BA&A

1. The concept of compound interest refers to:

A) earning interest on the original investment.
B) payment of interest on previously earned interest.
C) investing for a multi-year period of time.
D) determining the APR of the investment.

2. When an investment pays only simple interest, this means:

A) the interest rate is lower than on comparable investments.
B) the future value of the investment will be low.
C) the earned interest is non taxable to the investor.
D) interest is earned only on the original investment.

3. Assume the total expense for your current year in college equals $20,000. Approximately how much
would your parents have needed to invest 21 years ago in an account paying 8% compounded annually to
cover this amount?
A) $ 952
B) $1,600
C) $1,728
D) $3,973

4. How much will accumulate in an account with an initial deposit of $100, and which earns 10% interest
compounded quarterly for three years?
A) $107.69
B) $133.10
C) $134.49
D) $313.84
5. How much must be invested today in order to generate a five-year annuity of $1,000 per year, with the
first payment one year from today, at an interest rate of 12%?
A) $3,604,78
B) $3,746.25
C) $4,037.35
D) $4,604.78

6. A stock's par value is represented by:

A) the maturity value of the stock.
B) the price at which each share is recorded.
C) the price at which an investor could sell the stock.
D) the price received by the firm when the stock was issued.

7. Additional paid-in capital refers to:

A) a firm's retained earnings.
B) a firm's treasury stock.
C) the difference between the issue price and the par value.
D) funds borrowed from a bank or bondholders.
8. Which of the following equity concepts would you expect to be least important to a financial analyst?
A) Par value per share
B) Additional paid-in capital
C) Retained earnings
D) Net common equity

9. The money market is an important financial market because:

A. The money market is the world’s liquidity market
B. It is the market in which the central bank conducts monetary policy
C. The government finances most of its credit needs in the money market
D. All of the above

10.A surplus spending unit is one who(se)

A. Income and expenditures for the period are equal
B. Income for the period exceeds consumption and real investment expenditure
C. Expenditure for the period exceeds receipts
D. Uses credit cards for all consumer purchase

11.All except one is associated with direct financing:

A. One financial claim contract
B. A broker, dealer or investment banker
C. Small denomination financial claims
D. Government and business borrowers dominate

12.A capital market financing is most likely to finance:(a)

A. New plant and equipment
B. Seasonal inventory needs
C. A quarterly dividend payment
D. The sale of common stock

13. Financial intermediation is best described as

A. The flow of savings of lenders to borrowers in return for the IOU of the borrower
B. The flow of borrowed funds directly to deficit spending units
C. The purchase of indirect financial claims of financial intermediaries and thesubsequent purchase of
direct financial claims, held as liabilities of financialintermediaries
D. The purchase of direct financial claims with funds raised by issuing separateindirect financial claims to
savers

14.Why dividends are important?

A. Informational content
B. Reduction of uncertainty
C. Some investors' preference for current income
D. All

15.Accounting Ratios are important tools used by

A. Managers
B. Researchers
C. Investors D. All
16.Net Profit Ratio Signifies:
A. Operational Profitability
B. Liquidity Position
C. Big-term Solvency
D. Profit for Lenders

17.Working Capital Turnover measures the relationship of Working Capital with:

A. Fixed Assets
B. Sales
C. Purchases
D. Stock

18.In Ratio Analysis, the term Capital Employed refers to:

A. Equity Share Capital
B. Net worth
C. Shareholders Funds
D. None

19.Dividend Payout Ratio is

A. PAT Capital
B. DPS ÷ EPS
C. Pref. Dividend ÷ PAT
D. Pref.Dividend ÷ Equity Dividend

20.DU PONT Analysis deals with

A. Analysis of Current Assets
B. Analysis of Profit
C. CapitalBudgeting
D. Analysis of Fixed Assets

21.In Net Profit Ratio, the denominator is

A. Net Purchases
B. Net Sales
C. Credit Sales
D. Cost of goods sold

22.Inventory Turnover measures the relationship of inventory with:

A. Average Sales
B. Cost of Goods Sold
C. Total Purchases
D. Total Assets

23. The term EVA is used for

A. Extra Value Analysis
B. Economic Value Added
C. Expected Value Analysis
D. Engineering Value Analysis
24. Return on Investment may be improved by:
A. Increasing Turnover
B. Reducing Expenses
C. Increasing Capital Utilization
D. All of the above

25. In Current Ratio, Current Assets are compared with:

A. Current Profit
B. Current Liabilities
C. Fixed Assets
D. Equity Share Capital

26. ABC Ltd. has a Current Ratio of 1.5: 1 and Net Current Assets of Rs. 5,00,000. What are the Current
Assets?
A. Rs. 5,00,000
B. Rs. 10,00,000
C. Rs. 15,00,000
D. Rs.25,00,000

27.There is deterioration in the management of working capital of XYZ Ltd. What does it refer to?
A. That the Capital Employed has reduced
B .That the Profitability has gone up
C. That debtors collection period has increased
D. That Sales has decreased

28. Which of the following does not help to increase Current Ratio?
A. Issue of Debentures to buy Stock
B. Issue of Debentures to pay Creditors
C. Sale of Investment to pay Creditors
D Avail Bank Overdraft to buy Machine

29. Debt to Total Assets Ratio can be improved by:

A. Borrowing More
B. Issue of Debentures
C. Issue of Equity Shares
D. Redemption of Debt

30. Ratio of Net Income to Number of Equity Shares known as:

A. Price Earnings Ratio
B. Net Profit Ratio
C. Earnings per Share
D. Dividend per Share

31. Trend Analysis helps comparing performance of a firm

A. With other firms
B. Over a period of firm
C. With other industries
D. None of the above

32. A Current Ratio of Less than One means:

A. Current Liabilities < Current Assets
B. Fixed Assets >Current Assets
C. Current Assets < Current Liabilities
D. Share Capital > Current Assets

33. Time value of money indicates that

a) A unit of money obtained today is worth more than a unit of money obtained in future

b) A unit of money obtained today is worth less than a unit of money obtained in future

c) There is no difference in the value of money obtained today and tomorrow

d) None of the above

34. Time value of money supports the comparison of cash flows recorded at different time period by

a) Discounting all cash flows to a common point of time

b) Compounding all cash flows to a common point of time
c) Using either a or b
d) None of the above.

35. If the nominal rate of interest is 10% per annum and there is quarterly compounding, the effective
rate of interest will be:

a) 10% per annum

b) 10.10 per annum
c) 10.25%per annum
d) 10.38% per annum

36. Relationship between annual nominal rate of interest and annual effective rate of interest, if
frequency of compounding is greater than one:

a) Effective rate > Nominal rate

b) Effective rate < Nominal rate
c) Effective rate = Nominal rate
d) None of the above
37. Mr. X takes a loan of Rs 50,000 from HDFC Bank. The rate of interest is 10% per annum. The first
installment will be paid at the end of year 5. Determine the amount of equal annual installments if Mr. X
wishes to repay the amount in five installments.

a) Rs 19500
b) Rs 19400
c) Rs 19310
d) None of the above

38. If nominal rate of return is 10% per annum and annual effective rate of interest is 10.25% per
annum, determine the frequency of compounding:

a) 1
b) 2
c) 3
d) None of the above

39. Present value tables for annuity cannot be straight away applied to varied stream of cash flows.

a) True
b) False

40. Heterogeneous cash flows can be made comparable by

a) Discounting technique
b) Compounding technique
c) Either a or b
d) None of the above

41. "Shareholder wealth" in a firm is represented by:

a) the number of people employed in the firm.

b) the book value of the firm's assets less the book value of its liabilities.

c) the amount of salary paid to its employees.

d) the market price per share of the firm's common stock.

42. The long-run objective of financial management is to:
a) maximize earnings per share.

b) maximize the value of the firm's common stock.

c) maximize return on investment.

d) maximize market share.

