ROLE OF FINANCIAL MANGEMENT

1. The only feasible purpose of financial management is

a) Wealth Maximization
b) Sales Maximization
c) Profit Maximization
d) Assets maximization
2. Financial management process deals with
a) Investments
b) Financing decisions
c) Both a and b
d) None of the above
3. Agency cost consists of
a) Binding
b) Monitoring
c) Opportunity and structure cost
d) All of the above
4. Finance Function comprises
a) Safe custody of funds only
b) Expenditure of funds only
c) Procurement of finance only
d) Procurement & effective use of funds
5. The objective of wealth maximization takes into account
a) Amount of returns expected
b) Timing of anticipated returns
c) Risk associated with uncertainty of returns
d) All of the above
6. Financial management mainly focuses on
a) Efficient management of every business
b) Brand dimension
c) Arrangement of funds
d) All elements of acquiring and using means of financial resources for financial activities
TIME VALUE OF MONEY
1. Time value of money indicates that
a) A unit of money obtained today is worth more than a unit of money obtained in future
b) A unit of money obtained today is worth less than a unit of money obtained in future
c) There is no difference in the value of money obtained today and tomorrow
d) None of the above
2. Time value of money supports the comparison of cash flows recorded at different time period
by
a) Discounting all cash flows to a common point of time
b) Compounding all cash flows to a common point of time
c) Using either a or b
d) None of the above.
3. If the nominal rate of interest is 10% per annum and there is quarterly compounding, the
effective rate of interest will be:
a) 10% per annum
b) 10.10 per annum
c) 10.25%per annum
d) 10.38% per annum
4. Relationship between annual nominal rate of interest and annual effective rate of interest, if
frequency of compounding is greater than one:
a) Effective rate > Nominal rate
b) Effective rate < Nominal rate
c) Effective rate = Nominal rate
d) None of the above
5. Mr. X takes a loan of Rs 50,000 from HDFC Bank. The rate of interest is 10% per annum. The first
installment will be paid at the end of year 5. Determine the amount of equal annual installments if
Mr. X wishes to repay the amount in five installments.
a) Rs 19500
b) Rs 19400
c) Rs 19310
d) None of the above
6. If nominal rate of return is 10% per annum and annual effective rate of interest is 10.25% per
annum, determine the frequency of compounding:
a) 1
b) 2
c) 3
d) None of the above
7. Present value tables for annuity cannot be straight away applied to varied stream of cash flows.
a) True
b) False
8. Heterogeneous cash flows can be made comparable by
a) Discounting technique
b) Compounding technique
c) Either a or b
d) None of the above
MCQ. An annual estimated costs of assets uses up every year are included
A. depreciation and amortization
B. net sales
C. net profit
D. net income
MCQ. Proceeds of company shares of sold stock is recorded in
A. preferred stock account
B. common stock account
C. due stock account
D. preceded stock account

MCQ. Statement of cash flows are included

 A. operating activities
B. investing activities
C. financing activities
D. all of above
MCQ. A company purchases goods but does not pay payments to suppliers immediately and record
them as
A. account payable
B. account receivable
C. current liabilities
D. accumulated liabilities
MCQ. In calculation of net cash flow, depreciation and amortization are treated as
A. current liabilities
B. income expenses
C. non-cash revenues
D. non-cash charges
MCQ. Payments if it is made at end of each period such as an end of year is classified as
A. ordinary annuity
B. deferred annuity
C. annuity due
D. Both A and B
MCQ. In time value of money, nominal rate is
A. not shown on timeline
B. shown on timeline
C. multiplied on timeline
D. divided on timeline
MCQ. Value of net income is INR 124,500,000 and common shares outstanding are 60,000,000 then
earning per share will be
A. INR 2.75
B. INR 0.48
C. INR 2.08
D. INR 2.80
MCQ. Stockholders that do not get benefits even if company's earnings grow are classified as
A. preferred stockholders
B. common stockholders
C. hybrid stockholders
D. debt holders
MCQ. In balance sheet, sum of retained earnings and common stock are considered as
A. preferred equity
B. due equity
C. common perpetuity
D. common equity
MCQ. Securities with less predictable prices and have longer maturity time is considered as
A. cash equivalents
B. long-term investments
C. inventories
D. short-term investments
MCQ. Number of shares outstanding if it is divided by net income for using to calculate
A. earning per share
B. dividends per share
C. book value of share
D. market value of shares
MCQ. Purchase cost of assets over its useful life is classified as
A. appreciation
B. depreciation
C. appreciated assets
D. appreciated liabilities

