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Question 1 of 20
1. Question
A bank is reviewing a borrower whose current assets are ₹24 lakh and current liabilities are ₹12 lakh. What is the current ratio?
Correct
Current ratio = Current Assets ÷ Current Liabilities = ₹24 lakh ÷ ₹12 lakh = 2.0. The ratio indicates the rupee amount of current assets available for each rupee of current liabilities. A higher ratio may indicate stronger short-term liquidity, but it should be assessed alongside the quality of inventory and receivables.
Incorrect
Current ratio = Current Assets ÷ Current Liabilities = ₹24 lakh ÷ ₹12 lakh = 2.0. The ratio indicates the rupee amount of current assets available for each rupee of current liabilities. A higher ratio may indicate stronger short-term liquidity, but it should be assessed alongside the quality of inventory and receivables.
Unattempted
Current ratio = Current Assets ÷ Current Liabilities = ₹24 lakh ÷ ₹12 lakh = 2.0. The ratio indicates the rupee amount of current assets available for each rupee of current liabilities. A higher ratio may indicate stronger short-term liquidity, but it should be assessed alongside the quality of inventory and receivables.
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Question 2 of 20
2. Question
A firm has current assets of ₹30 lakh, including inventory of ₹8 lakh and prepaid expenses of ₹2 lakh. Current liabilities are ₹10 lakh. What is its quick ratio?
Correct
Quick assets generally exclude inventory and prepaid expenses because they are less readily available to meet immediate liabilities. Quick assets = ₹30 lakh − ₹8 lakh − ₹2 lakh = ₹20 lakh. Quick ratio = ₹20 lakh ÷ ₹10 lakh = 2:1.
Incorrect
Quick assets generally exclude inventory and prepaid expenses because they are less readily available to meet immediate liabilities. Quick assets = ₹30 lakh − ₹8 lakh − ₹2 lakh = ₹20 lakh. Quick ratio = ₹20 lakh ÷ ₹10 lakh = 2:1.
Unattempted
Quick assets generally exclude inventory and prepaid expenses because they are less readily available to meet immediate liabilities. Quick assets = ₹30 lakh − ₹8 lakh − ₹2 lakh = ₹20 lakh. Quick ratio = ₹20 lakh ÷ ₹10 lakh = 2:1.
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Question 3 of 20
3. Question
A company has total outside debt of ₹60 lakh and shareholders’ funds of ₹40 lakh. What is its debt-equity ratio, using debt divided by shareholders’ funds?
Correct
Debt-equity ratio = Debt ÷ Shareholders’ Funds = ₹60 lakh ÷ ₹40 lakh = 1.5. This means the company has ₹1.50 of debt for every ₹1 of shareholders’ funds. Always check the definition used in the question, as some analyses distinguish total liabilities from interest-bearing debt.
Incorrect
Debt-equity ratio = Debt ÷ Shareholders’ Funds = ₹60 lakh ÷ ₹40 lakh = 1.5. This means the company has ₹1.50 of debt for every ₹1 of shareholders’ funds. Always check the definition used in the question, as some analyses distinguish total liabilities from interest-bearing debt.
Unattempted
Debt-equity ratio = Debt ÷ Shareholders’ Funds = ₹60 lakh ÷ ₹40 lakh = 1.5. This means the company has ₹1.50 of debt for every ₹1 of shareholders’ funds. Always check the definition used in the question, as some analyses distinguish total liabilities from interest-bearing debt.
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Question 4 of 20
4. Question
A company earns EBIT of ₹18 lakh. Its capital employed is ₹120 lakh. What is its return on capital employed (ROCE)?
Correct
ROCE = EBIT ÷ Capital Employed × 100 = ₹18 lakh ÷ ₹120 lakh × 100 = 15%. EBIT is used so that operating return is measured before the effects of interest and tax. Capital employed may be defined as total assets less current liabilities or equity plus long-term debt, depending on the stated convention.
Incorrect
ROCE = EBIT ÷ Capital Employed × 100 = ₹18 lakh ÷ ₹120 lakh × 100 = 15%. EBIT is used so that operating return is measured before the effects of interest and tax. Capital employed may be defined as total assets less current liabilities or equity plus long-term debt, depending on the stated convention.
