composed & solved hafiz salman majeed vu askari team www ... · composed & solved hafiz...

Composed & SolvedHafiz Salman Majeed

Vu Askari Teamwww.vuaskari.com

Note: Solve these papers by yourselfThis VU Group is not responsible for any solved content

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MGT201 Online Quiz#3…12 Quizzes Attempt & SolvedBy Hafiz Salman Majeed

Question # 1 of 15 ( Start time: 11:22:36 PM ) Total Marks: 1What is the additional amount a borrower must pay to lender to compensate for assumingthe risk associated with non-payment?Select correct option:

Default risk premiumSovereign Risk PremiumMarket risk premiumMaturity risk premium

Question # 2 of 15 ( Start time: 11:22:55 PM ) Total Marks: 1Consider 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 bondB will mature in 6 years. If the yields to maturity on the two bonds change from 12% to10%, ____________.Select correct option:

Both bonds will increase in value, but bond A will increase more than bond BBoth bonds will increase in value, but bond B will increase more than bond ABoth bonds will decrease in value, but bond A will decrease more than bond BBoth bonds will decrease in value, but bond B will decrease more than bond A

Question # 3 of 15 ( Start time: 11:23:21 PM ) Total Marks: 1Which of the following statements is TRUE regarding Permanent Accounts?Select correct option:

Accounts that are found on Income StatementAccounts that are found on Statement of Retained EarningsAccounts that are found on Balance SheetAll of the given options

Question # 4 of 15 ( Start time: 11:23:37 PM ) Total Marks: 1Which group of ratios shows the extent to which the firm is financed with debt?Select correct option:

Liquidity ratiosDebt ratiosCoverage ratiosProfitability ratios




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Question # 5 of 15 ( Start time: 11:23:52 PM ) Total Marks: 1Where the stock points will lie, if a stock is a part of totally diversified portfolio?Select correct option:

It will lie below the regression lineIt will line above the regression lineIt will line exactly on the regression lineIt will be tangent to the regression line

Question # 6 of 15 ( Start time: 11:24:11 PM ) Total Marks: 1A 5-year ordinary annuity has a present value of Rs.1,000. If the interest rate is 8 percent,the amount of each annuity payment is closest to which of the following?Select correct option:

Rs. 250.44Rs. 231.91Rs.181.62Rs.184.08

Question # 7 of 15 ( Start time: 11:24:38 PM ) Total Marks: 1To increase a given future value, the discount rate should be adjusted __________.Select correct option:

UpwardDownwardFirst upward and then downwardNone of the given options

Question # 8 of 15 ( Start time: 11:24:55 PM ) Total Marks: 1Security market line gives the relationship between _______ and _________.Select correct option:

Market risk and the required returnSystematic risk and the required returnNon-diversified risk and the required returnAll of the given options

Question # 9 of 15 ( Start time: 11:25:11 PM ) Total Marks: 1Which of the following is type a Temporary Account?Select correct option:

AssetLiability




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ReservesRevenue

Question # 10 of 15 ( Start time: 11:25:25 PM ) Total Marks: 1Discounted cash flow methods provide a more objective basis for evaluating andselecting an investment project. These methods take into account:Select correct option:

Magnitude of expected cash flowsTiming of expected cash flowsBoth timing and magnitude of cash flowsNone of the given options

Question # 11 of 15 ( Start time: 11:26:07 PM ) Total Marks: 1With continuous compounding at 8 percent for 20 years, what is the approximate futurevalue of a Rs. 20,000 initial investment?Select correct option:

Rs.52,000Rs.93,219Rs.99,061Rs.915,240

Question # 12 of 15 ( Start time: 11:26:30 PM ) Total Marks: 1What are the Direct claim securities?Select correct option:

The securities whose value depends on the cash flows generated by the underlying assetsThe securities whose value depends on the value of the underlying assetsThe securities that do not directly generate any returns for its investorsAll of the given options

Question # 13 of 15 ( Start time: 11:26:48 PM ) Total Marks: 1If we invest in many securities which are ________to each other then it is possible toreduce overall risk for your investment.Select correct option:

ComparableCorrelatedHighly correlatedNegatively correlated

Question # 14 of 15 ( Start time: 11:27:08 PM ) Total Marks: 1




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A 5-year annuity due has periodic cash flows of Rs.100 each year. If the interest rate is 8percent, the future value of this annuity is closest to which of the following equations?Select correct option:

(Rs.100)(FVIFA at 8% for 5 periods)(Rs.100)(FVIFA at 8% for 4 periods)(1.08)(Rs.100) (FVIFA at 8% for 5 periods)(1.08)(Rs.100)(FVIFA at 8% for 4 periods) + Rs.100

Question # 15 of 15 ( Start time: 11:29:08 PM ) Total Marks: 1For most firms, P/E ratios and risk_________.Select correct option:

Will be directly relatedWill have an inverse relationshipWill be unrelatedNone of the above.

