Financial Management MCQ/Finance MCQ (Finance Quiz - 7)

1. A 90-day T-bill futures expires in 100 days. Spot price of the 190-day T-bill is $98. A 100-day risk-free interest rate is 3.5% p.a. The yield on this futures contract is
[A]2.25%
[B]2.45%
[C]3.35%
[D]4.35%


2. Which of the following is true about a callable swap?
[A]The fixed rate receiver has the right to terminate the swap at any time before its maturity
[B]The fixed rate payer has the right to extend the swap beyond maturity
[C]The fixed rate payer has the right to terminate the swap at any time before its maturity
[D]Both fixed rate payer and receiver have the right to terminate the swap at any time before its maturity


3. In a single period binomial option-pricing model, the underlying stock is currently selling for Rs.80 and will rise or fall by 15% over the next period. A call option with an exercise price of Rs.95 would have a premium of
[A]Zero
[B]Rs.3
[C]Rs.5
[D]Rs.8


4. Goetzmann AG, an integrated steel producer in Germany, is worst hit by recession wave. In 2001, the entire company was broken into eight new entities and Goetzmann ceased to exist. This technique of restructuring is called
[A]Spin off
[B]Split off
[C]Split up
[D]Divesture


5. When a firm is a target of hostile tender offer, the target firm invites other friendly bidder. This strategy of takeover defense is called
[A]Poison pills
[B]Crown jewels
[C]White knights
[D]Golden parachute


6. Which of the following money market instruments has a maturity period varying from 2 to 15 days?
[A]Call money
[B]Commercial Paper
[C]Notice money
[D]Treasury Bill


7. Which of the following will decrease with an increase in the interest rate?
[A]Future Value Interest Factor
[B]Future Value Interest Factor For Annuity
[C]Capital Recovery Factor
[D]Present Value Interest Factor for a perpetual annuity


8. Which of the following is true?
[A]A change in YTM affects bonds with a lower YTM more than it does bonds with a higher YTM
[B]Given the maturity, for equal sized increases or decreases in the YTM, price movements are not symmetrical
[C]When the required rate of return is greater than the coupon rate, the value of the bond is more than its par value
[D]Bond’s price is directly proportional to its YTM


9. Which of the following statements is/are true?
I. Beta of a security increases with an increase in the variance of market returns.
II. Beta of a security increases with a decrease in standard deviation of the security’s return.
III. Beta of a security increases with an increase in the value of the correlation coefficient between the security’s return and market return.
[A]Only (I) above
[B]Only (II) above
[C]Only (III) above
[D]Both (I) and (II) above


10. Which of the following is not true about Commercial Papers (CPs)?
[A]CPs are negotiable by endorsement and delivery
[B]The minimum maturity period of CPs is 15 days
[C]CPs are unsecured in nature
[D]CPs cannot be issued at a discount to face value


11. Which of the following assumptions associated with Capital Asset Pricing Model (CAPM) is/are not true?
I. The greater the perceived risk of a portfolio, the higher is the return expected by a risk-averse investor.
II. All individuals agree on the nature of return and risk associated with each investment.
III. The choice of buying assets is affected by taxes.
[A]Only (I) above
[B]Only (II) above
[C]Only (III) above
[D]Both (I) and (II) above


12. Which of the following is an example of a diversifiable risk?
[A]Ability of a company to obtain adequate supply of raw materials
[B]Changes in the tax structure
[C]Reduction in the purchasing power of money
[D]Recession in the economy


13. Who among the following categories of people try to obtain risk free profits by simultaneously buying and selling similar instruments in different markets?
[A]Arbitrageurs
[B]Speculators
[C]Factors
[D]Brokers


14. The sinking fund factor is the inverse of
[A]Capital Recovery Factor
[B]Future Value Interest Factor
[C]Future Value Interest Factor for Annuity
[D]Present Value Interest Factor for Annuity


15. Consider the following data
Annual credit purchase = Rs.72,72,000
Opening balance of accounts payable = Rs.17,66,400
Closing balance of accounts payable = Rs.29,20,000
The average payment period assuming 360 days in a year is
[A]36 days
[B]66 days
[C]96 days
[D]116 days