Unattempted
ROCE = EBIT ÷ Capital Employed × 100 = ₹18 lakh ÷ ₹120 lakh × 100 = 15%. EBIT is used so that operating return is measured before the effects of interest and tax. Capital employed may be defined as total assets less current liabilities or equity plus long-term debt, depending on the stated convention.
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Question 5 of 20
5. Question
What is the present value of ₹12,100 receivable two years from now if the discount rate is 10% per annum, compounded annually?
Correct
Present value = Future Value ÷ (1 + r)^n = ₹12,100 ÷ (1.10)^2 = ₹12,100 ÷ 1.21 = ₹10,000. Discounting converts a future cash flow into its equivalent value today at the given rate.
Incorrect
Present value = Future Value ÷ (1 + r)^n = ₹12,100 ÷ (1.10)^2 = ₹12,100 ÷ 1.21 = ₹10,000. Discounting converts a future cash flow into its equivalent value today at the given rate.
Unattempted
Present value = Future Value ÷ (1 + r)^n = ₹12,100 ÷ (1.10)^2 = ₹12,100 ÷ 1.21 = ₹10,000. Discounting converts a future cash flow into its equivalent value today at the given rate.
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Question 6 of 20
6. Question
A person deposits ₹10,000 at the end of each year for 3 years in an account earning 10% annually. What is the approximate future value immediately after the third deposit?
Correct
For an ordinary annuity, deposits are made at the end of each period. Future value = A × [((1+r)^n − 1) ÷ r] = ₹10,000 × [(1.1^3 − 1) ÷ 0.10] = ₹10,000 × 3.31 = ₹33,100. An annuity due would have each payment made at the beginning of the period and would accumulate to a higher amount.
Incorrect
For an ordinary annuity, deposits are made at the end of each period. Future value = A × [((1+r)^n − 1) ÷ r] = ₹10,000 × [(1.1^3 − 1) ÷ 0.10] = ₹10,000 × 3.31 = ₹33,100. An annuity due would have each payment made at the beginning of the period and would accumulate to a higher amount.
Unattempted
For an ordinary annuity, deposits are made at the end of each period. Future value = A × [((1+r)^n − 1) ÷ r] = ₹10,000 × [(1.1^3 − 1) ÷ 0.10] = ₹10,000 × 3.31 = ₹33,100. An annuity due would have each payment made at the beginning of the period and would accumulate to a higher amount.
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Question 7 of 20
7. Question
A bond with face value ₹1,000 pays annual coupon interest of 8%. If the bond is currently quoted at ₹800, what is its current yield?
Correct
Annual coupon = 8% × ₹1,000 = ₹80. Current yield = Annual coupon ÷ Current market price × 100 = ₹80 ÷ ₹800 × 100 = 10%. Current yield considers coupon income relative to market price; unlike yield to maturity, it does not incorporate capital gain/loss or the timing of all cash flows.
Incorrect
Annual coupon = 8% × ₹1,000 = ₹80. Current yield = Annual coupon ÷ Current market price × 100 = ₹80 ÷ ₹800 × 100 = 10%. Current yield considers coupon income relative to market price; unlike yield to maturity, it does not incorporate capital gain/loss or the timing of all cash flows.
Unattempted
Annual coupon = 8% × ₹1,000 = ₹80. Current yield = Annual coupon ÷ Current market price × 100 = ₹80 ÷ ₹800 × 100 = 10%. Current yield considers coupon income relative to market price; unlike yield to maturity, it does not incorporate capital gain/loss or the timing of all cash flows.
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Question 8 of 20
8. Question
Assuming other factors remain unchanged, what generally happens to the price of an existing fixed-coupon bond when market yields rise?
Correct
Bond prices and market yields generally move inversely. When market yields rise, an existing bond’s fixed coupon becomes less attractive compared with newly issued bonds, so its market price usually falls. The size of the price change depends in part on duration, maturity and coupon rate.