Question # 1 of 15 ( Start time: 11:35:31 PM ) Total Marks: 1Which of the following formulas represents a correct calculation of the degree ofoperating leverage?Select correct option:

(Q - QBE)/Q(EBIT) / (EBIT - FC)[Q(P-V) + FC] /[Q(P-V)]Q(P-V) / [Q(P-V) - FC]

Question # 2 of 15 ( Start time: 11:35:48 PM ) Total Marks: 1A capital budgeting technique through which discount rate equates the present value ofthe future net cash flows from an investment project with the project’s initial cashoutflow is known as:Select correct option:

Payback periodInternal rate of returnNet present valueProfitability index

Question # 3 of 15 ( Start time: 11:36:02 PM ) Total Marks: 1What is the additional amount a borrower must pay to lender to compensate for assumingthe risk associated with non-payment?Select correct option:




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Question # 4 of 15 ( Start time: 11:36:15 PM ) Total Marks: 1Which of the following is similar between Return on investment and Payback periodtechniques of Capital budgeting?Select correct option:

Involvement of interest rate while making calculationsDo not account for time value of moneyTricky and complicated methodsAll of the given options

Question # 5 of 15 ( Start time: 11:36:34 PM ) Total Marks: 1Which of the following is NOT true regarding an annuity due?Select correct option:

It is a series of equal cash flowsIt is also known as deferred annuityCash flows occur for a specific time periodPayments are made at the start of each period

Question # 6 of 15 ( Start time: 11:37:30 PM ) Total Marks: 1Which of the following will NOT equate the future value of cash inflows to the presentvalue of cash outflows?Select correct option:

Discount rateProfitability indexInternal rate of returnMultiple Internal rate of return

Question # 7 of 15 ( Start time: 11:37:45 PM ) Total Marks: 1Which of the following needs to be excluded while we calculate the incremental cashflows?Select correct option:

DepreciationSunk costOpportunity cost




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Non-cash item

Question # 8 of 15 ( Start time: 11:37:59 PM ) Total Marks: 1For most firms, P/E ratios and risk_________.Select correct option:

Will be directly relatedWill have an inverse relationshipWill be unrelatedNone of the above.

Question # 9 of 15 ( Start time: 11:38:08 PM ) Total Marks: 1Which of the following is NOT an example of a financial intermediary?Select correct option:

Wisconsin S&L, a savings and loan associationStrong Capital Appreciation, a mutual fundMicrosoft Corporation, a software firmCollege Credit, a credit union

Question # 10 of 15 ( Start time: 11:38:14 PM ) Total Marks: 1What is the easiest method to diversify away firm-specific risks?Select correct option:

To buy stocks with a beta of 1.0To build a portfolio with 5-10 individual stocksTo purchase the shares of a mutual fundTo purchase stocks that plot above the security market line

Question # 11 of 15 ( Start time: 11:38:32 PM ) Total Marks: 1Which of the following could be taken same as minimizing the weighted average cost ofcapital?Select correct option:

Maximizing the market value of the firmMaximizing the market value of the firm only if MM's Proposition IMinimizing the market value of the firm only if MM's Proposition I holdsMaximizing the profits of the firm

Question # 12 of 15 ( Start time: 11:38:59 PM ) Total Marks: 1________ is paid by companies with lower grade bonds like CC or C ratings.Select correct option:




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Question # 13 of 15 ( Start time: 11:39:15 PM ) Total Marks: 1Which of the following affects price of the bond?Select correct option:

Market interest rateRequired rate of returnInterest rate riskAll of the given options

Question # 14 of 15 ( Start time: 11:39:35 PM ) Total Marks: 1The risk that covers events like unexpected changes in the economy refers to:Select correct option:

Systematic riskUnsystematic riskTotal riskAll of the above

Question # 15 of 15 ( Start time: 11:39:56 PM ) Total Marks: 1Which of the following is the cash required during a specific period to meet interestexpenses and principal payments?Select correct option:

Debt capacityDebt-service burdenAdequacy capacityFixed-charge burden

Question # 1 of 15 ( Start time: 11:46:27 PM ) Total Marks: 1Why markets and market returns fluctuate?Select correct option:

Because of political factorsBecause of social factorsBecause of socio-political factorsBecause of macro systematic factors

Question # 2 of 15 ( Start time: 11:46:43 PM ) Total Marks: 1




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Upon which of the following a firm's degree of operating leverage (DOL) dependsprimarily?Select correct option:

Sales variabilityLevel of fixed operating costsCloseness to its operating break-even pointDebt-to-equity ratio

Question # 3 of 15 ( Start time: 11:46:59 PM ) Total Marks: 1Which of the following is the value of beta for the market portfolio?Select correct option:

0.25-1.01.00.5

Question # 4 of 15 ( Start time: 11:48:08 PM ) Total Marks: 1An arbitrage opportunity exists if an investor can construct a __________ investmentportfolio that will yield a sure profit.Select correct option:

PositiveNegativeZeroAll of the above



Question # 6 of 15 ( Start time: 11:48:33 PM ) Total Marks: 1Which of the following is the general assumption of Percent of Sales Forecasting?Select correct option:

Current Assets usually grow in proportion to Revenues




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Current Assets usually grow in proportion to ExpensesCurrent Assets usually grow in proportion to LiabilitiesCurrent Assets usually grow in proportion to Sales

Question # 7 of 15 ( Start time: 11:48:53 PM ) Total Marks: 1Which of the following is/are the component(s) of working capital management?Select correct option:

Current assetsFixed assetsFixed assets and long-term liabilitiesCurrent assets and current liabilities

Question # 8 of 15 ( Start time: 11:49:13 PM ) Total Marks: 1To increase a given future value, the discount rate should be adjusted __________.Select correct option:

UpwardDownwardFirst upward and then downwardNone of the given options

Question # 9 of 15 ( Start time: 11:49:28 PM ) Total Marks: 1What is difference between shares and bonds?Select correct option:

Bonds are representing ownership whereas shares are notShares are representing ownership whereas bonds are notShares and bonds both represent equityShares and bond both represent liabilities

Question # 10 of 15 ( Start time: 11:49:46 PM ) Total Marks: 1Upon which of the following a firm's degree of operating leverage (DOL) dependsprimarily?Select correct option:


Question # 11 of 15 ( Start time: 11:50:02 PM ) Total Marks: 1Which of the following is the characteristic of a well diversified portfolio?




