Quiz Finance

1. Which from the following is NOT an example of intangible assets?
(A) Trademarks
(B) Patents
(C) Buildings
(D) Technical expertise

2. The following are the examples of financial assets except?
(A) Stocks
(B) Bank Loan
(C) Bond
(D) Raw material

3. The following are important functions of financial markets:
I. Source of financing
II. Provide liquidity
III. Reduce risk
IV. Source of information
(A) I and IV only
(B) II and III only
(C) I, II and III only
(D) I, II, III and IV

4. The sale of financial assets is also referred to as the
(A) Capital decision
(B) CFO decision
(C) Financing decision
(D) Investment decision

5. The construction of new manufacturing plant is also referred to as the
(A) Capital decision
(B) CFO decision
(C) Financing decision
(D) Investment decision

6. According to the Efficient Market Hypothesis, which from the following is NOT true?
(A) Analysis predicts price pattern
(B) No money machines
(C) No arbitrage opportunities
(D) Security prices reflect true underlying value of assets

7. According to the weak form of market efficiency __________ past information is included in the stock price.
(A) no
(B) all
(C) marginal
(D) only a few

8. We say about a particular investment that it is risky, because
(A) it is dangerous
(B) it has low returns
(C) its returns are uncertain
(D) its raw material is unavailable

9. In Finance, risk is calculated by calculating the
(A) mean
(B) variance
(C) standard deviation
(D) kurtosis

10. The sale of bonds by a country or a corporation is referred to as the
(A) Investment decision
(B) financing decision
(C) offering loan
(D) capital structure

ANSWERS: FINANCE QUIZ
1. C
2. D
3. D
4. C
5. D
6. A
7. B
8. C
9. C
10. B

11. Generally, a corporation is owned by the
I. Managers
II. Board of Directors
III. Stock holders
IV. stake holders
(A) II only
(B) I and II
(C) III only
(D) III and IV

12. A firm’s investment decision is also called the
(A) financing decision
(B) capital budgeting decision
(C) liquidity decision
(D) none of these

13. Conflicts between shareholders and managers’ interest is called
(A) management problem
(B) area of the board of directors
(C) risk
(D) agency problem

14. In the principle-agent framework
(A) managers are the principals
(B) directors are the principals
(C) shareholders are the principals
(D) shareholders are the agents

15. The risk that can be eliminated by diversification is called
(A) specific risk
(B) security risk
(C) market risk
(D) beta

16. The risk that cannot be eliminated by diversification is called
(A) specific risk
(B) security risk
(C) market risk
(D) beta

17. Which from the following is the safest investment?
(A) Treasury bills
(B) Government bond
(C) Corporate bond
(D) Stocks

18. The spread of possible outcomes of an investment returns is measured by
(A) variance
(B) standard deviation
(C) skewness
(D) kurtosis

19. Risk is best judged in
(A) portfolio context
(B) individual security context
(C) both of these
(D) none of these

20. In a well-functioning markets two investments that offer the same payoff must have the same
(A) beta
(B) return
(C) risk
(D) price

ANSWERS: CORPORATE FINANCE QUIZ
11. C
12. B
13. D
14. C
15. A
16. C
17. A
18. B
19. A
20. D

21. The mixture of debt and equity, used to finance a corporation is also known as
(A) capital structure
(B) capital budgeting
(C) investing
(D) treasury

22. The present value of $100 expected in two years from today at a discount rate of 5% is
(A) $105
(B) $110.7
(C) $95
(D) $90.7

23. What will be value of $100 after two years, if the interest rate during this period is 5%?
(A) $105
(B) $107.5
(C) $110.25
(D) $95

24. Investors require higher return on
(A) levered equity
(B) unlevered equity
(C) both levered and unlevered
(D) bond equity

25. In a well-functioning capital market if the firm pays no taxes then what is better about borrowing?
(A) Borrowing is not a good idea in this case
(B) No difference who (firm or shareholders) borrows
(C) It is better that the firm borrows
(D) It is better that the shareholders borrow

26. Corporations can return cash to their shareholders by
(A) paying cash dividends
(B) stock repurchase
(C) both A and B
(D) none of these

