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 nontaxable 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

PV = FV where PV is the present value

(1 + i)n FV is the future amount

i is the interest rate

n is the period

PV = 20,000

(1 + 0.08)21

PV = 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

100 = FV

(1 + 0.025)12

FV = 134.49

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

PVA = W x 1 - 1 where PVA is the present value

(1 + i)n W is the annuity amount

i i is the interest rate

n is the period

PVA = 1,000 x 1 - 1

(1 + 0.12)5

0.12

PVA = 3,604.78

6. In finance, risk is _____ of the possible outcomes.

(A) Mean

(B) Median

(C) Variance

(D) Standard deviation

7. If two firms in the same line of business merge together, it is known as ________
merger.

(A) horizontal

(B) Vertical

(C) straight

(D) Conglomerate

8. An investment should be accepted if its Net Present Value (NPV) is

(A) 0

(B) 1

(C) positive

(D) Negative

9. According to the Efficient Market Hypothesis, which from the following is NOT
true?
(A) Analysis predicts price pattern
(B) No money machines
(C) No arbitrage opportunities
(D) Security prices reflect true underlying value of assets

10. According to the weak form of market efficiency __________ past information is

included in the stock price.
(A) no
(B) all
(C) marginal
(D) only a few

11. We say about a particular investment that it is risky, because

(A) it is dangerous
(B) it has low returns
(C) its returns are uncertain
(D) its raw material is unavailable
12. In Finance, risk is calculated by calculating the
(A) mean
(B) variance
(C) standard deviation
(D) kurtosis

13. The sale of bonds by a country or a corporation is referred to as the

(A) Investment decision
(B) financing decision
(C) offering loan
(D) capital structure

14. Generally, a corporation is owned by the

I. Managers
II. Board of Directors
III. Stock holders
IV. Stake holders
(A) II only
(B) I and II
(C) III only
(D) III and IV

15. A firm’s investment decision is also called the

(A) financing decision
(B) capital budgeting decision
(C) liquidity decision
(D) none of these

16. Conflicts between shareholders and managers’ interest is called

(A) management problem
(B) area of the board of directors
(C) risk
(D) agency problem

17. In the principle-agent framework

(A) managers are the principals
(B) directors are the principals
(C) shareholders are the principals
(D) shareholders are the agents

18. The risk that can be eliminated by diversification is called

(A) specific risk
(B) security risk
(C) market risk
(D) beta

18. Corporations can return cash to their shareholders by

(A) paying cash dividends
(B) stock repurchase
(C) both A and B
(D) none of these

19. Which from the following is true about stock repurchases?

(A) Repurchases are more flexible
(B) Repurchases are tax-advantaged
(C) both A and B
(D) none of these

20. What should be the goal of a corporation?

(A) To maximize the profit of the shareholders
(B) to maximize the value of the corporation
(C) both A and B
(D) to take care of the interests of the management

21. The money an investor receive for taking on a risk is called

(A) risk premium
(B) risk free rate
(C) option value
(D) arbitrage

22. An asset that pays a fixed amount of cash each year for a specified number of
years is called
(A) perpetuity
(B) dividend
(C) liquidity
(D) annuity

23. Net Present Value is calculated as

(A) cash inflow – cash outflow
(B) cash outflow – cash inflow
(C) PV of cash inflow – PV of cash outflow
(D) PV of cash outflow – PV of cash inflow

24. An investment should be accepted if its NPV is

(A) 0
(B) 1
(C) positive
(D) negative

25. The ratio between the amount of profit and investment is called the
(A) NPV
(B) opportunity cost
(C) risk premium
(D) rate of return

26. An investment should be accepted if

(A) Rate of Return > Opportunity Cost
(B) Rate of Return < Opportunity Cost
(C) Rate of Return = Opportunity Cost
(D) A, B and C are irrelevant

27. Governments and corporations issue bonds to

(A) borrow money
(B) lend money
(C) both A and B
(D) none of these

28. The only feasible purpose of financial management is

a) Wealth Maximization 
b) Sales Maximization
c) Profit Maximization
d) Assets maximization

29. Financial management process deals with 

a) Investments 
b) Financing decisions 
c) Both a and b 
d) None of the above

30. Agency cost consists of 

a) Binding 
b) Monitoring 
c) Opportunity and structure cost
d) All of the above

31.Finance Function comprises 

a) Safe custody of funds only
b) Expenditure of funds only
c) Procurement of finance only 
d) Procurement & effective use of funds

32. The objective of wealth maximization takes into account

a) Amount of returns expected

b) Timing of anticipated returns
c) Risk associated with uncertainty of returns 
d) All of the above

