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Question 1 of 20
1. Question
Which form of organisation typically offers a separate legal identity and limited liability to shareholders?
Correct
A company limited by shares generally has separate legal personality and limits shareholder liability to the unpaid amount on shares, subject to applicable law and exceptions.
Incorrect
A company limited by shares generally has separate legal personality and limits shareholder liability to the unpaid amount on shares, subject to applicable law and exceptions.
Unattempted
A company limited by shares generally has separate legal personality and limits shareholder liability to the unpaid amount on shares, subject to applicable law and exceptions.
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Question 2 of 20
2. Question
Debt-equity ratio is commonly used to assess:
Correct
Debt-equity ratio compares debt with shareholders’ equity and helps assess financial leverage. Definitions of debt can vary, so comparisons should use consistent definitions.
Incorrect
Debt-equity ratio compares debt with shareholders’ equity and helps assess financial leverage. Definitions of debt can vary, so comparisons should use consistent definitions.
Unattempted
Debt-equity ratio compares debt with shareholders’ equity and helps assess financial leverage. Definitions of debt can vary, so comparisons should use consistent definitions.
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Question 3 of 20
3. Question
Compound interest differs from simple interest because compound interest:
Correct
Compound interest allows interest to earn further interest. The amount depends on the compounding frequency and rate, unlike simple interest which is calculated only on original principal.
Incorrect
Compound interest allows interest to earn further interest. The amount depends on the compounding frequency and rate, unlike simple interest which is calculated only on original principal.
Unattempted
Compound interest allows interest to earn further interest. The amount depends on the compounding frequency and rate, unlike simple interest which is calculated only on original principal.
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Question 4 of 20
4. Question
Yield to maturity (YTM) is the discount rate that:
Correct
YTM is the internal rate of return implied by the bond’s price and promised cash flows, assuming payments occur as scheduled and the bond is held to maturity under the usual convention.
Incorrect
YTM is the internal rate of return implied by the bond’s price and promised cash flows, assuming payments occur as scheduled and the bond is held to maturity under the usual convention.
Unattempted
YTM is the internal rate of return implied by the bond’s price and promised cash flows, assuming payments occur as scheduled and the bond is held to maturity under the usual convention.
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Question 5 of 20
5. Question
The net present value (NPV) of a project is:
Correct
NPV discounts project cash flows at the required rate and subtracts investment outflows. A positive NPV indicates value creation under the assumptions and discount rate used.
Incorrect
NPV discounts project cash flows at the required rate and subtracts investment outflows. A positive NPV indicates value creation under the assumptions and discount rate used.
Unattempted
NPV discounts project cash flows at the required rate and subtracts investment outflows. A positive NPV indicates value creation under the assumptions and discount rate used.
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Question 6 of 20
6. Question
Financial leverage arises primarily from the use of:
Correct
Financial leverage reflects fixed financing charges, especially interest on debt or certain preference instruments. It magnifies the effect of operating changes on earnings available to equity holders.
Incorrect
Financial leverage reflects fixed financing charges, especially interest on debt or certain preference instruments. It magnifies the effect of operating changes on earnings available to equity holders.
Unattempted
Financial leverage reflects fixed financing charges, especially interest on debt or certain preference instruments. It magnifies the effect of operating changes on earnings available to equity holders.
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Question 7 of 20
7. Question
A call option gives its buyer the right, but not the obligation, to:
Correct
A call option grants the right to buy the underlying at the strike price by or at expiry depending on the contract style. The buyer pays a premium and may let the option expire unused.
Incorrect
A call option grants the right to buy the underlying at the strike price by or at expiry depending on the contract style. The buyer pays a premium and may let the option expire unused.
Unattempted
A call option grants the right to buy the underlying at the strike price by or at expiry depending on the contract style. The buyer pays a premium and may let the option expire unused.
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Question 8 of 20
8. Question
Under a reducing-balance loan, interest for a period is calculated on:
Correct
Reducing-balance interest is calculated on the outstanding principal, so interest generally decreases as principal is repaid. Contract terms and reset dates govern the actual calculation.
Incorrect
Reducing-balance interest is calculated on the outstanding principal, so interest generally decreases as principal is repaid. Contract terms and reset dates govern the actual calculation.