MCQ. Process of calculating future value of money from present value is classified as
 A. compounding
B. discounting
C. money value
D. stock value
MCQ. Type of basic financial statements consist of
A. balance sheet and income statement
B. statement of retained earning
C. statement of cash flows
D. all of above
MCQ. If common shares outstanding are 50,000,000 and book value per share is INR 19.92 then total
common equity (in dollars) will be
A. INR 996,000,000
B. INR 995,000,000.00
C. 992,000,000
D. 991,000,000
MCQ. An income available for shareholders after deducting expenses and taxes from revenues is
classified as
A. net income
B. net earnings
C. net expenses
D. net revenues
MCQ. Security present value is INR 100 and future value is INR 150 after 10 years and value of 'I =
interest rate' will be
A. 4.14%
B. 0.59%
C. 0.69%
D. 0.79%
MCQ. Noncash revenues and noncash charges if it subtracted from net income is equal to
A. free cash flow
B. retained cash flow
C. net cash flow
D. financing cash flow
MCQ. An information uses by investors for expecting future earnings is all recorded in
A. five years report
B. annual report
C. stock report
D. exchange report

VALUATION OF BOND
MCQ. Second mortgages pledged against bond's security are referred as
A. loan mortgages
B. medium mortgages
C. senior mortgages
D. junior mortgages
MCQ. Long period of bond maturity leads to
A. more price change
B. stable prices
C. standing prices
D. mature prices
MCQ. If coupon rate is equal to going rate of interest then bond will be sold
A. at par value
B. below its par value
C. more than its par value
D. seasoned par value
MCQ. Falling interest rate leads change to bondholder income which is
A. reduction in income
B. increment in income
C. matured income
D. frequent income
MCQ. Bonds issued by corporations and exposed to default risk are classified as
A. corporation bonds
B. default bonds
C. risk bonds
D. zero risk bonds
Treasury bonds are exposed to additional risks that are included
A. reinvestment risk
B. interest rate risk
C. investment risk
D. Both A and B
MCQ. If bond's call provision is practiced in first year of issuance then an additional payment is
classified as
A. issuance provision
B. bond provision
C. call provision
D. first provision
MCQ. Reinvestment risk of bond's is higher on
A. short maturity bonds
B. high maturity bonds
C. high premium bonds
D. high inflated bonds
MCQ. Bonds that have high liquidity premium are usually have
A. inflated trading
B. default free trading
C. less frequently traded
D. frequently traded
MCQ. Bond which is offered below its face value is classified as
A. present value bond
B. original issue discount bond
C. coupon issued bond
D. discounted bond
MCQ. Risk of fall in income due to fall in interest rates in future is classified as
A. income risk
B. investment risk
C. reinvestment risk
D. mature risk
MCQ. Redemption option which protects investors against rise in interest rate is considered as
A. redeemable at deferred
 B. redeemable at par
C. redeemable at refund
D. redeemable at finding
MCQ. Payment divided by par value is classified as
A. divisible payment
B. coupon payment
C. par payment
D. per period payment
MCQ. An official entity that represents bondholders and ensures stated rules in indenture is classified
as
A. trustee
B. trust
C. stated entity
D. owner entity
MCQ. An annual interest payment divided by current price of bond is considered as
A. current yield
B. maturity yield
C. return yield
D. earning yield
MCQ. If coupon rate is more than going rate of interest then bond will be sold
A. more than its par value
B. seasoned par value
C. at par value
D. below its par value
MCQ. Call provision practiced by company which states that call price will be paid is classified as
A. super refund provision
B. super put redemption
C. make-whole call provision
D. super call provision
MCQ. Difference between bond's yield and any other security yield having same maturities is
considered as
A. maturity spread
B. bond spread
C. yield spread
D. interest spread
MCQ. Protective covenant devised in market to reduce event risk and to control debt cost is classified
as
A. super poison covenant
B. super poison put
C. super poison call
D. super poison redemption
MCQ. Coupon rate of convertible bond is
A. higher
B. lower
C. variable
D. stable
1. The value of a bond and debenture is
a) Present value of interest payments it gets
b) Present value of contractual payments it gets till maturity
c) Present value of redemption amount
d) None of the above
2. Required rate of return>Coupon rate, the bond will be valued at
a) Premium
b) Par value
c) Discount
d) None of the above.