Incorrect
Bond prices and market yields generally move inversely. When market yields rise, an existing bond’s fixed coupon becomes less attractive compared with newly issued bonds, so its market price usually falls. The size of the price change depends in part on duration, maturity and coupon rate.
Unattempted
Bond prices and market yields generally move inversely. When market yields rise, an existing bond’s fixed coupon becomes less attractive compared with newly issued bonds, so its market price usually falls. The size of the price change depends in part on duration, maturity and coupon rate.
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Question 9 of 20
9. Question
In an Indian direct quotation, the exchange rate is expressed as ₹83.20 per US dollar. What does this quotation mean?
Correct
A direct quote from the Indian perspective expresses the domestic currency required for one unit of foreign currency. ₹83.20 per US dollar means one US dollar costs ₹83.20. If the rupee weakens against the dollar, this rupee-per-dollar rate generally rises, all else equal.
Incorrect
A direct quote from the Indian perspective expresses the domestic currency required for one unit of foreign currency. ₹83.20 per US dollar means one US dollar costs ₹83.20. If the rupee weakens against the dollar, this rupee-per-dollar rate generally rises, all else equal.
Unattempted
A direct quote from the Indian perspective expresses the domestic currency required for one unit of foreign currency. ₹83.20 per US dollar means one US dollar costs ₹83.20. If the rupee weakens against the dollar, this rupee-per-dollar rate generally rises, all else equal.
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Question 10 of 20
10. Question
The spot rate is ₹82.00 per US dollar and the 3-month forward rate is ₹82.50 per US dollar. From the Indian rupee quotation perspective, what does this indicate?
Correct
The forward rate is higher than the spot rate in rupees per dollar (₹82.50 > ₹82.00). This means the US dollar is at a forward premium and the rupee is at a forward discount in this quotation. Do not confuse the direction: the quote is rupees per one dollar.
Incorrect
The forward rate is higher than the spot rate in rupees per dollar (₹82.50 > ₹82.00). This means the US dollar is at a forward premium and the rupee is at a forward discount in this quotation. Do not confuse the direction: the quote is rupees per one dollar.
Unattempted
The forward rate is higher than the spot rate in rupees per dollar (₹82.50 > ₹82.00). This means the US dollar is at a forward premium and the rupee is at a forward discount in this quotation. Do not confuse the direction: the quote is rupees per one dollar.
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Question 11 of 20
11. Question
A company borrows at an annual interest rate of 10%. If its applicable corporate tax rate is 30% and interest is tax-deductible, what is the after-tax cost of debt?
Correct
After-tax cost of debt = Pre-tax cost of debt × (1 − tax rate) = 10% × (1 − 0.30) = 7%. The tax shield reduces the effective cost when interest is deductible and the company can use the deduction. In a real assessment, tax rules and the borrower’s tax position matter.
Incorrect
After-tax cost of debt = Pre-tax cost of debt × (1 − tax rate) = 10% × (1 − 0.30) = 7%. The tax shield reduces the effective cost when interest is deductible and the company can use the deduction. In a real assessment, tax rules and the borrower’s tax position matter.
Unattempted
After-tax cost of debt = Pre-tax cost of debt × (1 − tax rate) = 10% × (1 − 0.30) = 7%. The tax shield reduces the effective cost when interest is deductible and the company can use the deduction. In a real assessment, tax rules and the borrower’s tax position matter.
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Question 12 of 20
12. Question
A firm finances itself with 60% equity costing 15% and 40% debt costing 8% after tax. What is its WACC?
Correct
WACC = (Equity weight × Cost of equity) + (Debt weight × After-tax cost of debt) = (0.60 × 15%) + (0.40 × 8%) = 9% + 3.2% = 12.2%. The weights should normally reflect the capital structure basis specified in the question; market-value weights are commonly preferred in valuation.
Incorrect
WACC = (Equity weight × Cost of equity) + (Debt weight × After-tax cost of debt) = (0.60 × 15%) + (0.40 × 8%) = 9% + 3.2% = 12.2%. The weights should normally reflect the capital structure basis specified in the question; market-value weights are commonly preferred in valuation.