Unattempted
Reducing-balance interest is calculated on the outstanding principal, so interest generally decreases as principal is repaid. Contract terms and reset dates govern the actual calculation.
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Question 9 of 20
9. Question
A firm’s capital mix is 50% equity costing 12% and 50% debt costing 8% before tax. Tax rate is 25%. WACC is:
Correct
After-tax debt cost = 8% × (1−0.25) = 6%. WACC = 0.5×12% + 0.5×6% = 6% + 3% = 9%.
Incorrect
After-tax debt cost = 8% × (1−0.25) = 6%. WACC = 0.5×12% + 0.5×6% = 6% + 3% = 9%.
Unattempted
After-tax debt cost = 8% × (1−0.25) = 6%. WACC = 0.5×12% + 0.5×6% = 6% + 3% = 9%.
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Question 10 of 20
10. Question
A hedger uses derivatives mainly to:
Correct
Hedging uses derivatives to offset specified exposures. It can reduce downside risk but may introduce basis, liquidity, counterparty and operational risks and can limit favourable outcomes.
Incorrect
Hedging uses derivatives to offset specified exposures. It can reduce downside risk but may introduce basis, liquidity, counterparty and operational risks and can limit favourable outcomes.
Unattempted
Hedging uses derivatives to offset specified exposures. It can reduce downside risk but may introduce basis, liquidity, counterparty and operational risks and can limit favourable outcomes.
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Question 11 of 20
11. Question
A company’s debt is ₹4 million and equity is ₹8 million. Debt-to-equity ratio is:
Correct
Debt-equity ratio = ₹4 million ÷ ₹8 million = 0.5:1.
Incorrect
Debt-equity ratio = ₹4 million ÷ ₹8 million = 0.5:1.
Unattempted
Debt-equity ratio = ₹4 million ÷ ₹8 million = 0.5:1.
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Question 12 of 20
12. Question
Which derivative is commonly used to exchange fixed interest payments for floating interest payments?
Correct
A plain-vanilla interest-rate swap exchanges fixed and floating interest cash flows calculated on a notional amount. It can help manage interest-rate exposure.
Incorrect
A plain-vanilla interest-rate swap exchanges fixed and floating interest cash flows calculated on a notional amount. It can help manage interest-rate exposure.
Unattempted
A plain-vanilla interest-rate swap exchanges fixed and floating interest cash flows calculated on a notional amount. It can help manage interest-rate exposure.
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Question 13 of 20
13. Question
₹42,500 is invested at 9% compounded annually for 3 year(s). What is its maturity value (nearest rupee)?
Correct
Compound maturity value = Principal × (1 + rate)^years = ₹42,500 × (1 + 9/100)^3 ≈ ₹55,039. Simple interest would produce a different result.
Incorrect
Compound maturity value = Principal × (1 + rate)^years = ₹42,500 × (1 + 9/100)^3 ≈ ₹55,039. Simple interest would produce a different result.
Unattempted
Compound maturity value = Principal × (1 + rate)^years = ₹42,500 × (1 + 9/100)^3 ≈ ₹55,039. Simple interest would produce a different result.
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Question 14 of 20
14. Question
A firm reports current assets of ₹300,000 and current liabilities of ₹150,000. What is its current ratio (approximately)?
Correct
Current ratio = current assets ÷ current liabilities = ₹300,000 ÷ ₹150,000 ≈ 2.00:1. It measures short-term coverage but not the liquidity quality of each asset.
Incorrect
Current ratio = current assets ÷ current liabilities = ₹300,000 ÷ ₹150,000 ≈ 2.00:1. It measures short-term coverage but not the liquidity quality of each asset.
Unattempted
Current ratio = current assets ÷ current liabilities = ₹300,000 ÷ ₹150,000 ≈ 2.00:1. It measures short-term coverage but not the liquidity quality of each asset.
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Question 15 of 20
15. Question
Cost of goods sold is ₹1,000,000 and average inventory is ₹400,000. Inventory turnover is approximately:
Correct
Inventory turnover = cost of goods sold ÷ average inventory = ₹1,000,000 ÷ ₹400,000 ≈ 2.50 times. Interpret it against industry norms and stock availability.