27. Which from the following is true about stock repurchases?
(A) Repurchases are more flexible
(B) Repurchases are tax-advantaged
(C) both A and B
(D) none of these

28. What should be the goal of a corporation?
(A) to maximize the profit of the shareholders
(B) to maximize the value of the corporation
(C) both A and B
(D) to take care of the interests of the management

29. The money a investor receive for taking on a risk is called
(A) risk premium
(B) risk free rate
(C) option value
(D) arbitrage

30. An asset that pays a fixed amount of cash each year for a specified number of years is called
(A) perpetuity
(B) dividend
(C) liquidity
(D) annuity

ANSWERS: FINANCE QUIZZES
21. A
22. D
23. C
24. A
25. B
26. C
27. C
28. C
29. A
30. D

31. Net Present Value is calculated as
(A) cash inflow – cash outflow
(B) cash outflow – cash inflow
(C) PV of cash inflow – PV of cash outflow
(D) PV of cash outflow – PV of cash inflow

32. An investment should be accepted if its NPV is
(A) 0
(B) 1
(C) positive
(D) negative

33. The ratio between the amount of profit and investment is called the
(A) NPV
(B) opportunity cost
(C) risk premium
(D) rate of return

34. An investment should be accepted if
(A) Rate of Return > Opportunity Cost
(B) Rate of Return < Opportunity Cost
(C) Rate of Return = Opportunity Cost
(D) A, B and C are irrelevent

35. Governments and corporations issue bonds to
(A) borrow money
(B) lend money
(C) both A and B
(D) none of these

36. Regular interest payment to the bond holders is called
(A) principal
(B) coupon
(C) face value
(D) yield

37. At maturity the bond holders get back their principal. The principal is called
(A) coupon
(B) face value
(C) yield
(D) return

38. Any economic resource that can produce economic value to the holder is called
(A) asset
(B) return
(C) maturity
(D) yield

39. A collection of assets held by an investor is called
(A) corporate bond
(B) random returns
(C) risk premium
(D) portfolio

40. The risk of a well-diversified portfolio depends on the __________ of the securities included in the portfolio.
(A) specific risk
(B) market risk
(C) both A and B
(D) none of these

ANSWERS: CORPORATE FINANCE QUIZZES
31. C
32. C
33. D
34. A
35. A
36. B
37. B
38. A
39. D
40. B

41. The contribution of an individual security to the risk of a well-diversified portfolio is measured by?
(A) beta
(B) variance
(C) standard deviation
(D) CAPM

42. The sensitivity of an asset to the market movements is called
(A) beta
(B) variance
(C) standard deviation
(D) CAPM

43. The average beta of all stocks in a market is
(A) –1
(B) 0
(C) 1
(D) 1.5

44. If the daily prices of a stock on 20 and 21 January are 90 and 100 respectively, then what is the daily rate of return?
(A) 9.9%
(B) 10.10%
(C) 11.11%
(D) 12.12%

45. According to the MM proposition, dividend policy is
(A) correlated
(B) underperformed
(C) relevant
(D) irrelevant

46. In portfolio analysis __________ curves play an important role.
(A) circle
(B) ellipse
(C) parabola
(D) hyperbola

47. If stock prices increases, dividend yield
(A) also increases
(B) decreases
(C) remains same
(D) increases to one and a half

48. According to residual dividend policy, a firm should pay a dividend of all left over when
(A) zero NPV projects have been funded
(B) positive NPV projects have been funded
(C) projects with IRR equal to risk-free interest rate have been funded
(D) projects with IRR greater than risk-free interest rate have been funded

49. The value of probability is always between __________ (inclusive).
(A) –1 and 0
(B) 0 and 1
(C) –1 and 1
(D) none of these

50. The value of correlation is always between __________ (inclusive).
(A) –1 and 0
(B) 0 and 1
(C) –1 and 1
(D) none of these

ANSWERS: FINANCE MCQS
41. A
42. A
43. C
44. C
45. D
46. D
47. B
48. B
49. B
50. C

51. If two firms in the same line of business merge together, it is called __________ merger.
(A) horizontal
(B) vertical
(C) straight
(D) conglomerate

