Q1: An initial investment of Rs. 200,000 is required; Rs. 9,000 per month is earned in the first year and Rs. 20,000 per month in the second year. How many months will it take to recover the initial investment?
(A) 14 months
(B) 16 months
(C) 18 months
(D) 20 months
Answer: (B) 16 months
Q2: “Don’t put all eggs in one basket” explains __________ concept of finance.
(A) Time value of money
(B) Risk and Return
(C) Discounting and NPV
(D) Portfolio Diversification
Answer: (D) Portfolio Diversification
Q3: _________ is equal to risk per unit return.
(A) Standard Deviation
(B) Variance
(C) Coefficient of Variation
(D) None of the given options
Answer: (C) Coefficient of Variation
Q4: A bond that pays no annual interest but is sold at a discount below the par value is called:
(A) An original maturity bond
(B) A floating rate bond
(C) A fixed maturity date bond
(D) A zero coupon bond
Answer: (D) A zero coupon bond
Q5: Since preferred stock dividends are fixed, valuing preferred stock is roughly equivalent to valuing:
(A) A zero growth common stock
(B) A positive growth common stock
(C) A short-term bond
(D) An option
Answer: (A) A zero growth common stock
Q6: An unincorporated business owned by one individual is called _________.
(A) Partnership
(B) Company
(C) Sole proprietorship
(D) None of given options
Answer: (C) Sole proprietorship
Q7: _______ is a ratio of the present value of future cash flows to the initial investment.
(A) Return on Investment
(B) NPV
(C) Payback Period
(D) Profitability Index
Answer: (D) Profitability Index
Q8: _______ is the actual price at which a share is bought or sold.
(A) Fair price
(B) Par value
(C) Market price
(D) Written down value
Answer: (C) Market price
Q9: _____ ratio gives an indication of how equity investors regard the company’s value.
(A) Price / Earning
(B) Market / Book
(C) Earning / Share
(D) Price / Cash flow
Answer: (B) Market / Book
Q10: In the formula r = (D1V1/Po) + g, what does (D1V1/Po) represent?
(A) The expected dividend yield from a common stock
(B) The expected price appreciation yield from a common stock
(C) The dividend yield from a preferred stock
(D) The interest payment from a bond
Answer: (A) The expected dividend yield from a common stock
Q11: For a given nominal interest rate, the more numerous the compounding periods, the less the effective annual interest rate.
(A) True
(B) False
Answer: (B) False
Q12: The current ratio is never larger than the quick ratio.
(A) True
(B) False
Answer: (B) False
Q13: When interest rates go up, the market price of a bond goes up.
(A) True
(B) False
Answer: (B) False
Q14: Maximizing the price of a share of the firm’s common stock is equivalent to maximizing the wealth of the firm’s present owners.
(A) True
(B) False
Answer: (A) True
Q15: You can reduce systematic risk by adding more common stocks to your portfolio.
(A) True
(B) False
Answer: (B) False