Unattempted
WACC = (Equity weight × Cost of equity) + (Debt weight × After-tax cost of debt) = (0.60 × 15%) + (0.40 × 8%) = 9% + 3.2% = 12.2%. The weights should normally reflect the capital structure basis specified in the question; market-value weights are commonly preferred in valuation.
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Question 13 of 20
13. Question
A project requires an initial outlay of ₹1,00,000 and has a present value of expected future cash inflows of ₹1,18,000 at the required rate of return. What is the project’s NPV?
Correct
NPV = Present value of cash inflows − Initial investment = ₹1,18,000 − ₹1,00,000 = ₹18,000. A positive NPV indicates that the project is expected to add value above the required return, assuming the cash-flow estimates and discount rate are appropriate.
Incorrect
NPV = Present value of cash inflows − Initial investment = ₹1,18,000 − ₹1,00,000 = ₹18,000. A positive NPV indicates that the project is expected to add value above the required return, assuming the cash-flow estimates and discount rate are appropriate.
Unattempted
NPV = Present value of cash inflows − Initial investment = ₹1,18,000 − ₹1,00,000 = ₹18,000. A positive NPV indicates that the project is expected to add value above the required return, assuming the cash-flow estimates and discount rate are appropriate.
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Question 14 of 20
14. Question
What is the internal rate of return (IRR) of a project, conceptually?
Correct
IRR is the discount rate at which the net present value of a project’s cash flows equals zero. It is the rate that equates the present value of inflows with the present value of outflows. For a conventional independent project, IRR is often compared with the required rate of return, but IRR can be misleading for non-conventional cash flows or mutually exclusive projects.
Incorrect
IRR is the discount rate at which the net present value of a project’s cash flows equals zero. It is the rate that equates the present value of inflows with the present value of outflows. For a conventional independent project, IRR is often compared with the required rate of return, but IRR can be misleading for non-conventional cash flows or mutually exclusive projects.
Unattempted
IRR is the discount rate at which the net present value of a project’s cash flows equals zero. It is the rate that equates the present value of inflows with the present value of outflows. For a conventional independent project, IRR is often compared with the required rate of return, but IRR can be misleading for non-conventional cash flows or mutually exclusive projects.
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Question 15 of 20
15. Question
A term-loan borrower has cash available for debt service of ₹24 lakh during a year and total principal plus interest due of ₹16 lakh. What is the DSCR?
Correct
DSCR = Cash available for debt service ÷ Principal and interest due = ₹24 lakh ÷ ₹16 lakh = 1.5. A DSCR of 1.5 means cash available for debt service is 1.5 times the scheduled debt-service obligation. The precise numerator can vary by lending methodology, so use the definition given in the question.
Incorrect
DSCR = Cash available for debt service ÷ Principal and interest due = ₹24 lakh ÷ ₹16 lakh = 1.5. A DSCR of 1.5 means cash available for debt service is 1.5 times the scheduled debt-service obligation. The precise numerator can vary by lending methodology, so use the definition given in the question.
Unattempted
DSCR = Cash available for debt service ÷ Principal and interest due = ₹24 lakh ÷ ₹16 lakh = 1.5. A DSCR of 1.5 means cash available for debt service is 1.5 times the scheduled debt-service obligation. The precise numerator can vary by lending methodology, so use the definition given in the question.
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Question 16 of 20
16. Question
Which feature most strongly characterises a finance lease in traditional lease-financing concepts?
Correct
A finance lease substantially transfers the risks and rewards associated with ownership of the leased asset to the lessee, even if legal title does not transfer. The lease is generally non-cancellable for a major part of the asset’s economic life or otherwise structured so that the lessee bears substantial ownership-like risks. Accounting standards may use specific recognition tests and definitions.
Incorrect
A finance lease substantially transfers the risks and rewards associated with ownership of the leased asset to the lessee, even if legal title does not transfer. The lease is generally non-cancellable for a major part of the asset’s economic life or otherwise structured so that the lessee bears substantial ownership-like risks. Accounting standards may use specific recognition tests and definitions.
Unattempted
A finance lease substantially transfers the risks and rewards associated with ownership of the leased asset to the lessee, even if legal title does not transfer. The lease is generally non-cancellable for a major part of the asset’s economic life or otherwise structured so that the lessee bears substantial ownership-like risks. Accounting standards may use specific recognition tests and definitions.