52. If two firms at different stages of production merge together, it is called __________ merger.
(A) horizontal
(B) vertical
(C) straight
(D) conglomerate

53. If two firms in unrelated line of business merge together, it is called __________ merger.
(A) horizontal
(B) vertical
(C) straight
(D) conglomerate

54. The measure for calculating how much two random variable change together is called
(A) variance
(B) covariance
(C) skewness
(D) kurtosis

55. The normalized version of covariance is called
(A) regression
(B) correlation
(C) cross-section
(D) spread

56. Suppose our portfolio consists of two stocks A and B. What should be the correlation between them so that we have no risk in our portfolio?
(A) –1
(B) 0
(C) 1
(D) risk cannot be eliminated

57. In the beginning, some companies receive equity investment from wealthy individuals. The wealthy individuals are called
(A) angel investors
(B) corporate investors
(C) venture capitalists
(D) venture capital firms

58. Firms that invest in new companies as they try to grow are called
(A) spinning
(B) underwriters
(C) venture capitalists
(D) venture capital firms

59. An investor will receive $5,000 and $10,000 after one and two years from today respectively. If the interest rate during this period is 10% then what is the present value of this cash flow?
(A) $12000
(B) $12450
(C) $12810
(D) $13705

60. What is volatility if the duration of a bond is 4 years and yield to maturity is 8%?
(A) 3.1%
(B) 3.4%
(C) 3.7%
(D) 4.0%

ANSWERS: CORPORATE FINANCE MCQS
51. A
52. B
53. D
54. B
55. B
56. A
57. A
58. D
59. C
60. C

61. The success of a new company critically depends on
(A) managers
(B) board of directors
(C) shareholders
(D) venture capitalists

62. Companies go public in order to
(A) avoid taxes
(B) reduce management cost
(C) raise more cash
(D) get merge

63. Companies go public with the help of
(A) venture capital firms
(B) underwriters
(C) shareholders
(D) A, B and C

64. If beta of a stock is __________ then it tends to amplify the overall market movement.
(A) 0
(B) 1
(C) greater than 1
(D) between 0 and 1

65. What is the real rate of interest if nominal rate is 10% and inflation rate is 5%?
(A) 4.3%
(B) 4.8%
(C) 5.3%
(D) 5.8%

66. The relationship between short and long term interest rates is called __________ of interest rates.
(A) yield to maturity
(B) duration
(C) volatility
(D) term structure

67. Financial managers are interested in __________ when see bond market.
(A) yield to maturity
(B) duration
(C) volatility
(D) term structure

68. Underwriters are also called
(A) bookrunner
(B) venture capitalists
(C) subscribers
(D) angel investors

69. Which from the following is not the role of an underwriter?
(A) They provide procedural and financial advice
(B) They buy the issue
(C) They resell the issue to the public
(D) They provide funds to the corporation

70. Risk __________ with the duration of bond.
(A) remains same
(B) increases
(C) decreases
(D) multiplied

ANSWERS: FINANCE MULTIPLE CHOICE QUESTIONS
61. A
62. C
63. B
64. C
65. B
66. D
67. A
68. A
69. D
70. B

71. The difference between the public-offer price and the price paid by the underwriter is called
(A) underpricing
(B) spread
(C) commission
(D) margin

72. The underwriters receive their payments in the shape of
(A) underpricing
(B) spread
(C) commission
(D) margin

73. Rights issues are for
(A) managers
(B) directors
(C) existing shareholders
(D) new shareholders

74. The interest rate earned if a financial asset is held until its maturity is called
(A) term structure
(B) spinning
(C) yield
(D) spread

75. The price of a stock is $100, and it could be $95 or $115 the next year. What is the expected return?
(A) 5%
(B) 6%
(C) 7%
(D) 7.5%

76. The price of a stock is $100, and there are 40% chances that it would be $95 and 60% chances that it would be $115 the next year. What is the expected return?
(A) 5%
(B) 6%
(C) 7%
(D) 7.5%

