Finance — Mixed Practice — Part 4: 40 MCQs with Explanations

Price per share is $30 and an earnings per share is $3.5 then price for earnings ratio would be 8.57 times .

Set of rules made by corporation founders such as directors election procedure are classified as By laws .

Legal entity separation from its legal owners and managers with help of state laws is classified as Corporation .

In internal rate of returns, discount rate which forces net present values to become zero is classified as Internal rate of return .

High price to earnings ratio shows companys High growth prospect .

Return on assets = 5.5%, Total assets $3,000 and common equity $1,050 then return on equity would be 15.71% .

Type of bonds that pays no coupon payment but provides little appreciation are classified as Zero coupon bond .

In large expansion programs, increased riskiness and flotation cost associated with project can cause Rise in marginal cost of capital .

Cash outflows are costs of project and are represented by Negative numbers .

Sum of discounted cash flows is best defined as Project net present value .

If net present value is positive, then profitability index will be Greater than one .

Cash flows occurring with more than one change in sign of cash flow are classified as Non-normal costs .

Other factors held constant, greater project liquidity is because of Shorter payback period .

Process in which managers of company identify projects to add value is classified as Capital budgeting .

Bonds issued by small companies tend to have High liquidity premium .

Bonds issued by government and backed by Pak government are classified as Treasury bonds .

An increasing in interest rate leads to decline in value of Outstanding bonds .

Coupon rate of bond is also called Both a and c .

Value generally promises to pay at maturity date and a firm borrows is considered as bonds Par value .

Coupon payment of bond which is fixed at time of issuance Remains same .

Coupon payment is calculated with help of interest rate, then this rate considers as Coupon interest .

Yield of interest rate which is below than coupon rate, this yield is classified as Yield to call .

Rate of return (in percentages) consists of Capital gain yield interest yield .

Type of bonds that are issued by foreign governments or foreign corporations are classified as Foreign bonds .

An interest rate which is used in calculation of cash flows of bonds is called Required rate of return .

Bond that has been issued in very recent timing is classified as New issue .

Maturity date decides at time of issuance of bond and legally permissible is classified as Original maturity .

If coupon rate is less than going rate of interest, then bond will be sold More than its par value .

A bond whose price will rise above its face value is classified as Premium bond .

Stated value of bonds or face value is considered as Par value .

Bonds with deferred call have protection which is classified as Call protection .

When price of bond is calculated below its par value, it is classified as Discount bond .

An annual interest payment divided by current price of bond is considered as Current yield .

Coupon rate of convertible bond is Lower .

An outstanding bond are also classified as Seasoned bonds .

An inflation rate includes in bonds interest rates is one which is inflation rate Expected in future .

An average inflation rate which is expected over life of security is classified as Inflation premium .

Type of bond which pays interest payment only when it earns is classified as Income bond .

Falling interest rate leads change to bondholder income which is Reduction in income .

Bonds that have high liquidity premium are usually have Less frequently traded .