Finance — Mixed Practice — Part 1: 40 MCQs with Explanations

Income that is saved and not invested is known as Deposit .

Standard deviation is 18% and expected return is 15.5% then coefficient of variation would be 1.16% .

A formula of after-tax component cost of debt is Interest rate-tax savings .

Return on assets = 6.7% and equity multiplier = 2.5% then return on equity will be 16.75% .

An uncovered cost at start of year is divided by full cash flow during recovery year then added in prior years to full recovery for calculating Payback period .

Bond which is offered below its face value is classified as Original issue discount bond .

Redemption option which protects investors against rise in interest rate is considered as Redeemable at par .

Cash flows that should be considered for decision in hand are classified as Relevant cash flows .

Project which is started by firm for increasing sales is classified as New expansion project .

Cost which has occurred already and not affected by decisions is classified as Sunk cost .

In financial planning, most high option price will lead to Longer option period .

An increase in value of option leads to low present value of exercise cost only if it has Interest rates are high .

Long-term equity anticipation security is usually classified as Long-term options .

Low price for earnings ratio is result of Low riskier firms .

A regulatory body which licenses brokers and oversees traders is classified as National association of securities dealers .

Corporations such as Citigroup, American Express and Fidelity are classified as Financial services corporations .

Companies take savings as premium, invest in bonds and make payments to beneficiaries are classified as Life insurance companies .

Financial corporations which serve individual savers and commercial mortgage borrowers are classified as Savings and loans associations .

Movement of price or rise or fall of prices of options is classified as Binomial lattice .

If current price increases from lower to higher then an Option value will increase .

Greater value of option, larger span of time value is usually results in Longer call option .

All partners have limited liability in Limited liability partnership .

Financial security which is tax exempted and issues by state governments to individuals is classified as Municipal bonds .

Federal government tax revenues if it exceeds government spending then it is classified as Budget surplus .

Step in initial public offering in which hired agents act on behalf of owners is classified as Agency problems .

Mutual fund allows investors to sale out their share during any normal trading hours is classified as Exchange traded fund .

Rate of return which is asked by investors is classified as Weighted average cost of capital .

Type of financial securities that mature in less than a year are classified as Capital market securities .

Type of financial security in which loans are secured by borrowers property is classified as Mortgages .

Financial security kept by non-financial corporations is Short term treasury bills .

Condition in which companys imports are more than its exports is classified as Foreign trade deficits .

Values recorded as determined in marketplace are considered as Market values .

Accounts payable, accruals and notes payable are listed on balance sheet as Current liabilities .

Net income is $2250 and non cash charges are $1150 then net cash flow would be $1,100 .

rate which is divided by compounding periods to calculate periodic rate must be Nominal rate .

Future value of interest if it is calculated two times a year can be a classified as Semiannual compounding .

Total amount of depreciation charged on long term assets is classified as Accumulated depreciation .

Payment of security if it is made at end of each period such as beginning of year is classified as Annuity due .

An annuity with an extended life is classified as Perpetuity .

Payment if it is divided with interest rate will be formula of Present value of perpetuity .