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Question 17 of 20
17. Question
Which sequence best describes the operating or working-capital cycle of a manufacturing business?
Correct
A typical operating cycle runs from purchase of raw materials, through production and holding finished goods, to sale and collection from customers. The time between paying suppliers and collecting cash from customers affects the amount of working capital required. The exact cycle varies by business model and credit terms.
Incorrect
A typical operating cycle runs from purchase of raw materials, through production and holding finished goods, to sale and collection from customers. The time between paying suppliers and collecting cash from customers affects the amount of working capital required. The exact cycle varies by business model and credit terms.
Unattempted
A typical operating cycle runs from purchase of raw materials, through production and holding finished goods, to sale and collection from customers. The time between paying suppliers and collecting cash from customers affects the amount of working capital required. The exact cycle varies by business model and credit terms.
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Question 18 of 20
18. Question
Under the traditional turnover method commonly associated with small-business working-capital assessment, the working-capital requirement is often estimated with reference to what?
Correct
The turnover method estimates working-capital needs as a proportion of projected annual turnover, subject to the applicable lending framework and borrower category. In the commonly taught Nayak Committee approach, working capital is assessed at 25% of projected annual turnover, with the borrower’s contribution generally taken as 5% of turnover and bank finance as 20%, subject to applicable instructions and eligibility. The question asks the basis of estimation, not a universal rule for every borrower.
Incorrect
The turnover method estimates working-capital needs as a proportion of projected annual turnover, subject to the applicable lending framework and borrower category. In the commonly taught Nayak Committee approach, working capital is assessed at 25% of projected annual turnover, with the borrower’s contribution generally taken as 5% of turnover and bank finance as 20%, subject to applicable instructions and eligibility. The question asks the basis of estimation, not a universal rule for every borrower.
Unattempted
The turnover method estimates working-capital needs as a proportion of projected annual turnover, subject to the applicable lending framework and borrower category. In the commonly taught Nayak Committee approach, working capital is assessed at 25% of projected annual turnover, with the borrower’s contribution generally taken as 5% of turnover and bank finance as 20%, subject to applicable instructions and eligibility. The question asks the basis of estimation, not a universal rule for every borrower.
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Question 19 of 20
19. Question
An importer must pay US dollars in three months and is worried that the dollar may become more expensive in rupee terms. Which action most directly hedges this exchange-rate risk?
Correct
The importer has a future foreign-currency payable and is exposed to a rise in the rupee cost of dollars. Buying dollars forward locks in an exchange rate for the future payment and reduces uncertainty. A forward is an over-the-counter agreement; futures and options can also be used depending on the exposure and objectives.
Incorrect
The importer has a future foreign-currency payable and is exposed to a rise in the rupee cost of dollars. Buying dollars forward locks in an exchange rate for the future payment and reduces uncertainty. A forward is an over-the-counter agreement; futures and options can also be used depending on the exposure and objectives.
Unattempted
The importer has a future foreign-currency payable and is exposed to a rise in the rupee cost of dollars. Buying dollars forward locks in an exchange rate for the future payment and reduces uncertainty. A forward is an over-the-counter agreement; futures and options can also be used depending on the exposure and objectives.
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Question 20 of 20
20. Question
Which right does the buyer of a call option obtain?
Correct
A call option gives its buyer the right, but not the obligation, to buy the underlying asset at the strike price on or before expiry, depending on whether the option is European- or American-style. The buyer pays a premium for this right. The seller has the corresponding obligation if the option is exercised.
Incorrect
A call option gives its buyer the right, but not the obligation, to buy the underlying asset at the strike price on or before expiry, depending on whether the option is European- or American-style. The buyer pays a premium for this right. The seller has the corresponding obligation if the option is exercised.
Unattempted
A call option gives its buyer the right, but not the obligation, to buy the underlying asset at the strike price on or before expiry, depending on whether the option is European- or American-style. The buyer pays a premium for this right. The seller has the corresponding obligation if the option is exercised.