Q1: In finance we refer to the market where existing securities are bought and sold as the __________ market.
(A) Money
(B) Capital
(C) Primary
(D) Secondary
Answer: (D) Secondary market
Q2: In conducting an index analysis every balance sheet item is divided by __________ and every income statement is divided by __________.
(A) Its corresponding base year balance sheet item; its corresponding base year income statement item
(B) Its corresponding base year income statement item; its corresponding base year balance sheet item
(C) Net sales or revenues; total assets
(D) Total assets; net sales or revenues
Answer: (A) Its corresponding base year balance sheet item; its corresponding base year income statement item
Q3: To increase a given future value, the discount rate should be adjusted __________.
(A) Upward
(B) Downward
(C) First upward and then downward
(D) None of the given options
Answer: (B) Downward
Q4: Which investment alternative would provide the greatest future value?
(A) 10% compounded daily
(B) 10.5% compounded annually
(C) 10.25% compounded quarterly
(D) Incomplete information
Answer: (A) 10% compounded daily
Q5: As interest rates go up, the present value of a stream of fixed cash flows _____
(A) Goes down
(B) Goes up
(C) Stays the same
(D) Cannot be found
Answer: (A) Goes down
Q6: A 5-year ordinary annuity has PV Rs.1,000; interest rate 8%. Payment closest to:
(A) Rs.250.44
(B) Rs.231.91
(C) Rs.181.62
(D) Rs.184.08
Answer: (B) Rs.231.91
Q7: Capital budgeting principles require us to:
(A) Include sunk costs, ignore opportunity costs
(B) Include opportunity costs, ignore sunk costs
(C) Ignore both
(D) Include both
Answer: (B) Include opportunity costs, ignore sunk costs
Q8: Technique for a project with non-normal cash flows:
(A) IRR
(B) Multiple IRR
(C) Modified IRR
(D) NPV
Answer: (C) Modified IRR
Q9: When coupon bonds are issued, typically sold:
(A) Below par
(B) Above par
(C) At or near par value
(D) Unrelated to par
Answer: (C) At or near par value
Q10: Which has no effect when financial health changes?
(A) Market value
(B) Price of share
(C) Par value
(D) None
Answer: (C) Par value
Q11: The value of dividend is derived from:
(A) Cash flow streams
(B) Capital gain/loss
(C) Difference between buying & selling price
(D) All of the above
Answer: (A) Cash flow streams
Q12: True statements:
I. Dividend growth model holds if dividend growth exceeds required return
II. Decrease in dividend growth increases stock value
III. Increase in required return decreases stock value
(A) I, II, III
(B) I only
(C) III only
(D) II & III only
Answer: (C) III only
Q13: Diversification reduces risk by spreading across:
(A) Investments
(B) Markets
(C) Industries
(D) All of the above
Answer: (D) All of the above
Q14: Expected returns same, SD options: most risky portfolio?
(A) 1.5%
(B) 2.0%
(C) 3.0%
(D) 4.0%
Answer: (D) 4.0%
Q15: Bonds appear under which category?
(A) Equity
(B) Fixed assets
(C) Short term loan
(D) Long term loan
Answer: (D) Long term loan
Q16: Expanding number of investments covering different stocks:
(A) Diversification
(B) Standard deviation
(C) Variance
(D) Covariance
Answer: (A) Diversification
Q17: PV of Rs.8,000 at 11% for 3 years:
(A) Rs.5,850
(B) Rs.4,872
(C) Rs.6,725
(D) Rs.1,842
Answer: (B) Rs.4,872
Q18: By summing discounted cash flows we calculate:
(A) Liquidation value
(B) Intrinsic value
(C) Book value
(D) Market value
Answer: (B) Intrinsic value
Q19: Correct accounting equation:
(A) Assets + Equity = Liabilities + Expenses
(B) Assets + Expenses = Liabilities + Expenses + Revenue
(C) Assets + Liabilities = Equity + Expenses + Revenue
(D) Assets + Revenue + Liabilities = Equity
Answer: (C) Assets + Liabilities = Equity + Expenses + Revenue
Q20: Income statement representation:
(A) Profit – Expenses = Sales revenue
(B) Sales revenue – Expenses = Profit
(C) Assets + Liabilities = Equity
(D) Sales revenue + Equity = Assets
Answer: (B) Sales revenue – Expenses = Profit
Q21: Annuity with no time span involved:
(A) Ordinary annuity
(B) Annuity due
(C) Perpetuity
(D) None
Answer: (C) Perpetuity
Q22: All examples of annuity except:
(A) Mortgage payment
(B) Insurance premium
(C) Monthly rental payments
(D) Fixed coupon payments
Answer: (B) Insurance premium
Q23: Value of bond expected:
(A) Fair value
(B) Book value
(C) Market value
(D) Maturity value
Answer: (A) Fair value
Q24: YTM formula:
(A) Capital gain + Market price
(B) Present value + interest yield
(C) Market price + interest yield
(D) Interest yield + Capital gain yield
Answer: (D) Interest yield + Capital gain yield
Q25: Increase in expected growth rate → required return:
(A) Increase
(B) Decrease
(C) Fluctuate
(D) Possibly any
Answer: (B) Decrease
Q26: Expected rate of return formula (simplified):
(A) P / P × P
(B) P + P / P
(C) P – P / P
(D) P – P / P
Answer: (C) P – P / P
Q27: ABC stock price fell due to missed deadlines:
(A) Market risk
(B) Company-specific risk
(C) Industry risk
(D) Economic risk
Answer: (B) Company-specific risk
Q28: Payback period ≤ 3 years; choose project:
(A) Project A 1.66
(B) Project B 2.66
(C) Project C 3.66
(D) Project A & B
Answer: (D) Project A & B