43. What are the earnings per share (EPS) for a company that earned $100,000 last year in after-tax
profits, has 200,000 common shares outstanding and $1.2 million in retained earning at the year end?
a) $100,000

b) $6.00

c) $0.50

d) $6.50

44. A(n) would be an example of a principal, while a(n) would be an example of an

agent.
a) shareholder; manager

b) manager; owner

c) accountant; bondholder

d) shareholder; bondholder

45. The market price of a share of common stock is determined by:

a) the board of directors of the firm.

b) the stock exchange on which the stock is listed.

c) the president of the company.

d) individuals buying and selling the stock.

46. The focal point of financial management in a firm is:

a) the number and types of products or services provided by the firm.

b) the minimization of the amount of taxes paid by the firm.

c) the creation of value for shareholders.

d) the dollars profits earned by the firm.

47. The decision function of financial management can be broken down into the decisions.
 a) financing and investment

b) investment, financing, and asset management

c) financing and dividend

d) capital budgeting, cash management, and credit management

48. The controller's responsibilities are primarily in nature, while the treasurer's responsibilities are
primarily related to .
a) operational; financial management

b) financial management; accounting

c) accounting; financial management

d) financial management; operations

49. In the US, the has been given the power to adopt auditing, quality control, ethics, and
disclosure standards for public companies and their auditors as well as investigate and discipline those
involved.
a) American Institute of Certified Public Accountants (AICPA)

b) Financial Accounting Standards Board (FASB)

c) Public Company Accounting Oversight Board (PCAOB)

d) Securities and Exchange Commission (SEC)

50. A company's is (are) potentially the most effective instrument of good corporate governance.

a) common stock shareholders

b) board of directors

c) top executive officers

51. Which of the following is NOT one of the three main types of decision facing the financing manager
in a company?

A Dividend decision
B Investment decision
C Economic decision
D Financing decision

52. Which of the following are the 3 key areas covered by financial management decisions?
 1 Investment
2 Cash flow
3 Finance
4 Dividend

A 1, 2 and 3
B 2, 3 and 4
C 1, 3 and 4
D 1, 2 and 4

53. Which of the following statements concerning financial management are correct?

1 It is concerned with investment decisions, financing decisions and dividend decisions

2 It is concerned with financial planning and financial control
3 It considers the management of risk

A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D 1, 2 and 3

54. The following statements relate to various functions within a business.

1. The financial management function makes decisions relating to finance

2. Financial accounts are used as a future planning tool.

Are the statements true or false?

A Both statements are true

B Both statements are false
C Statement 1 is true and statement 2 is false
D Statement 2 is true and statement 1 is false.

55. Which of the following statements are true?

1 Cash flow forecasting is primarily the responsibility of Financial Reporting

2 Whether to undertake a particular new project is a Financial Management decision

A Both statements are true

B Both statements are false
C Statement 1 is true and statement 2 is false
D Statement 2 is true and statement 1 is false

56. The following statements relate to various functions within a business.

1 The financial management function makes decisions relating to finance

2 Management accounts incorporate non-monetary measures
 Are the statements true or false?

A Statement 1 is true and statement 2 is false

B Both statements are true
C Statement 1 is false and statement 2 is true
D Both statements are false

57. In relation to the financial management of a company, which of the following provides the best
definition of a firm’s primary financial objective?

A To achieve long-term growth in earnings

B To maximize the level of annual dividends
C To maximize the wealth of its ordinary shareholders
D To maximize the level of annual profits
58. Financial management focuses on financial objectives. Which of the following are financial objectives?

1 Maximization of market share

2 Improving brand awareness
3 Sales revenue growth
4 Achieving a target level of customer satisfaction
5 Achieving a target level of ROCE

A 1 and 4 only
B 3 and 5 only
C 2, 3 and 5 only
D 1, 2, 3 and 4 only
59. If the nominal rate of interest is 10% per annum and there is semi annual compounding, the
effective rate of interest will be:

a) 10% per annum

b) 10.10 per annum
c) 10.25%per annum
d) 10.38% per annum

60. Time value of money indicates that

a) A unit of money obtained today is worth more than a unit of money obtained in future
b) A unit of money obtained today is worth less than a unit of money obtained in future
c) There is no difference in the value of money obtained today and tomorrow
d) None of the above