1. Brexit, Greece crisis, Chinese crisis, sub prime crisis are the examples of which of the
following:
Systemic risk: the risk inherent to entire market or market segment. Also known as
undiversfifibale, volatility or market risk affects the overall market, not just particular stock or
industry.
Unsystemic risk : It is type of uncertainity that comes with company or industry you invest in
2. What will be the price of bond with face value Rs. 1000 carrying a coupon of 10% maturing
in 3 years at 10% premium on par value? Present value factor and PVAF at 10% for 3 years is
0.7513 and 2.4869 respectively
a) 1000
b) 826.43
c) 1075.12
d) 1348.69
Value of bond= Present value of annuity cash flow+ present value of maturity value.
Maturity value after 3 years at 10% premium = 1000+ 10/100*1000= Rs. 1100/Present value of maturity value = 1100* present value factor = 1100*0.7513= Rs. 751.30/Cash flow annuity every year is Rs. 100/- due to coupon of 10%.
Present value of annuity cash flow= 100*PVAF=100*2.4869= 248.69/Value of bond= 248.69+ 751.30= Rs. 999.99/Answer Rs. 1000/-
3. In how much time rs. 10 lacs can be approximately doubled, if invested at 8% compounded
annually.
Rule of 72: 72/ yearly interest rate
Hence 9 years
4. Moon Ltd invested Rs. 800000 in a paper manufacturing plant. This is expected to generate
rs 150000 ever year for next seven years. Cost of capital for the project is 10%. PVAF for 7
years at 10% is 5.3349. calculate NPV of the project
a) 800000
b) 800235
c) 235
d) -235
NPV= Sum of present value of cash inflow- cash outflow
Cash outflow is Rs. 8,00,000/Cash annuity inflow is Rs. 1,50,000/Present value of annuity cash inflow = 1,50,000* PVAF= 150000*5.3349= 8,00,235/-
NPV= 8,00,235-8,00,000= Rs. 235
5. For a firm, weight of equity and debt is 0.6 & 0.4 respectively. Cost of equity is 15%. Cost of
debt is 9% and tax rate is 30%. Calculate WACC of firm.
a) 0.126
b) 0.1152
c) 0.12
d) 0.084
Cost of equity = 15%
Cost of debt = 9%
Cost of debt post tax= 9(1-0.30)= 6.30%
Equity component = Weight of equity* cost of equity = 0.60*15% = 0.09
Debt component = Weight of debt* cost of debt post tax= 0.40*6.30 = 0.0252
WACC= 0.09+0.0252 = 0.1152
If retained earnings is also mentioned in question, then retained earning component = weight of
retained earning* cost of equity
6.
a)
b)
c)
d)
For a dairy ltd., Beta is 0.80, nifty returns=15% and T bill rate is 8%. What is cost of equity?
13.56%
15%
5.6%
7%
Required return = cost of equity= Rf+ Beta (Rm-Rf)
Rf is risk free return which may be T bill rate
Rm is return from market portfolio which is nifty returns
Cost of equity = 8 + 0.80(15-8) = 8 +0.80*7= 8+5.60 = 13.60%
7.
a)
b)
c)
d)
Market interest rate is 9%. A bond with 10% coupon will sell…………par value
Above
Below
At
None
If the market rate turns lower than a bond's coupon rate, holding the bond is
advantageous, as other investors may want to pay more than the face value
for the bond's comparably higher coupon rate.
8. Which of the following evaluation technique for long term decisions doesn’t consider time
value of money?
a) NPV
b) IRR
c) Payback period
d) Profitability index
9.
a)
b)
c)
d)
In case of share buyback, no. of outstanding share will
Reduce
Increase
Remain same
Unaffected
10.
a)
b)
c)
d)
If credit sales is 100000, credit period is 30 days. Calculate the average receivables
8219
8333
3333
3288
Answer:
Receivables days= (Average receivables/ sales) *365
30= (rec/100000)*365
Rec= 30/365*100000
11. Why depreciation has to be added in calculation of cash flow as it is a
Non cash expense
12.
a)
b)
c)
d)
What 1/10,30 credit term means:
1% discount
0.1% discount
1% discount for payment within 30 days
0.1% discount for payment within 30 days
It means 1% discount for payment within 10 days, failing which payment has to be made without
discount within 30 days.
13. When a proportion of reserves is distributed among shareholders as shares, it is known as
Bonus shares
14.
a)
b)
c)
d)
If the credit period is increased by suppliers of the company, cash conversion cycle will
Reduce
Increase
Remain same
Unaffected
Answer:
Cash conversion cycle= Inventory days+ receivables days- creditors days
In above question creditors days is increasing, hence cash conversion will reduce.
15. As per Bird in hand theory, high dividend pay out is …………………to low payout.
Preferred
If dividends are not paid off, one can conclude that risk taken by shareholders is higher because of
greater funds belonging to them being locked up. Conversely, a company which pays dividend will
have a lower discount rate. Because of the lower discount rate, the value of the shares will be
higher if dividends are paid off. This theory suggest that shareholders will welcome any payment
from the company from time to time as risk reduction measure.
The bird in hand is a theory that says investors prefer dividends from stock
investing to potential capital gains because of the inherent uncertainty
associated with capital gains. Based on the adage, "a bird in the hand is worth
two in the bush," the bird-in-hand theory states that investors prefer the
certainty of dividend payments to the possibility of substantially higher future
capital gains.