33. Financial management mainly focuses on 

a) Efficient management of every business

b) Brand dimension
c) Arrangement of funds
d) all elements of acquiring and using means of financial resources for financial
activities 

34. Which of the following is the goal of financial management?

a.  Maximize the wealth of Equity shareholders

b.  maximize the wealth of Preference Shareholders
c.  maximize the wealth of Debenture holders
d.  All of the above

35. __________________ is the limitation of Traditional approach of Financial

Management

A、 More emphasis on long term problems

B、 Ignores allocation of resources
C、 One-sided approach
D、 All of the above

36. Financial management mainly focuses on ________________ .

a.  Efficient management of every business

b.  Brand dimension
c.  Arrangement of funds
d.  All elements of acquiring and using means of financial resources for
financial activities

37.Which of the following is Capital market line ?

A、 Capital allocation line of a market portfolio

B、 Capital allocation line of a risk free asset
C、 Both 1 and 2
D、 All of the above

38.In finance, "working capital" means the same thing as -

a.  fixed assets.
b.  total assets.
c.  current assets
d.  current assets minus current liabilities.

39.The term "capital structure" indicates to _________________ .

A、 long-term debt, preferred stock, and common stock equity

B、 shareholders' equity
C、 total assets minus liabilities
D、 All of the above

40. Reserves & Surplus are __________________ of financing.

a.  Security Financing
b.  Internal Financing
c.  Loans Financing
d.  International Financing

41. What is the focal point of financial management in a firm ?

A、 The creation of value for shareholders.

B、 The number and types of products or services provided by the firm.
C、 The dollars profits earned by the firm.
D、 investment, financing, and asset management

42. Which of the following statements about the primary purpose of financial
reporting is the most correct?

A Provides information that can help with decision making.

B The individual needs of users can be satisfied by tailoring of financial reports.

C Enables accountability since managers would have to account for resources used.

D Identifies a range of existing and potential users dependent on financial statements

to make decisions.

43. Which of the following would not be an example of a user who may rely on
general purpose financial reports?

A. Henry who is given $5 000 on his 18th birthday by his grandfather to invest in the
share market.

B. Singh who manufactures sugar free muesli bars hopes to secure long term
sales contracts with school canteens all over the county.

C .Milly who runs a successful organic food café is keen to expand into the food truck
industry by obtaining finance via crowd-funding.

D. Van who owns a fishing and camping store is keen to expand his product range by
approaching his suppliers to ask about increasing his credit limit.

44. Which of the following is not a role of The Conceptual Framework (The
Framework)?

A. It is the foundation that standard-setters use when developing accounting

standards.

B. It enables the external auditors to evaluate compliance with IFRS and then form an
opinion.

C. It enables consistency when the existing accounting standards do not provide

guidance on a particular issue.

D. It is an alternative to the detailed accounting standards as it is much easier to

understand by users of financial statements.

45. Which of the following is not an objective of The Conceptual Framework?

A. Addresses the common needs of users of financial reports.

B. Enables consistency of qualitative characteristics in financial reports.

C. Enables implementation of one universal set of accounting standards.

D .Provides guidance for transactions not addressed in existing accounting standards.

46. Which of the following are not enhancing qualitative characteristics of useful
financial information as identified in The Conceptual Framework?

Item I Predictive.

Item II Influencing.

Item III Comparable.

Item IV Relevance.

A. I, II and III only

B .I, II and IV only

C. I, III and IV only

D. II, III and IV only

47. Which of the following statements about enhancing qualitative characteristics

of financial statements is not correct?

A. Fair values of assets that cannot be verified in an active market should not be
disclosed in the financial statements.

B. The financial statements of similar entities adopting different asset measurement

bases can be

adequately compared.

C. The value of invoices not yet received from suppliers for services should be
estimated at financial year end for reporting purposes.

D. Financial statements should be presented with the assumption that a reasonable and
informed third person will know how to analyze financial information.

48. What effect does a framework have on an accountant's need to exercise

professional judgement?

A. Reduces the scope for professional judgement.

B. Increases the scope for professional judgement.

C. Eliminates the scope for professional judgement.

D. Has no impact on the scope for professional judgement.

49. Which of the following statements about the application of IFRS in
accordance with The Conceptual Framework is the most correct?

A. Entities that are not expected to continue in the foreseeable future are to prepare
their accounts on the net realizable value assumption.

B. Entities may change the valuation and measurement of assets provided they
disclose the change and its effects in the financial report.

C. Entities within the scope of the Corporations Act can choose to apply Australian or
International accounting standards when preparing their financial reports.

D. Entities may prepare financial statements on a cash flow basis provided that they
meet the

Characteristics of comparability, understandability, timeliness and verifiability.

