What Is A Hurdle Rate?: A Hurdle Rate Is The Minimum On A Project or Investment Required by A Manager or Investor

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(d) none of the above

What Is a Hurdle Rate?


A hurdle rate is the minimum rate of return on a project or investment required by
a manager or investor.

10. Process that involves decision making with respect to investment in fixed asset?

(a) Valuation

(b) Breakeven analysis

(c) Capital budgeting

(d) Material management decision


Wrong!
1. Interest paid (earned) on only the original principal borrowed (lent) is often
referred to as?

(a) Compound interest

(b) Future value

(c) Present value

(d) Simple interest


Wrong!
2. Treasury bills are?

(a) Issued on a premium basis and pay a fixed annual interest rate

(b) Issued on a discount basis and mature at par

(c) Issued on a premium basis and mature at par

(d) Issued on a discount basis and pay a fixed annual interest rate
Wrong!
3. Nominal Interest Rate is also known as?

(a) Annual percentage rate


(b) Effective interest Rate

(c) Periodic interest rate

(d) Coupon rate


Wrong!
4. The concept of compound interest refers to?

(a) The process of gradually retiring a debt through periodic payments of principal and interest

(b) The process of servicing a debt with regular interest payments, followed lump sum payment of

principal and interest at the end of the loan term

(c) The process of converting future lump sums and annuities into present values at a stated interest rate

(d) The process of earning interest on an original amount, plus interest on interest previously earned
Wrong!
5. The value of money to be received in the future is _______the value of the same
amount of money in hand today?

(a) Higher than

(b) Lower than

(c) The same as

(d) None of the above


Wrong!
6. The Time value of money must be considered in total outlay decision because?

(a) Cash inflows and out flows occur at different point

(b) Inflation greatly reduce the outflows

(c) A dollar received in future is more value able than a dollar today

(d) Cash flows are not known with certainty


Wrong!
7. Interest paid (earned) on both the original principal borrowed (lent) and previous
interest allowed (earned) is often referred to as __________?

(a) Compound interest

(b) Double interest

(c) Simple interest

(d) Present value


Wrong!
8. Money has time value because?

(a) Individuals prefer future consumption to present consumption

(b) Money today is worth more than money tomorrow in terms of purchasing power

(c) There is a possibility of earning risk free return on money invested today

(d) B and C above


Correct!
9. The real rate of interest reflects compensation for?

(a) Present value

(b) Future value

(c) Time value of money

(d) None of above


Wrong!
10. Interest has 3 types?

(a) Fixed rate, current rate, market rate

(b) Market rate, combination rate, fixed rate

(c) Fixed rate, floating rate, current rate

(d) Fixed rate, floating rate, combination rate


Correct!
11. The basic rule of the time value of money is?

(a) Investments will always be worth more tomorrow than they are today

(b) Its always wiser to save a dollar for tomorrow than to spend it today

(c) A dollar in hand today is worth more than a dollar promised at some time in the future

(d) All of the above express an aspect of the basic rule of time value of money
Wrong!
12. A decrease in the supply for loanable funds, holding demand constant, will cause
interest rates to?

(a) Increase

(b) Decrease

(c) Stay the same

(d) Not enough information to tell


Wrong!
13. The value of money results from?

(a) Its backing

(b) Rates set by the State Bank

(c) Its purchasing power

(d) None of the above


Wrong!
14. The basic price that equates the demand for and supply of loanable funds in the
financial markets is the _______?

