Business Finance MCQs

Question 1

Which of the following pairs is/are not correct?

Accepted Answer

Consistency or lack of variability in the stream of dividend payments describes that there is no dividend policy

Answer

Payment of dividend at the usual rate is given under regular dividend policy

Answer

Both A and B

Answer

None of the above

Question 2

Risk of a portfolio can be minimized by which one of the following?

Accepted Answer

Combining two securities having a perfect negative correlation in their expected returns

Answer

Combining two securities having a perfect positive correlation in their expected returns

Answer

Combining two securities having a partially positive correlation in their expected returns

Answer

Combining two securities having a partially negative correlation in their expected returns

Question 3

Which of the following methods of capital budgeting assumes that cash-inflows are reinvested at the project's rate of return?

Accepted Answer

Internal Rate of Return

Answer

Net Present Value

Answer

Accounting Rate of Return

Answer

Discounted Payback Period

Question 4

By hedging a portfolio, a bank manager

Accepted Answer

reduces interest rate risk

Answer

increases reinvestment risk

Answer

increases exchange rate risk

Answer

increases the probability of gains

Question 5

Match the following. List-I List-II a. Depreciation funds 1. . . . . . . . . is comparatively cheap. b. Public deposits 2. . . . . . . . . is the internal source of financing short-term working capital. c. Term loans 3. . . . . . . . . have been very popular among Indian companies. d. Bank credit 4. . . . . . . . . are resources raised for a period from 3 to 5-7 years.

Accepted Answer

a-2, b-3, c-4, d-1

Answer

a-4, b-3, c-2, d-1

Answer

a-3, b-1, c-4, d-2

Answer

a-4, b-1, b-2, d-3

Question 6

Which of the following is the most appropriate form for financing a new capital investment in plant and equipment?

Accepted Answer

Common stock equity

Answer

Trade credit

Answer

Six months bank notes

Answer

Account payable

Question 7

Which of the following are the main benefits to originators in the context of asset-based securitization? (i) Securitization improves returns on capital. (ii) Securitization lowers the borrowing costs. (iii) Securitization releases additional capital for expansion. (iv) Securitization improves asset or liability. (v) Securitization improves credit risk management.

Accepted Answer

All of the above

Answer

(i), (ii) and (iii)

Answer

(i), (ii) and (iv)

Answer

(i), (ii), (iii) and (iv)

Question 8

Which of the following is not a fundamental assumption made by Modigliani and Miller?

Accepted Answer

There is imperfect information

Answer

No taxes

Answer

Firms can be classified into distinct risk classes

Answer

None of the above

Question 9

Arbitrage pricing theory may be more suitable for a company since it is based on the assumption that returns are determined by a number of factors to which a particular risk premium is attached. These factors are

Accepted Answer

Independent factors

Answer

Dependent factors

Answer

Internal factors

Answer

Contradictory factors