77. A company’s agreement with the underwriter include
(A) spread
(B) greenshoe option
(C) A and B
(D) whiteshoe option

78. The long-run returns of Initial Public Offerings (IPOs) tend to __________ the market.
(A) underperform
(B) accelerate
(C) amplify
(D) none of these

79. Spread is __________ for IPOs.
(A) highest
(B) lowest
(C) average
(D) uncertain

80. The value of a financial derivative depends on the
(A) maturity
(B) duration
(C) forward interest rate
(D) underlying

ANSWERS: CORPORATE FINANCE MULTIPLE CHOICE QUESTIONS
71. B
72. B
73. C
74. C
75. A
76. C
77. C
78. A
79. A
80. D

81. Which from the following statements is incorrect?
(A) A European option can only be exercised at expiry
(B) An American option can only be exercised at expiry
(C) A European option is a right but not obligation
(D) An American option is a right but not obligation

82. An agreement on a telephone or email to buy/sell an asset at an agreed future time for an agreed price is called
(A) spot contract
(B) forward contract
(C) future contract
(D) swap

83. When forward contract is traded on an exchange, it is called
(A) spot contract
(B) future contract
(C) call option
(D) put option

84. On 1 January you enter a contract to buy 1 million barrel of oil for $80 per barrel to be delivered on 1 March. The price on 1 March is $82 per barrel. Your gain is
(A) $200
(B) $20000
(C) $200000
(D) $2000000

85. Allocating stock in popular new issues to manager of their important corporate clients is called
(A) subscription
(B) under-performance
(C) rights
(D) spinning

86. Which from the following issues has the lowest total direct cost?
(A) straight bonds
(B) corporate stocks
(C) all issues have same cost
(D) none of these

87. An option that allows the underwriter to increase the number of shares bought by 15% is called
(A) spread
(B) spinning
(C) whiteshoe
(D) greenshoe

88. A four year zero-coupon bond has 6% yield. What is its duration in years?
(A) 4
(B) 5
(C) 6
(D) 7

89. Changes in interest rates have a __________ impact on the prices of long-term bonds than the short-term bonds.
(A) greater
(B) smaller
(C) both have same impact
(D) interest rate does not matter

90. An investment of $9,000 today will yield $10,000 after one year. What is the Net Present Value if the interest rate is 10%?
(A) $71
(B) $81
(C) $91
(D) $101

ANSWERS: FINANCE QUESTIONS
81. B
82. B
83. B
84. D
85. D
86. A
87. D
88. A
89. A
90. C

91. The return that is forgone by investing in the project rather than investing in financial markets at the same level of risk is called
(A) internal rate of return
(B) capital saving
(C) opportunity cost
(D) opportunity saving

92. The party that agrees to buy the underlying asset in a forward contract is said to assumes
(A) forward position
(B) backward position
(C) long position
(D) short position

93. The party that agrees to sell the underlying asset in a forward contract is said to assumes
(A) forward position
(B) backward position
(C) long position
(D) short position

94. If the spot price is $1200 and the exercise price is $1000 then the payoff of a party assuming a long position is
(A) –$200
(B) $0
(C) $1
(D) $200

95. If the spot price is $1200 and the exercise price is $1000 then the payoff of a party assuming a short position is
(A) –$200
(B) $0
(C) $1
(D) $200

96. If the covariance between stock A and market returns is 12, and the standard deviation of market returns is 3 then what is the value of beta?
(A) 0.96
(B) 1.0
(C) 1.33
(D) 1.45

97. Difference between strike price and stock price is called
(A) intrinsic value
(B) option premium
(C) time premium
(D) none of these

98. Option value at expiration is a function of
I. interest rate
II. volatility
III. stock price
IV. exercise price
(A) I only
(B) III only
(C) I and II
(D) III and IV

99. If market price of the share at expiration is $100 and exercise price is $80, then value of a call option at expiration is
(A) –$20
(B) $0
(C) $1
(D) $20

100. If market price of the share at expiration is $100 and exercise price is $80, then value of a put option at expiration is
(A) –$20
(B) $0
(C) $1
(D) $20

ANSWERS: CORPORATE FINANCE QUESTIONS
91. C
92. C
93. D
94. D
95. A
96. C
97. A
98. D
99. D
100. B

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