50. Which of the following statements about a departure from IFRS is correct?

A. Departure is never permitted.

B. Departure is permitted when the financial statement would be unfairly

presented because of

Compliance with IFRS.

C. Departure is permitted when management and the external auditor agree on the
departure.

D. Departure is permitted when the disclosure of the adopted accounting policy is

detailed in the notes.

51. Which ratio or ratios measure the overall efficiency of the firm in managing
its investment in assets and in generating return to shareholders?

a) Gross profit margin and net profit margin.

b) Return on investment.

c) Total asset turnover and operating profit margin.

d) Return on investment and return on equity.

52. An inflow of cash would result from which of the following?

a) The increase in an asset account other than cash.

b) The decrease in an asset account other than cash.

c) The decrease in an equity account.

d) The decrease in a liability account.

53. What is the first step in an analysis of financial statements?

a) Check the auditor’s report.

b) Check references containing financial information.

c) Specify the objectives of the analysis.

d) Do a common size analysis.

54. How would short-term investments in marketable securities be classified?

a) Cash.

b) Operating activities.

c) Financing activities.

d) Investing activities.

55. What information can be gained from sources such as Industry Norms and
Key Business?

Ratios, Annual Statement Studies, Analyst’s Handbook, and Industry Surveys?

a) The general economic condition.

b) Forecasts of earnings.

c) Elaboration’s of financial statement disclosures.

d) A company’s relative position within its industry.

56. Why is the quick ratio a more rigorous test of short-term solvency than the
current ratio?

a) The quick ratio considers only cash and marketable securities as current assets.

b) The quick ratio eliminates prepaid expenses for the numerator.

c) The quick ratio eliminates prepaid expenses for the denominator.

d) The quick ratio eliminates inventories from the numerator.

57. How would the repayment of debt principal be classified?

a) Operating outflow.

b) Operating inflow.

c) Investing outflow.

d) Financing outflow.

58. How would the sale of a building be classified?

a) Operating outflow.

b) Operating inflow.

c) Investing inflow.

d) Financing inflow.

59. What is a serious limitation of financial ratios?

a) Ratios are screening devices.

b) Ratios can be used only by themselves

c) Ratios indicate weaknesses only.

d) Ratios are not predictive.

60. What is the most widely used liquidity ratio?

a) Quick ratio.

b) Current ratio.

c) Inventory turnover.

d) Debt ratio.

61. How would payments for taxes be classified?

a) Operating outflow.

b) Operating inflow.

c) Investing outflow.

d) Financing outflow.

62. What is a creditor’s objective in performing an analysis of financial

statements?

a) To decide whether or not the borrower has the ability to repay interest and
principal on borrowed funds.

b) To determine the firm’s capital structure.

c) To determine the company’s future earnings stream.

d) To decide whether or not the firm has operated profitably in the past.

63. The firm's investment decision is also called as the

A. Financing Decision
B. Capital Budgeting Decision
C. Liquidity Decision
D. Dividend Decision

64. As far as their value is concerned, the top priority group in company should
be

A. Shareholders
B. Employees
C. Board of Directors
D. Governing Body

65. Normally the Cost of Capital should be -----

A. Equal to IRR

B. Less than IRR

C. More than IRR

D. Corresponding to IRR

66. Modigliani Miller Approach highlights the following aspect in dividend

decisions

A. Rate of Dividend

B. Company tendency to retain earnings

C. Zero impact of market prices of shares

D. Shareholders' expectations

67. From the following, which is not the direct middleman in the capital market?

A. Rating Agencies

B. Broker

C. Banker

D. Trustee

69. The term Over or Under Subscription is used in case of ---

A. Bank Financing

B. Public Issue

C. Non-Performing Assets

D. Syndicate Financing

70. Limited Liability is main feature of ---

A. Sole Proprietorship

B. Partnership

C. Corporations

D. N G O

71. The Steel Authority of India sold out 5% of their stake to private players &
raised $ 275 Million. This is popularly called as --

A. Business Strategy
B. Business Valuation
C. Disinvestment
D. Foreign Direct Investment

72. A formula of X-Y/Z is used for calculating the -- of Business Assets

A. Book Value

B. Market Value

C. Fair Value
D. Liquidation Value

73. In ascertaining the EVA, the following component is to be considered.

A. Earnings Before Tax

B. Earnings After Tax & Interest

C. Earnings after Tax excluding Interest

D. Profits After Taxes

74. Annuity is defined as -

A. Equal cash flows at equal intervals of time at a specific period

B. Equal cash flows at equal intervals of time forever
C. Unequal cash flows at equal intervals of time forever
D. Unequal cash flows at equal intervals of time for specific period