Incorrect
Inventory turnover = cost of goods sold ÷ average inventory = ₹1,000,000 ÷ ₹400,000 ≈ 2.50 times. Interpret it against industry norms and stock availability.
Unattempted
Inventory turnover = cost of goods sold ÷ average inventory = ₹1,000,000 ÷ ₹400,000 ≈ 2.50 times. Interpret it against industry norms and stock availability.
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Question 16 of 20
16. Question
A company has debt of ₹1,300,000 and equity of ₹900,000. What is its debt-equity ratio?
Correct
Debt-equity ratio = debt ÷ equity = ₹1,300,000 ÷ ₹900,000 ≈ 1.44:1. Use a consistent definition of debt when comparing companies.
Incorrect
Debt-equity ratio = debt ÷ equity = ₹1,300,000 ÷ ₹900,000 ≈ 1.44:1. Use a consistent definition of debt when comparing companies.
Unattempted
Debt-equity ratio = debt ÷ equity = ₹1,300,000 ÷ ₹900,000 ≈ 1.44:1. Use a consistent definition of debt when comparing companies.
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Question 17 of 20
17. Question
A bond pays annual coupon interest of ₹110 and trades at ₹1050. Its current yield is approximately:
Correct
Current yield = annual coupon ÷ current market price × 100 = ₹110 ÷ ₹1050 × 100 ≈ 10.48%. It excludes any capital gain or loss at redemption.
Incorrect
Current yield = annual coupon ÷ current market price × 100 = ₹110 ÷ ₹1050 × 100 ≈ 10.48%. It excludes any capital gain or loss at redemption.
Unattempted
Current yield = annual coupon ÷ current market price × 100 = ₹110 ÷ ₹1050 × 100 ≈ 10.48%. It excludes any capital gain or loss at redemption.
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Question 18 of 20
18. Question
A project costs ₹400,000 and generates ₹95,000 at each year-end for 3 years. At a 10% discount rate, NPV is closest to:
Correct
NPV = −₹400,000 + ₹95,000/1.10 + ₹95,000/1.10² + ₹95,000/1.10³ ≈ ₹-163,749. A positive NPV indicates value creation under the stated assumptions.
Incorrect
NPV = −₹400,000 + ₹95,000/1.10 + ₹95,000/1.10² + ₹95,000/1.10³ ≈ ₹-163,749. A positive NPV indicates value creation under the stated assumptions.
Unattempted
NPV = −₹400,000 + ₹95,000/1.10 + ₹95,000/1.10² + ₹95,000/1.10³ ≈ ₹-163,749. A positive NPV indicates value creation under the stated assumptions.
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Question 19 of 20
19. Question
A firm reports net profit of ₹235,000 on sales of ₹1,650,000. Its net profit margin is approximately:
Correct
Net profit margin = net profit ÷ net sales × 100 = ₹235,000 ÷ ₹1,650,000 × 100 ≈ 14.24%. Check whether the profit measure is before or after tax when comparing ratios.
Incorrect
Net profit margin = net profit ÷ net sales × 100 = ₹235,000 ÷ ₹1,650,000 × 100 ≈ 14.24%. Check whether the profit measure is before or after tax when comparing ratios.
Unattempted
Net profit margin = net profit ÷ net sales × 100 = ₹235,000 ÷ ₹1,650,000 × 100 ≈ 14.24%. Check whether the profit measure is before or after tax when comparing ratios.
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Question 20 of 20
20. Question
Annual credit sales are ₹5,000,000 and average trade receivables are ₹500,000. Receivables turnover is:
Correct
Receivables turnover = annual credit sales ÷ average receivables = ₹5,000,000 ÷ ₹500,000 ≈ 10.00 times. Faster turnover may indicate stronger collection, subject to credit policy and industry norms.
Incorrect
Receivables turnover = annual credit sales ÷ average receivables = ₹5,000,000 ÷ ₹500,000 ≈ 10.00 times. Faster turnover may indicate stronger collection, subject to credit policy and industry norms.
Unattempted
Receivables turnover = annual credit sales ÷ average receivables = ₹5,000,000 ÷ ₹500,000 ≈ 10.00 times. Faster turnover may indicate stronger collection, subject to credit policy and industry norms.