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Select correct option:

Its market risk is negligibleIts unsystematic risk is negligibleIts systematic risk is negligibleAll of the given options



Question # 13 of 15 ( Start time: 11:50:39 PM ) Total Marks: 1Upon which of the following a firm's degree of operating leverage (DOL) dependsprimarily?Select correct option:


Question # 14 of 15 ( Start time: 11:50:55 PM ) Total Marks: 1The logic behind _________ is that instead of looking at net cash flows you look at cashinflows and outflows separately for each point in time.Select correct option:

IRRMIRRPVNPV

Question # 15 of 15 ( Start time: 11:51:10 PM ) Total Marks: 1A set of possible values that a random variable can assume and their associatedprobabilities of occurrence are referred to as __________.Select correct option:

Probability distribution




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The expected returnThe standard deviationCoefficient of variation

Question # 1 of 15 ( Start time: 12:04:00 AM ) Total Marks: 1Effective interest rate is different from nominal rate of interest because:Select correct option:

Nominal interest rate ignores compoundingNominal interest rate includes frequency of compoundingPeriodic interest rate ignores the effect of inflationAll of the given options

Question # 2 of 15 ( Start time: 12:04:58 AM ) Total Marks: 1A technique that tells us the number of years required to recover our initial cashinvestment based on the project’s expected cash flows is:Select correct option:

Pay back periodInternal rate of returnNet present valueProfitability index

Question # 3 of 15 ( Start time: 12:05:41 AM ) Total Marks: 1An 8-year annuity due has a present value of Rs.1,000. If the interest rate is 5 percent, theamount of each annuity payment is closest to which of the following?Select correct option:

Rs.154.73Rs.147.36Rs.109.39Rs.104.72

Question # 4 of 15 ( Start time: 12:06:46 AM ) Total Marks: 1Which of the following is the cash required during a specific period to meet interestexpenses and principal payments?Select correct option:





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Question # 5 of 15 ( Start time: 12:06:59 AM ) Total Marks: 1According to the Capital Asset Pricing Model (CAPM), a well-diversified portfolio's rateof return is a function of which of the following:Select correct option:

Unique riskReinvestment riskMarket riskUnsystematic risk

Question # 6 of 15 ( Start time: 12:07:14 AM ) Total Marks: 1Study the time line and accompanying 5-period cash-flow pattern below. 0 1 2 3 4 5 6Time line |--------|--------|--------|--------|--------|--------| Rs.10 Rs.10 Rs.10 Rs.10 Rs.10Cash flows ¦ ¦ A B The present value of the 5-period annuity shown above as of Point A isthe present value of a 5-period ______________ , whereas the future value of the sameannuity as of Point B is the future value of a 5-period ______________ .Select correct option:

Ordinary annuity; ordinary annuityOrdinary annuity; annuity dueAnnuity due; annuity dueAnnuity due; ordinary annuity

Question # 7 of 15 ( Start time: 12:07:30 AM ) Total Marks: 1With continuous compounding at 8 percent for 20 years, what is the approximate futurevalue of a Rs. 20,000 initial investment?Select correct option:

Rs.52,000Rs.93,219Rs.99,061Rs.915,240

Question # 8 of 15 ( Start time: 12:07:43 AM ) Total Marks: 1Where there is single period capital rationing, what is the most sensible way of makinginvestment decisions?Select correct option:

Choose all projects with a positive NPVGroup projects together to allocate the funds available and select the group of projects

with the highest NPVChoose the project with the highest NPVCalculate IRR and select the projects with the highest IRRs




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Question # 9 of 15 ( Start time: 12:08:01 AM ) Total Marks: 1Discounted cash flow methods provide a more objective basis for evaluating andselecting an investment project. These methods take into account:Select correct option:


Question # 10 of 15 ( Start time: 12:08:08 AM ) Total Marks: 1Which of the following would NOT be the part of the risk if the stock is a single stockinvestment?Select correct option:

Company specific riskUn-diversifiable riskDiversifiable riskRandom risk

Question # 11 of 15 ( Start time: 12:08:29 AM ) Total Marks: 1In which of the following approach you need to bring all the projects to the same lengthin time?Select correct option:

MIRR approachGoing concern approachCommon life approachEquivalent annual approach

Question # 12 of 15 ( Start time: 12:08:43 AM ) Total Marks: 1If Net Present Value technique is used, what is the minimum acceptance criterion for aproject?Select correct option:

NPV<0NPV=0NPV>0NPV<=0

Question # 13 of 15 ( Start time: 12:09:11 AM ) Total Marks: 1Which of the following refers to time value of money concept?




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A rupee in one’s hand at present is worth less than the rupee that one is going to receivetomorrowA rupee in one’s hand at present is worth more than the rupee that one is going to receive

tomorrowA rupee in one’s hand at present is worth same as the rupee that one is going to receive

tomorrowAll of the given options

Question # 14 of 15 ( Start time: 12:10:26 AM ) Total Marks: 1Which of the following allows to graphically depicting the timing of the cash flows aswell as their nature as either inflows or outflows?Select correct option:

Cash flow diagramCash budgetCash flow statementNone of the given options

Question # 15 of 15 ( Start time: 12:10:45 AM ) Total Marks: 1Which of the following would express the negative net worth of a firm?Select correct option:

Experiencing a business failureIn legal bankruptcyExperiencing technical insolvencyExperiencing accounting insolvency

Question # 1 of 15 ( Start time: 12:16:07 AM ) Total Marks: 1Which of the following statements regarding covariance is correct?Select correct option:

Covariance always lies in the range -1 to +1Covariance, because it involves a squared value, must always be a positive number (or

zero)Low covariances among returns for different securities leads to high portfolio riskCovariances can take on positive, negative, or zero values

Question # 2 of 15 ( Start time: 12:16:23 AM ) Total Marks: 1Which of the following formulas represents a correct calculation of the degree ofoperating leverage?Select correct option:




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Question # 3 of 15 ( Start time: 12:16:28 AM ) Total Marks: 1Which of the followings expressed the proposition that the cost of equity is a positivelinear function of capital structure?Select correct option:

The Capital Asset Pricing ModelM&M Proposition IM&M Proposition IIThe Law of One Price



Question # 5 of 15 ( Start time: 12:17:06 AM ) Total Marks: 1What does the law of conservation of value implies?Select correct option:

The mix of senior and subordinated debt does not affect the value of the firmThe mix of convertible and non-convertible debt does not affect the value of the firmThe mix of common stock and preferred stock does not affect the value of the firmAll of the given options

Question # 6 of 15 ( Start time: 12:17:22 AM ) Total Marks: 1Which of the following is related to the use Lower financial leverage?Select correct option:

Fixed costsVariable costsDebt financingCommon equity financing




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Question # 7 of 15 ( Start time: 12:17:38 AM ) Total Marks: 1Which of the following is NOT the step of Percentage of sales to be used in FinancialForecasting?Select correct option:

Estimate year-by-year Sales Revenue and ExpensesEstimate Levels of Investment Needs required to Meet Estimated SalesEstimate the Financing NeedsEstimate the retained earnings

Question # 8 of 15 ( Start time: 12:17:53 AM ) Total Marks: 1Which of the following is the maximum amount of debt (and other fixed-chargefinancing) that a firm can adequately service?Select correct option:






Question # 11 of 15 ( Start time: 12:18:36 AM ) Total Marks: 1Which of the following can not be the drawback of using payback period technique ofcapital budgeting?




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It does not account for time value of moneyIt neglects cash flows after the payback periodIt does not use interest rate while making calculationsIt is a tricky and complicated method

Question # 12 of 15 ( Start time: 12:19:12 AM ) Total Marks: 1Which of the following is a limitation of a Corporation?Select correct option:

Easy to set upDouble-taxationInexpensive to maintainUnlimited liability

Question # 13 of 15 ( Start time: 12:19:41 AM ) Total Marks: 1Which of the following equation is NOT correct?Select correct option:

Gross Revenue – Admin & Operating Expenses = Operating RevenueOther Expenses + Other Revenue = EBITEBIT – Financial Charges & Interest = EBTNet Income – Dividends = Retained Earning

Question # 14 of 15 ( Start time: 12:20:00 AM ) Total Marks: 1In calculating the costs of the individual components of a firm's financing, the corporatetax rate is important to which of the following component cost formulas?Select correct option:

Common stockDebtPreferred stockNone of the above

Question # 15 of 15 ( Start time: 12:20:26 AM ) Total Marks: 1When a bond will sell at a discount?Select correct option:

The coupon rate is greater than the current yield and the current yield is greater thanyield to maturityThe coupon rate is greater than yield to maturityThe coupon rate is less than the current yield and the current yield is greater than the




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yield to maturityThe coupon rate is less than the current yield and the current yield is less than yield to

maturity

Question # 1 of 15 ( Start time: 12:23:35 AM ) Total Marks: 1According to the Capital Asset Pricing Model (CAPM), a well-diversified portfolio's rateof return is a function of which of the following:Select correct option:

Unique riskReinvestment riskMarket riskUnsystematic risk

Question # 2 of 15 ( Start time: 12:23:50 AM ) Total Marks: 1Expected Portfolio Return = ___________.Select correct option:

rP * = xA rA + xB rBrP * = xA rA - xB rBrP * = xA rA / xB rBrP * = xA rA * xB rB

Question # 3 of 15 ( Start time: 12:24:09 AM ) Total Marks: 1What type of long-term financing most likely has the following features: 1) it has aninfinite life, 2) it pays dividends, and 3) its cash flows are expected to be a constantannuity stream?Select correct option:

Long-term debtPreferred stockCommon stockNone of the given options

Question # 4 of 15 ( Start time: 12:24:55 AM ) Total Marks: 1A company whose stock is selling at a P/E ratio greater than the P/E ratio of a marketindex most likely has _________.Select correct option:

An anticipated earnings growth rate which is less than that of the average firmA dividend yield which is less than that of the average firmLess predictable earnings growth than that of the average firmGreater cyclicality of earnings growth than that of the average firm




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Question # 5 of 15 ( Start time: 12:25:15 AM ) Total Marks: 1The weighted average of possible returns, with the weights being the probabilities ofoccurrence is referred to as __________.Select correct option:

Probability distributionExpected returnStandard deviationCoefficient of variation

Question # 6 of 15 ( Start time: 12:25:33 AM ) Total Marks: 1Which of the following statistic measures the returns of two risky assets that movetogether?Select correct option:

CorrelationStandard deviationSquare rootVariance

Question # 7 of 15 ( Start time: 12:27:00 AM ) Total Marks: 1What should be used to calculate the proportional amount of equity financing employedby a firm?Select correct option:

The common stock equity account on the firm's balance sheetThe sum of common stock and preferred stock on the balance sheetThe book value of the firmThe current market price per share of common stock times the number of shares

Outstanding

Question # 8 of 15 ( Start time: 12:27:20 AM ) Total Marks: 1Which of the following is a major disadvantage of the corporate form of organization?Select correct option:

Double taxation of dividendsInability of the firm to raise large sums of additional capitalLimited liability of shareholdersLimited life of the corporate form