75. The creditors of company are usually interested in observing the --

A. Liquidity Ratio

B. Solvency Ratio

C. Profitability Ratio

D. Turnover Ration

76. From the following, which is not considered as the financial asset?

A. Common Stock

B. Patents

C. Bonds

D. Preferred Stock

77. Short Term Period in business is generally...

A. Less than 3 Months

B. Less than 6 Months

C. Less than a year

D. Less than 5 years

78. The Finance Controller is responsible for the following except

A. Preparation & interpretation of Financial Statements

B. Internal Auditing

C. Tax Management

D. Raising of Funds for business

79. Financial leverage of the company is ascertaining by using...

A. Liquidity Ratio

B. Long Term Solvency Ratio

C. Turnover Ratio

D. Profitability Ratio

80. Quick Ratio indicates the..

A. Profitability of company

B. Cash position of company

C. Capital Structure of company

D. None of the above

81. Capital market line is:

a) Capital allocation line of a market portfolio

b) Capital allocation line of a risk free asset

c) Both a and b

d) None of the above

82. Which of the following are applications of funds?

a) Payment of dividend on share capital

b) Payment of tax
c) Increase in working capital

d) All of above

83. In capital budgeting, an internal rate of return of project is classified as its 

A. external rate of return

B. Internal rate of return

C. Positive rate of return

D. negative rate of return

84. A modified internal rate of return is considered as present value of costs and
is equal to 

A. p.v of hurdle rate

B. fv of hurdle rate

C. p.v of terminal value

D. fv of terminal value

85. Set of projects or set of investments usually maximize firm value is classified
as 

A .optimal capital budget.

B. minimum capital budget

C. maximum capital budget

D. greater capital budget

86. In capital budgeting, a negative net present value results in 

A. zero economic value added

B. percent economic value added

C. negative economic value added

D. positive economic value added

87. Number of years forecasted to recover an original investment is classified as 

A. payback period

B. forecasted period
C. original period

D. investment period

88. In capital budgeting, term of bond which has great sensitivity to interest rates
is

 A .long-term bonds

B. short-term bonds

C .internal term bonds

D. external term bonds

89. What are the forms of assistance that the World Bank provides to its
members?

(a) Technical and financial

(b) Political and financial

(c) Political and economic

(d) Technical and military

90.Which of the following is true of foreign exchange markets?

A. The futures market is mainly used by hedgers while the forward

market is mainly used for speculating.

B. The futures market and the forward market are mainly used for
hedging.

C. The futures market is mainly used by speculators while the

forward market is mainly used for hedging.

D. The futures market and the forward market are mainly used for
speculating.

91. Exchange rates

A. are always fixed

B. fluctuate to equate the quantity of foreign exchange demanded

with the quantity supplied

C. fluctuate to equate imports and exports

D. fluctuate to equate rates of interest in various countries

 93. An arbitrageur in foreign exchange is a person who

a. earns illegal profit by manipulating foreign exchange

b. causes differences in exchange rates in different geographic

markets

c. simultaneously buys large amounts of a currency in one

market and sell it in another market

d. None of the above

94. A speculator in foreign exchange is a person who

a. buys foreign currency, hoping to profit by selling it a a higher exchange

rate at some later date

b. earns illegal profit by manipulation foreign exchange

c. causes differences in exchange rates in different geographic markets

d. None of the above

95. A floating exchange rate

a. is determined by the national governments involved

b. remains extremely stable over long periods of time

c. is determined by the actions of central banks

d. is allowed to vary according to market forces

96. The current system of international finance is a

a. gold standard

b. fixed exchange rate system

c. floating exchange rate system

d.managed float exchange rate system

97. A simultaneous purchase and sale of foreign exchange for two different
dates is called

A. currency devalue
 B. currency swap

C. currency valuation

D. currency exchange

98. Which of the following is a legitimate reason for international

investment?

A. Dividends from a foreign subsidiary are tax exempt in the United

States.

B. Most governments do not tax foreign corporations.

C. There are possible benefits from international diversification.

D. International investments have less political risk than domestic

investments.

99. Which of the following is not a goal of financial regulation?

A) Providing information to investors

B) Encouraging home ownership

C) Ensuring that investors never suffer losses

D) Ensuring the soundness of the financial system

100. Which of the following statements about financial markets and securities
are true?

A) A debt instrument is long term if its maturity is ten years or longer.

B) The maturity of a debt instrument is the time (term) to that instrument's expiration
date.

C) A debt instrument is intermediate term if its maturity is less than one year.

D) A bond is a long term security that promises to make periodic payments called
dividends to the firm's residual claimants.