Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following market refers to the market for relatively long-term financial instruments? ► Secondary market
► Primary market
► Money market
► Capital market
Question No: 2 ( Marks: 1 ) - Please choose one
Which of the following would cause the gross profit margin to remain unchanged, but the net profit margin declined over the same period? ► Cost Cost of goods sold increased relative to sales
► Sales increased relative to expenses
► Govt. increased the tax rate
► Di DiDividends were decreased
Question No: 3 ( Marks: 1 ) - Please choose one
Which group of ratios shows the extent to which the firm is financed with debt? ► Liquidity ratios
► Debt ratios
► Coverage ratios
► Profitability ratios
Question No: 4 ( 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: 5 ( Marks: 1 ) - Please choose one
A 5-year ordinary annuity has periodic cash flows of Rs.100 each year. If the interest rate is 8 percent, the present value of this annuity is closest to which of the following? ► Rs.331.20
► Rs.399.30
► Rs.431.24
► Rs.486.65
Question No: 6 ( Marks: 1 ) - Please choose one
ABC Co. will earn Rs. 350 million in cash flow in four years from now. Assuming an 8.5% weighted average cost of capital, what is that cash flow worth today? ► Rs.253 million
► Rs.323 million
► Rs.380 million
► Rs.180 million
Question No: 7 ( Marks: 1 ) - Please choose one
If the cash flow stream for a project is NOT a uniform series of inflows and initial outflow occur at time 0. 15% discount rate produces a resulting present value of Rs. 104,000 that is greater than the initial cash outflow of Rs. 100,000. Now if we want to calculate the best discount rate: ► We need to try a higher discount rate
► We need to try a lower discount rate
► 15% is the best discount rate
► Interpolation is not required here
Question No: 8 ( Marks: 1 ) - Please choose one
In which of the following situations you can expect multiple answers of IRR? ► More than one sign change taking place in cash flow diagram
► There are two adjacent arrows one of them is downward pointing & the other one is upward pointing
► During the life of project if you have any net cash outflow
► All of the given options
Question No: 9 ( Marks: 1 ) - Please choose one
Which one of the following selects the combination of investment proposals that will provide the greatest increase in the value of the firm within the budget ceiling constraint? ► Cash budgeting
► Capital budgeting
► Capital rationing
► Capital expenditure
Question No: 10 ( Marks: 1 ) - Please choose one
Which of the following statements is correct in distinguishing between serial bonds and sinking-fund bonds? ► Serial bonds mature at a variety of dates, but sinking-fund bonds mature at a single date
► Serial bonds provide for the deliberate retirement of bonds prior to maturity, but sinking-fund bonds do not provide for the deliberate retirement of bonds prior to maturity
► Serial bonds do not provide for the deliberate retirement of bonds prior to maturity, but sinking-fund bonds do provide for the deliberate retirement of bonds prior to maturity
► None of the above are correct since a serial bond is identical to a sinking fund bond
Question No: 11 ( Marks: 1 ) - Please choose one
Bond is a type of Direct Claim Security whose value is NOT secured by __________. ► Tangible assets
► Intangible assets
► Fixed assets
► Real assets
Question No: 12 ( Marks: 1 ) - Please choose one
Interest rate risk for long term bonds is more than the interest rate risk for short term bonds provided the _________ for the bonds is similar. ► Interest rate risk
► Market rate
► Coupon rate
► Inflation rate
Question No: 13 ( Marks: 1 ) - Please choose one
You wish to earn a return of 13% on each of two stocks, X and Y. Stock X is expected to pay a dividend of Rs. 3 in the upcoming year while Stock Y is expected to pay a dividend of Rs. 4 in the upcoming year. The expected growth rate of dividends for both stocks is 7%. The intrinsic value of stock X: ► Will be greater than the intrinsic value of stock Y
► Will be the same as the intrinsic value of stock Y
► Will be less than the intrinsic value of stock Y
► Cannot be calculated without knowing the market rate of return
Question No: 14 ( Marks: 1 ) - Please choose one
The risk that covers events like unexpected changes in the economy refers to: ► Systematic risk
► Unsystematic risk
► Total risk
► All of the above
Question No: 15 ( Marks: 1 ) - Please choose one
What is the present value of Rs.1,000 to be paid at the end of 5 years if the interest rate is 8% compounded annually? ► Rs.680.58
► Rs.1,462.23
► Rs.322.69
► Rs.401.98
Question No: 16 ( Marks: 1 ) - Please choose one
Which of the following is Not an inter-related area of finance? ► Money & Capital markets
► Investments
► Designing the software for management
► Financial Management
Question No: 17 ( Marks: 1 ) - Please choose one
Which of the following best describes the two major areas of concern of financial management? ► Globalization and technology
► Capital budgeting and technology
► Capital structure and globalization
► Investment and capital budgeting
Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following concept says that a safe rupee in your hand is better than the risky rupee which is not in your hand? ► Portfolio diversification