Question # 9 of 15 ( Start time: 12:27:39 AM ) Total Marks: 1If the probability is written on Y-axis and the rate of return is mentioned on the X-axis,




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Which kind of relationship it shows when there is higher the standard deviation thehigher the risk.Select correct option:

Indirect relationshipInverse relationshipDirect relationshipNo relationship

Question # 10 of 15 ( Start time: 12:27:55 AM ) Total Marks: 1Upon which of the following a firm's degree of operating leverage (DOL) dependsprimarily?Select correct option:


Question # 11 of 15 ( Start time: 12:28:01 AM ) Total Marks: 1Which of the following is NOT true regarding an ordinary annuity?Select correct option:

It is a series of equal cash flowsCash flows occur for a specific time periodPayments are made at the start of each periodIt is also known as deferred annuity

Question # 12 of 15 ( Start time: 12:28:40 AM ) Total Marks: 1If Net Present Value technique is used, what is the minimum acceptance criterion for aproject?Select correct option:


Question # 13 of 15 ( Start time: 12:28:47 AM ) Total Marks: 1Which of the following could be taken same as minimizing the weighted average cost ofcapital?Select correct option:




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Maximizing the market value of the firmMaximizing the market value of the firm only if MM's Proposition IMinimizing the market value of the firm only if MM's Proposition I holdsMaximizing the profits of the firm

Question # 14 of 15 ( Start time: 12:29:04 AM ) Total Marks: 1__________ is the variability of return on stocks or portfolios not explained by generalmarket movements. It is avoidable through diversification.Select correct option:

Systematic riskStandard deviationUnsystematic riskCoefficient of variation



Question # 3 of 15 ( Start time: 12:54:41 AM ) Total Marks: 1How the beta of the stock could be calculated?Select correct option:

By monitoring price of the stockBy monitoring rate of return of the stockBy comparing the changes in the stock market price to the changes in the stock market

indexAll of the given options

Question # 4 of 15 ( Start time: 12:55:01 AM ) Total Marks: 1If risk and return combination of any stock is above the SML, what does it mean?Select correct option:

It is offering lower rate of return as compared to the efficient stockIt is offering higher rate of return as compared to the efficient stockIts rate of return is zero as compared to the efficient stockIt is offering rate of return equal to the efficient stock




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Question # 6 of 15 ( Start time: 12:55:36 AM ) Total Marks: 1Which of the following shows ALL possible Risk –Return combinations for Allcombinations of the stocks in the portfolio- whether efficient or not.Select correct option:

Parachute graphCapital market lineSecurity market lineAll of the given options





Question # 9 of 15 ( Start time: 12:56:03 AM ) Total Marks: 1




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A 5-year ordinary annuity has a present value of Rs.1,000. If the interest rate is 8 percent,the amount of each annuity payment is closest to which of the following?Select correct option:

Rs. 250.44Rs. 231.91Rs.181.62Rs.184.08

Question # 10 of 15 ( Start time: 12:56:22 AM ) Total Marks: 1Which of the following could be defined as the capital structure of the Company?Select correct option:

The firm's mix of different securitiesThe firm's debt-equity ratioThe market imperfection that the firm's manager can exploitAll of the above

Question # 11 of 15 ( Start time: 12:56:36 AM ) Total Marks: 1If a firm has a DOL of 5 at Q units, what would be the effect on sales and EBIT?Select correct option:

If sales rise by 5%, EBIT will rise by 5%If sales rise by 1%, EBIT will rise by 1%If sales rise by 5%, EBIT will fall by 25%If sales rise by 1%, EBIT will rise by 5%

Question # 12 of 15 ( Start time: 12:56:54 AM ) Total Marks: 1Which statement is NOT true regarding the market portfolio?Select correct option:

It includes all publicly traded financial assetsIt is the tangency point between the capital market line and the indifference curveAll securities in the market portfolio are held in proportion to their market valuesIt lies on the efficient frontier

Question # 13 of 15 ( Start time: 12:57:10 AM ) Total Marks: 1A set of possible values that a random variable can assume and their associatedprobabilities of occurrence are referred to as __________.Select correct option:

Probability distributionThe expected return




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The standard deviationCoefficient of variation

Question # 14 of 15 ( Start time: 12:57:38 AM ) Total Marks: 1Which of the following is NOT a cash outflow for the firm?Select correct option:

DepreciationDividendsInterestTaxes

Question # 15 of 15 ( Start time: 12:58:03 AM ) Total Marks: 1The value of the bond is NOT directly tied to the value of which of the following assets?Select correct option:

Real assets of the businessLiquid assets of the businessFixed assets of the businessLong term assets of the business

Question # 1 of 15 ( Start time: 01:03:31 AM ) Total Marks: 1In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, thepresent value of that future amount to you would __________.Select correct option:

FallRiseRemain unchangedIncomplete information



Question # 3 of 15 ( Start time: 01:03:54 AM ) Total Marks: 1How the beta of the stock could be calculated?




