
stockholders and bondholders, under M&M Proposition I.
► The firm's capital structure is relevant under M&M Proposition I.
► The cost of equity depends on the firm's business risk but not its financial
risk, under M&M Proposition II.
► The cost of equity rises as the firm increases its use of debt financing
under M&M Proposition II.
Question No: 35 ( Marks: 1 ) - Please
choose one
Which one of the following is correct
for the spot exchange rate?
► This is the rate today for exchanging one currency for another for immediate
delivery
► This is the rate today for exchanging one currency for another at a
specific future date
► This is the rate today for exchanging one currency for another at a specific
location on a specific future date
► This is the rate today for exchanging one currency for another at a specific
location for immediate delivery
Question No: 36 ( Marks: 1 ) - Please
choose one
The restructuring of a firm should be
undertaken, when:
► The restructuring is expected to create value for shareholders
► The restructuring is expected to increase earnings per share next year
► The restructuring is expected to increase the firm's market share power in
industry
► The current employees will receive additional stock options to
align employee interest
Question No: 37 ( Marks: 1 ) - Please
choose one
Which of the following term is used
when the firm can independently control considerable assets with a very limited
amount of equity?
► Joint venture
► Leveraged buyout (LBO)
► Spin-off
► Consolidation
Question No: 38 ( Marks: 1 ) - Please
choose one
What is the economic order quantity
for an automobile dealer selling 2,000 cars per year, at a cost of Rs.750 per
order, and a carrying cost of Rs.300 per automobile?
► 40
cars
► 71 cars
► 100 cars
► 126 cars
Question No: 39 ( Marks: 1 ) - Please
choose one
As the amount of __________ increases
the present value of net tax-shield benefits of debt increases.
► Debt
► Common equity
► Preffered equity
► Assets
Question No: 40 ( Marks: 1 ) - Please
choose one
Why the present value of the costs of
financial distress increases with increases in the debt ratio?
► Expected return on assets increases
► Present value of the interest tax shield is greater
► Equity tax shield is depleted
► Probability of default and/or bankruptcy is greater
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