► Risk & return
► Net present value
► Time value of money
Question No: 19 ( Marks: 1 ) - Please choose one
Through which of the following formula desired growth rate can be calculated? ► Return on equity × (1- payout ratio)
► Return on equity / (1- payout ratio)
► Return on equity + (1+ payout ratio)
► Return on equity - (1/ payout ratio)
Question No: 20 ( Marks: 1 ) - Please choose one
Which of the following is the formula to calculate the future value of perpetuity? ► Constant cash flows × interest rate
► Constant cash flows / interest rate
► Constant cash flows + Constant cash flows × interest rate
► Constant cash flows - Constant cash flows/ interest rate
Question No: 21 ( Marks: 1 ) - Please choose one
All of the following are the examples of annuity EXCEPT: ► Mortgage payment
► Insurance premium
► Monthly rental payments
► Fixed coupon payments
Question No: 22 ( Marks: 1 ) - Please choose one
A bond which is easily convertible to stocks is called: ► Junk bond
► Euro bond
► Mortgage bond
► Convertible bonds
Question No: 23 ( Marks: 1 ) - Please choose one
If the market interest rate increases, the value of the bond decreases. This concept is called as: ► Interest rate risk
► Market risk
► Book value risk
► Life span risk
Question No: 24 ( Marks: 1 ) - Please choose one
Earning per share can be calculated with the help of which of the following formula? ► Net income / number of shares outstanding
► Net income – dividend / number of shares outstanding
► Operating income / number of shares outstanding
► Earning before interest and taxes / number of shares outstanding
Question No: 25 ( Marks: 1 ) - Please choose one
Value of “g” in the formula of constant growth rate can be calculated from which of the following formula? ► g = plowback ratio × ROE
► g = plowback ratio × ROA
► g = payout ratio + ROE
► g = payout ratio + ROA
Question No: 26 ( Marks: 1 ) - Please choose one
The sum of probabilities of all possible outcomes must add up to __________. ► 100 %
► 150 %
► 180 %
► 360 %
Question No: 27 ( Marks: 1 ) - Please choose one
The probability of any one outcome for an event is always stated as a percentage of which of the following? ► Most likely outcomes
► Total outcomes possible
► Past outcomes for the event
► Independent events
Question No: 28 ( Marks: 1 ) - Please choose one
Which is the best measure for an asset held in a diversified portfolio? ► Beta
► Variance
► Standard deviation
► Coefficient of variation
Question No: 29 ( Marks: 3 )
How should investors interpret price-earnings ratios?It is a valuation of a company’s current share price. A high P/E shows that investors are expecting higher earnings growth in the future. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E.
Question No: 30 ( Marks: 3 )
Why doesn't the payback rule always make shareholders better off?
It is a simple measure of the time it takes to recover capital spent on an investment. It ignores time value of money and cash flows, which dose not show the real picture of the investments. That is why it is not useful as much and investors use other capital budgeting techniques like present value etc.
Question No: 31 ( Marks: 5 )
Why a person should invest in shares? Give reasons.For a long time period, shares can produce major capital gains through increases in share prices. Many companies also issue bonus shares to their shareholders as another way to benefit their shareholders and also increase in their net worth.
To diversify investment portfolio, it will probably have part of investor’s money in the share market. An investor may buy shares directly or through managed funds or broker. Compared to other investments like property, shares are very portable. They can be bought and sold quickly, and the brokerage on the transactions is lower than for a property transaction. Unlike selling a property, you can sell part of your share parcels.
Question No: 32 ( Marks: 5 )
What is difference between expected return and required rate of return?Required rate of return is the amount that you would need to put your money into any investment. It is an opportunity cost. If investor put extra money towards his investment that had an interest rate of 10 then 10 percent or more would be the required return that he would need on an alternative investment in order to get him to invest in the alternative.
Expected return is the weighted average of all probable outcomes for that investment. Its the most likely return you would expect from an investment based on its risk. But it is not guaranteed. If the expected return is equal to or more than your required return then you would invest. It is calculated through probability distribution curve of all possible rates of return. if an asset is risky, the expected return will be the risk-free rate of return plus a certain risk premium.
Expected return is the weighted average of all probable outcomes for that investment. Its the most likely return you would expect from an investment based on its risk. But it is not guaranteed. If the expected return is equal to or more than your required return then you would invest. It is calculated through probability distribution curve of all possible rates of return. if an asset is risky, the expected return will be the risk-free rate of return plus a certain risk premium.