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By monitoring price of the stockBy monitoring rate of return of the stockBy comparing the changes in the stock market price to the changes in the stock market

indexAll of the given options

Question # 4 of 15 ( Start time: 01:04:00 AM ) Total Marks: 1As interest rates go up, the present value of a stream of fixed cash flows _____.Select correct option:

Goes downGoes upStays the sameCan not be found from the given information

Question # 5 of 15 ( Start time: 01:04:18 AM ) Total Marks: 1Which of the following is the main objective of ‘Economics’?Select correct option:

Profit maximizationMaximization of shareholders wealthCollection of accurate, systematic, and timely financial dataAll of the given options

Question # 6 of 15 ( Start time: 01:04:35 AM ) Total Marks: 1Which of the following is a major disadvantage of the corporate form of organization?Select correct option:

Double taxation of dividendsInability of the firm to raise large sums of additional capitalLimited liability of shareholdersLimited life of the corporate form

Question # 7 of 15 ( Start time: 01:04:41 AM ) Total Marks: 1Market risk is measured in terms of the ___________ of the market portfolio or index.Select correct option:

VarianceCovarianceStandard deviationCorrelation coefficient




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Question # 8 of 15 ( Start time: 01:04:55 AM ) Total Marks: 1Which of the following is correct, if a firm has a required rate of return equal to theROE?Select correct option:

The firm can increase market price and P/E by retaining more earnings.The firm can increase market price and P/E by increasing the growth rate.The amount of earnings retained by the firm does not affect market price or the P/E.None of the given options

Question # 9 of 15 ( Start time: 01:05:16 AM ) Total Marks: 1_________ is equal to (common shareholders' equity/common shares outstanding).Select correct option:

Book value per shareLiquidation value per shareMarket value per shareNone of the above

Question # 10 of 15 ( Start time: 01:05:23 AM ) Total Marks: 1The DuPont Approach breaks down the earning power on shareholders' book value(ROE) as follows: ROE = __________.Select correct option:

Net profit margin × Total asset turnover × Equity multiplierTotal asset turnover × Gross profit margin × Debt ratioTotal asset turnover × Net profit marginTotal asset turnover × Gross profit margin × Equity multiplier

Question # 11 of 15 ( Start time: 01:05:43 AM ) Total Marks: 1What are the Indirect securities?Select correct option:

The securities whose value depends on the cash flows generated by the underlying assetsThe securities whose value depends on the value of the underlying assetsThe securities that indirectly generate returns for its investorsAll of the given options

Question # 12 of 15 ( Start time: 01:06:19 AM ) Total Marks: 1Consider 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 bondB will mature in 6 years. If the yields to maturity on the two bonds change from 12% to




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10%, ____________.Select correct option:

Both bonds will increase in value, but bond A will increase more than bond BBoth bonds will increase in value, but bond B will increase more than bond ABoth bonds will decrease in value, but bond A will decrease more than bond BBoth bonds will decrease in value, but bond B will decrease more than bond A

Question # 13 of 15 ( Start time: 01:06:35 AM ) Total Marks: 1Which of the following includes the planning, directing, monitoring, organizing, andcontrolling of the monetary resources of an organization?Select correct option:

Financial accountingFinancial managementFinancial engineeringFinancial budgeting

Question # 14 of 15 ( Start time: 01:06:48 AM ) Total Marks: 1A set of possible values that a random variable can assume and their associatedprobabilities of occurrence are referred to as __________.Select correct option:

Probability distributionThe expected returnThe standard deviationCoefficient of variation

Question # 15 of 15 ( Start time: 01:07:07 AM ) Total Marks: 1Which of the following would be considered a cash-flow item from an "operating"activity?Select correct option:

Cash outflow to the government for taxesCash outflow to shareholders as dividendsCash inflow to the firm from selling new common equity sharesCash outflow to purchase bonds issued by another company

Question # 1 of 15 ( Start time: 01:10:31 AM ) Total Marks: 1According to timing difference problem a good project might suffer from _____ IRReven though its NPV is ________.Select correct option:




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Higher; lowerLower; LowerLower; higherHigher; higher

Question # 2 of 15 ( Start time: 01:11:00 AM ) Total Marks: 1If the probability is written on Y-axis and the rate of return is mentioned on the X-axis,Which kind of relationship it shows when there is higher the standard deviation thehigher the risk.Select correct option:

Indirect relationshipInverse relationshipDirect relationshipNo relationship



Question # 4 of 15 ( Start time: 01:11:30 AM ) Total Marks: 1For which of the following costs is it generally necessary to apply a tax adjustment to ayield measure?Select correct option:

Cost of debtCost of preferred stockCost of common equityCost of retained earnings

Question # 5 of 15 ( Start time: 01:11:53 AM ) Total Marks: 1Study the time line and accompanying 5-period cash-flow pattern below. 0 1 2 3 4 5 6Time line |--------|--------|--------|--------|--------|--------| Rs.10 Rs.10 Rs.10 Rs.10 Rs.10Cash flows ¦ ¦ A B The present value of the 5-period annuity shown above as of Point A isthe present value of a 5-period ______________ , whereas the future value of the sameannuity as of Point B is the future value of a 5-period ______________ .Select correct option:




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Ordinary annuity; ordinary annuityOrdinary annuity; annuity dueAnnuity due; annuity dueAnnuity due; ordinary annuity

Question # 6 of 15 ( Start time: 01:12:01 AM ) Total Marks: 1Which of the following should be included while calculating the cash flows associatedwith a project?Select correct option:

Cash flows at the time of investmentCash flows during the life of projectCash flows at the termination dateAll of the given options



Question # 8 of 15 ( Start time: 01:13:03 AM ) Total Marks: 1Choose the correct statement regarding the calculations of NPV (Net Present Value).Select correct option:

Exclude sunk costs and include opportunity costs and externalitiesExclude sunk costs and externalities and include opportunity costsInclude sunk costs, opportunity costs, and externalitiesExclude sunk costs and opportunity costs and include externalities

Question # 9 of 15 ( Start time: 01:14:31 AM ) Total Marks: 1In 2 years you are to receive Rs.10,000. If the interest rate were to suddenly decrease, thepresent value of that future amount to you would __________.Select correct option:

FallRiseRemain unchangedIncomplete information




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Question # 10 of 15 ( Start time: 01:14:47 AM ) Total Marks: 1Which of the following is/are the component(s) of working capital management?Select correct option:

Current assetsFixed assetsFixed assets and long-term liabilitiesCurrent assets and current liabilities

Question # 11 of 15 ( Start time: 01:14:54 AM ) Total Marks: 1Which of the following includes the planning, directing, monitoring, organizing, andcontrolling of the monetary resources of an organization?Select correct option:

Financial accountingFinancial managementFinancial engineeringFinancial budgeting



Question # 13 of 15 ( Start time: 01:15:07 AM ) Total Marks: 1Which of the following refers to the risk associated with interest rate uncertainty?Select correct option:


Question # 14 of 15 ( Start time: 01:15:47 AM ) Total Marks: 1Where the efficient stock combination of risk and return in efficient market should lie?Select correct option:

On the SML




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Below the SMLAbove the SMLIt may lie anywhere for efficient combination



Question # 1 of 15 ( Start time: 01:20:39 AM ) Total Marks: 1Which of the following is FALSE about Perpetuity?Select correct option:

It is a series of cash flowsCash flows occur for a specific time periodIts cash flows are identicalNone of the given options

Question # 2 of 15 ( Start time: 01:20:55 AM ) Total Marks: 1Which of the following statements is TRUE regarding Permanent Accounts?Select correct option:

Accounts that are found on Income StatementAccounts that are found on Statement of Retained EarningsAccounts that are found on Balance SheetAll of the given options

Question # 3 of 15 ( Start time: 01:21:01 AM ) Total Marks: 1Which of the following is the maximum amount of debt (and other fixed-chargefinancing) that a firm can adequately service?Select correct option:


Question # 4 of 15 ( Start time: 01:21:22 AM ) Total Marks: 1




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If Net Present Value technique is used, what is the minimum acceptance criterion for aproject?Select correct option:


Question # 5 of 15 ( Start time: 01:21:28 AM ) Total Marks: 1_________ means expanding the number of investments which cover different kinds ofstocks.Select correct option:

DiversificationStandard deviationVarianceCovariance

Question # 6 of 15 ( Start time: 01:21:44 AM ) Total Marks: 1Nominal Interest Rate is also known as:Select correct option:

Effective interest RateAnnual percentage ratePeriodic interest rateRequired interest rate

Question # 7 of 15 ( Start time: 01:22:03 AM ) Total Marks: 1In efficient market the stock price depends upon the required return which depends upon_________.Select correct option:

Market riskTotal riskDiversified riskNon- systematic risk





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Question # 9 of 15 ( Start time: 01:22:24 AM ) Total Marks: 1Which group of ratios shows the extent to which the firm is financed with debt?Select correct option:




Question # 11 of 15 ( Start time: 01:22:48 AM ) Total Marks: 1Which of the following is NOT The cost of equity?Select correct option:

The minimum rate that a firm should earn on the equity-financed part of an investmentA return on the equity-financed portion of an investment that, at worst, leaves the market

price of the stock unchangedBy far the most difficult component cost to estimateGenerally lower than the before-tax cost of debt






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Question # 13 of 15 ( Start time: 01:23:24 AM ) Total Marks: 1Which of the following is NOT true regarding an annuity due?Select correct option:

It is a series of equal cash flowsIt is also known as deferred annuityCash flows occur for a specific time periodPayments are made at the start of each period

Question # 14 of 15 ( Start time: 01:23:41 AM ) Total Marks: 1According to timing difference problem a good project might suffer from _____ IRReven though its NPV is ________.Select correct option:

Higher; lowerLower; LowerLower; higherHigher; higher

Question # 15 of 15 ( Start time: 01:23:55 AM ) Total Marks: 1Which of the following is a capital budgeting technique that is NOT considered asdiscounted cash flow method?Select correct option:

Payback periodInternal rate of returnNet present valueProfitability index



Question # 2 of 15 ( Start time: 01:28:08 AM ) Total Marks: 1Which group of ratios shows the extent to which the firm is financed with debt?Select correct option:




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Question # 3 of 15 ( Start time: 01:28:14 AM ) Total Marks: 1When the bond approaches its maturity, the market value of the bond approaches towhich of the following?Select correct option:

Intrinsic valueBook valuePar valueHistoric cost

Question # 4 of 15 ( Start time: 01:28:27 AM ) Total Marks: 1Given no change in required returns, the price of a stock whose dividend is constantwill__________.Select correct option:

Decrease over time at a rate of r%Remain unchangedIncrease over time at a rate of r%Decrease over time at a rate equal to the dividend growth rate

Question # 5 of 15 ( Start time: 01:28:42 AM ) Total Marks: 1________ is paid by companies with lower grade bonds like CC or C ratings.Select correct option:


Question # 6 of 15 ( Start time: 01:28:48 AM ) Total Marks: 1Which of the following is FALSE about Perpetuity?Select correct option:

It is a series of cash flowsCash flows occur for a specific time periodIts cash flows are identicalNone of the given options




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Question # 8 of 15 ( Start time: 01:29:10 AM ) Total Marks: 1What is potentially the biggest advantage of a small partnership over a soleproprietorship?Select correct option:

Unlimited liabilitySingle tax filingDifficult ownership resaleRaising capital

Question # 9 of 15 ( Start time: 01:29:25 AM ) Total Marks: 1MIRR (discount rate) equates which of the following?Select correct option:

Future value of cash inflows to the present value of cash outflowsFuture value of cash flows to the present value of cash flowsFuture value of all cash flows to zeroPresent value of all cash flows to zero

Question # 10 of 15 ( Start time: 01:30:00 AM ) Total Marks: 1Which of the following can be used to calculate the risk of the larger portfolio?Select correct option:

Standard deviationEPS approachMatrix approachGordon’s Approach

Question # 11 of 15 ( Start time: 01:30:16 AM ) Total Marks: 1Which of the following risk can be diversified away?Select correct option:




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Systematic riskBetaFirm specific riskMarket risk

Question # 12 of 15 ( Start time: 01:30:31 AM ) Total Marks: 1Above the breakeven EBIT, increased financial leverage will __________ EPS, all elsethe same. Assume there are no taxesSelect correct option:

IncreaseDecreaseEither increase or decreaseNone of the given options

Question # 13 of 15 ( Start time: 01:30:52 AM ) Total Marks: 1Which statement is NOT true regarding the market portfolio?Select correct option:

It includes all publicly traded financial assetsIt is the tangency point between the capital market line and the indifference curveAll securities in the market portfolio are held in proportion to their market valuesIt lies on the efficient frontier

Question # 14 of 15 ( Start time: 01:31:08 AM ) Total Marks: 1Which of the following is NOT an example of a financial intermediary?Select correct option:

Wisconsin S&L, a savings and loan associationStrong Capital Appreciation, a mutual fundMicrosoft Corporation, a software firmCollege Credit, a credit union

Question # 15 of 15 ( Start time: 01:31:14 AM ) Total Marks: 1Which of the followings expressed the proposition that the value of the firm isindependent of its capital structure?Select correct option:

The Capital Asset Pricing ModelM&M Proposition IM&M Proposition IIThe Law of One Price




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Question # 1 of 15 ( Start time: 01:33:56 AM ) Total Marks: 1The DuPont Approach breaks down the earning power on shareholders' book value(ROE) as follows: ROE = __________.Select correct option:

Net profit margin × Total asset turnover × Equity multiplierTotal asset turnover × Gross profit margin × Debt ratioTotal asset turnover × Net profit marginTotal asset turnover × Gross profit margin × Equity multiplier

Question # 2 of 15 ( Start time: 01:34:02 AM ) Total Marks: 1Which of the followings are the propositions of Modigliani and Miller's?Select correct option:

The market value of a firm's common stock is independent of its capital structureThe market value of a firm's debt is independent of its capital structureThe market value of any firm is independent of its capital structureNone of the given options

Question # 3 of 15 ( Start time: 01:34:21 AM ) Total Marks: 1The explicit costs associated with corporate default, such as legal expenses, are the___________ of the firm.Select correct option:

Flotation costsDefault beta coefficientsDirect bankruptcy costsIndirect bankruptcy costs

Question # 4 of 15 ( Start time: 01:34:36 AM ) Total Marks: 1Which of the following is NOT The cost of equity?Select correct option:

The minimum rate that a firm should earn on the equity-financed part of an investmentA return on the equity-financed portion of an investment that, at worst, leaves the market

price of the stock unchangedBy far the most difficult component cost to estimateGenerally lower than the before-tax cost of debt

Question # 5 of 15 ( Start time: 01:34:42 AM ) Total Marks: 1Discounted cash flow methods provide a more objective basis for evaluating andselecting an investment project. These methods take into account:Select correct option:




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Question # 6 of 15 ( Start time: 01:34:48 AM ) Total Marks: 1What is the additional amount a borrower must pay to lender to compensate for assumingthe risk associated with non-payment?Select correct option:


Question # 7 of 15 ( Start time: 01:34:55 AM ) Total Marks: 1How can a company improve (lower) its debt-to-total asset ratio?Select correct option:

By borrowing moreBy shifting short-term to long-term debtBy shifting long-term to short-term debtBy selling common stock

Question # 8 of 15 ( Start time: 01:35:10 AM ) Total Marks: 1In calculating the costs of the individual components of a firm's financing, the corporatetax rate is important to which of the following component cost formulas?Select correct option:

Common stockDebtPreferred stockNone of the above






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Question # 10 of 15 ( Start time: 01:35:33 AM ) Total Marks: 1Which of the following would generally have unlimited liability?Select correct option:

A limited partner in a partnershipA shareholder in a corporationThe owner of a sole proprietorshipA member in a limited liability company (LLC)

Question # 11 of 15 ( Start time: 01:35:48 AM ) Total Marks: 1What are the Direct claim securities?Select correct option:

The securities whose value depends on the cash flows generated by the underlying assetsThe securities whose value depends on the value of the underlying assetsThe securities that do not directly generate any returns for its investorsAll of the given options

Question # 12 of 15 ( Start time: 01:35:55 AM ) Total Marks: 1How dividend yield on a stock is similar to the current yield on a bond?Select correct option:

Both represent how much each security’s price will increase in a yearBoth represent the security’s annual income divided by its priceBoth are an accurate representation of the total annual return an investor can expect to

earn by owning the securityBoth are quarterly yields that must be annualized

Question # 13 of 15 ( Start time: 01:36:12 AM ) Total Marks: 1If we invest in many securities which are ________to each other then it is possible toreduce overall risk for your investment.Select correct option:

ComparableCorrelatedHighly correlatedNegatively correlated

Question # 14 of 15 ( Start time: 01:36:29 AM ) Total Marks: 1Which of the following can be used to calculate the risk of the larger portfolio?Select correct option:




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Standard deviationEPS approachMatrix approachGordon’s Approach

Question # 15 of 15 ( Start time: 01:36:44 AM ) Total Marks: 1What is the long-run objective of financial management?Select correct option:

Maximize earnings per shareMaximize the value of the firm's common stockMaximize return on investmentMaximize market share

composed & solved hafiz salman majeed vu askari team www ... · composed & solved hafiz...

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