3. If the coupon rate is constant, the value of bond when close to maturity will be
a) Issued value
b) Par value
c) Redemption value
d) All of the above
4. A bond is said to be issued at premium when
a) Coupon rate>Required returns
b) Coupon rate=Required returns
c) Coupon rate
d) None of the above
5. Value of a bond just depends on the interest payment is offers.
a) True
b) False
6. In a variable growth model, the dividend is believed to grow at a constant pace forever after an initial
growth period.
a) True
b) False
7. For a bond YTM is always equal to coupon rate.
a) True
b) False
CAPITAL BUDGETING
MCQ. A project whose cash flows are more than capital invested for rate of return then net present value will
be
A. positive
B. independent
C. negative
D. zero
Answer A
MCQ. In mutually exclusive projects, project which is selected for comparison with others must have
A. higher net present value
B. lower net present value
C. zero net present value
D. all of above
Answer A
MCQ. Relationship between Economic Value Added (EVA) and Net Present Value (NPV) is considered as
A. valued relationship
B. economic relationship
C. direct relationship
D. inverse relationship
Answer C
MCQ. An uncovered cost at start of year is INR 200, full cashflow during recovery year is INR 400 and prior
years to full recovery is 3 then payback would be
A. 5 years
B. 3.5 years
C. 4 years
D. 4.5 years
Answer B
MCQ. In capital budgeting, positive net present value results in
A. negative economic value added
B. positive economic value added
C. zero economic value added
D. percent economic value added
MCQ. An uncovered cost at start of year is divided by full cashflow during recovery year then added in prior
years to full recovery for calculating
 A. original period
B. investment period
C. payback period
D. forecasted period
Answer C
MCQ. In cash flow analysis, two projects are compared by using common life is classified as
A. transaction approach
B. replacement chain approach
C. common life approach
D. Both B and C
Answer D
MCQ. Other factors held constant, but lesser project liquidity is because of
A. shorter payback period
B. greater payback period
C. less project return
D. greater project return
Answer B
MCQ. In capital budgeting, an internal rate of return of project is classified as its
A. external rate of return
B. internal rate of return
C. positive rate of return
D. negative rate of return
Answer B
MCQ. In independent projects evaluation, results of internal rate of return and net present value lead to
A. cash flow decision
B. cost decision
C. same decisions
D. different decisions
MCQ. In internal rate of returns, discount rate which forces net present values to become zero is classified as
A. positive rate of return
B. negative rate of return
C. external rate of return
D. internal rate of return
Answer D
MCQ. * projects which are mutually exclusive but different on scale of production or time of completion then the
A. external return method
B. net present value of method
C. net future value method
D. internal return method
Answer B
MCQ. Graph which is plotted for projected net present value and capital rates is called
A. net loss profile
B. net gain profile
 C. net future value profile
D. net present value profile
Answer D
MCQ. A modified internal rate of return is considered as present value of costs and is equal to
A. p.v of hurdle rate
B. fv of hurdle rate
C. p.v of terminal value
D. fv of terminal value
Answer C
MCQ. * set of projects or set of investments usually maximize firm value is classified as
A. optimal capital budget
B. minimum capital budget
C. maximum capital budget
D. greater capital budget
MCQ. A point where profile of net present value crosses horizontal axis at plotted graph indicates project
A. costs
B. cash flows
C. internal rate of return
D. external rate of return
Answer C
MCQ. Modified rate of return and modified internal rate of return with exceed cost of capital if net present value
is
A. positive
B. negative
C. zero
D. one
Answer A
MCQ. Payback period in which an expected cash flows are discounted with help of project cost of capital is
classified as
A. discounted payback period
B. discounted rate of return
C. discounted cash flows
D. discounted project cost
Answer A
MCQ. In alternative investments, constant cash flow stream is equal to initial cash flow stream in approach
which is classified as
A. greater annual annuity method
B. equivalent annual annuity
C. lesser annual annuity method
D. zero annual annuity method
Answer B
MCQ. In capital budgeting, a negative net present value results in
A. zero economic value added
B. percent economic value added
C. negative economic value added
D. positive economic value added
Answer C

Answer A

Answer C

Answer B