16.
a)
b)
c)
d)
For accepting project IRR, has to be compared with
Cut off rate
Reuired rate of return
Cost of capital
All
17. Arun buys an stock at Rs. 20 and sells at Rs 25 after 10 months. During this period, he
receives a dividend of Rs. 5 on his investments. Calculate the holding period return.
a) 0.25
b) 0.50
c) 0.20
d) 0.40
Formula for arriving at return:
[(P1-P0) +D ]/P0
P1= Price at end of tenure
P0= Price at beginning
D= periodic return
Holding period return = (25-20) + 5/20= 10/20= 0.50
18.
a)
b)
c)
d)
Which of the following is not the method for calculation of cost of equity
CAPM
Dividend discount model
YTM +Risk premium
YTM
YTM is measure of bond’s rate of return that considers both the interest income and any capital gain
or loss. YTM is bond’s internal rate of return.
CAPM is used for calculating required rate of return on equity
Bond YTM +risk premium is based on notion that equity has more risk than debt. Approach is to
ascertain yield on debt and then add premium for equity.
Dividend discount model is Gordon discount model.
19. Calculate the standard deviation with the help of following data: p=3, r=30%, p=4, r=16%,
p=3, r=8%.
a) 74.76
b) 24.92
c) 4.27
d) 8.64
Expected return = 3*0.30+4*0.16+3*0.08= 0.90+0.64+0.24= 1.78
20.
a)
b)
c)
d)
Which of the following is ultimate objective of financial management
Profit maximization
Shareholder’s wealth maximization
Leverage minimization
Funding maximization
21. When in calculation of IRR, intermittent cash flows are reinvested at required rate of return,
the resultant rate is known as:
a) CIRR
b) MIRR
c) IRR
d) None
Money received earlier in project is more valuable, because it can be reinvested for more returns.
NPV method implicitly assumes that reinvestment rate is discount rate. IRR method assumes that
reinvestment rate is IRR itself.
Under MIRR-Modified internal rate of return, reinvestment assumption is changed to make
intermittent inflows at discount rate.
22. …………………method tells the period in which original investment in a project will be
recovered
Payback period
23. Which of the following method is considered the best evaluation techniques for long term
investment decisions
a) NPV
b) IRR
c) Profitability index
d) Payback period
24.
a)
b)
c)
d)
In excel, in order to calculate the EMI for loan repayment, which function has to be used?
PV
FV
NPV
PMT
The present value of annuity due can be computed using PV formula in excel
25. Dividend payment linked to profits left out after meeting the expansion needs is based on
………………..theory/ policy
Residual dividend payout policy
26. Sales of Zing Ltd for 2016 was Rs. 10000, cost of goods sold 6000, depreciation 1000, interest
800 and tax rate 30%. Calculate the operating cash flows of zing ltd for 2016
a) 4000
b) 1540
c) 2540
d) 2200
Particulars
Sales
Less: cost of goods sold
Less: depreciation
Profit before tax and interest
Interest
Profit before tax
Tax
Profit after tax
Add back depreciation
Net operating cash flow
Amount
10,000
10,000-6000=4000
-1000
3000
800
2200
0.30*2200= 660
1540
1000
1000+1540 =2540
27. As per liquidity premium theory, interest rates on long term bonds will be ……….than short
term bonds
a) Lower
b) Same
c) Higher
d) Fluctuating
Liquidity premium theory postulates that it is the desire of investor to retain liquidity that forces
him to seek higher rates for long term bonds.
28.
a)
b)
c)
d)
In which of the following theory of compounding, present value of annuity will be lowest?
Daily
Quarterly
Monthly
Annually
Present value of annuity=
P = A*PVAF n,I for period n at rate i%
P= A[1/i-1/i*(1+i)^n]
29. Sheela need Rs. 1,00,000 at the end of each year in the next 5 years. How much she should
invest now @ 10%. Present value of annuity factor at 10% for 5 years is 3.7908
a) 131898.28
b) 5,00,000
c) 1,00,000
d) 379080
P= 100000*PVAF= 3.7908*100000= 379080
30. Which of the following are two components of holding period return?
Periodic return & capital appreciation
Holding period yield refers to return that investor will get over tenure of an investment. During
the tenure, investor will get periodic returns and at the end of the tenure will get capital
appreciation as well.
Formula for arriving at return:
[(P1-P0) +D ]/P0
P1= Price at end of tenure
P0= Price at beginning
D= periodic return
31.
a)
b)
c)
d)
If business risk of company goes up than price of stock will
Increase
Decrease
Remain same
Fluctuate
32. If the credit period is increased for the customers of the company, operating cycle will
Increase
Operating cycle= Inventory days + days sales outstanding
Days sales outstanding is increasing in above case.
33.
a)
b)
c)
d)
If cost of capital of project goes up, then NPV will
Increase
Decrease
Remain same
Fluctuate
Cost of project is present value of outflows.
Difference between present value of inflows and present value of outflows is NPV. Hence NPV
decreases
34.
a)
b)
c)
d)
Cost of preference share is
Preference dividend rate
Pref dividend/ Preference share market price
Both
None
Cost of preference share= Preference dividend/ market value of preference shares
35.
a)
b)
c)
d)
Which of the following debentures have highest price if YTM is
0.07
0.08
0.075
0.085
When the yield goes up, price comes down. Lowest yield is highest price
36.
a)
b)
c)
d)
Increase in frequency of compounding results into ………….maturity value
Higher
Lower
Same
Fluctuating
Increase in frequency results in increase in time period and ROI is divided by period, which results
in increase in maturity value.
37.
a)
b)
c)
d)
Sales proceeds from the asset sold at the end of project forecasting period is treated as
Initial cash flows
Operating cash flows
Terminal cash flows
Regular cash flows