(a) Interest rate

(b) yield curve

(c) Term structure

(d) Cash price


Wrong!
15. If the interest rate is greater than
0%, then a dollar today is worth?
(a) Less than a dollar tomorrow

(b) The same as a dollar tomorrow

(c) More than a dollar tomorrow

(d) There is not sufficient information to tell


Wrong!
16. In an inflationary period, interest
rates have a tendency to?
(a) Fall

(b) Rise

(c) Stay the same

(d) Act erratically


Wrong!
17. Which of the following is not a
determinant of market interest rates?
(a) The inflation premium

(b) The maturity risk premium

(c) The volatility risk premium

(d) The real rate of interest


Wrong!
18. An unexpected increase in inflation
should?
(a) Increase the demand for loanable funds

(b) Decrease the interest rate on loans

(c) Increase the interest rate on loans

(d) None of the above


Wrong!
19. If the interest rate is less than 0%,
then a dollar today is worth?
(a) More than a dollar tomorrow

(b) The same as a dollar tomorrow

(c) Less than a dollar tomorrow

(d) There is not sufficient information to tell


Wrong!
20. The risk-free interest rate is
composed of?
(a) An inflation premium and a default risk premium

(b) A default risk premium and a maturity risk premium

(c) A real rate of interest and a liquidity premium

(d) A real rate of interest and an inflation premium


Correct!
1. Assume that the interest rate is
greater than zero. Which of the
following cash-inflow streams totaling
$1, 500 would you prefer? The cash
flows are listed in order for Year 1,
Year 2, and Year 3 respectively?
(a) $700; $500 and $300

(b) $300; $500 and $700

(c) $500; $500 and $500

(d) Any of the above, since they each sum to $1,500


Wrong!
2. The higher the Future Value (FV) of
the payment, the higher will be the?
(a) Discount rate

(b) Liquidity

(c) Present value

(d) Cost of borrowing


Wrong!
3. Present value of a single amount is
simply termed as current value of?
(a) Present payment

(b) Future payment


(c) Annuity payment

(d) Discount payment


Wrong!
4. ________ means current value of a
future amount of money evaluated at a
given interest rate?
(a) Compounding

(b) Discounting

(c) Nominal rate

(d) Continuous rate


Wrong!
5. What does net present value give?
(a) Future values of present cash flows

(b) Present value of present cash flow

(c) Present value of future cash flows

(d) Future values of future cash flows


Correct!
6. What is the present value of $8, 000
to be paid at the end of three years if
interest rate is 11%?
(a) $6,015

(b) $4, 872


(c) $6, 725

(d) $1, 842


Wrong!
7. What is the present value of a stream
of $2,500 semiannual payments
received at the end of each period for
the next 10 years? The APR is 6%?
(a) $35,810

(b) $38,310

(c) $37,194

(d) $36,885
Wrong!
8. What is the present value of $1,000
to be paid at the end of 5 years if the
correct risk adjusted interest rate is
8%?
(a) $714

(b) $1,462

(c) $322.69

(d) $401.98
Correct!
9. To increase a given future value, the
discount rate should be adjusted
________?
(a) Downward

(b) Upward

(c) First upward and then downward

(d) None
Wrong!
10. You are to receive cash flows of
$10,000,000 in 4 years’ time and
$11,000,000 in 8 years’ time. Your
discount rate is 9% per year. What is
the present value of the cash flows?
(a) $9,531,412

(b) $9,784,598

(c) $10,453,025

(d) $12,604,781
Wrong!

1. Which of the following Debt is


unsecured?
(a) Bonds

(b) Debenture
(c) Euro Bond

(d) Mortgage Bond


Wrong!
At issue, coupon bonds typically sell
_________________?
(a) Above par value

(b) Below par

(c) At or near par value

(d) At a value unrelated to par


Wrong!
The _____________________ is used
to calculate the present value of a
bond?
(a) Nominal yield

(b) Current yield

(c) Yield to call

(d) Yield to maturity


Wrong!
4. Mortgage bonds are secured by real
property whose value is generally
__________ than that of the value of
the bonds issue?
(a) Higher
(b) Lower

(c) Equal

(d) Higher or lower


Correct!
5. Using semi-annual compounding, a
15-year zero coupon bond that has a
par value of $ 1,000 and a required
return of 8 % would be priced at
approximately ________________?
(a) $464

(b) $315

(c) $308

(d) $555
Wrong!
6. Market price of the bond changes
according to which of the following
reasons?
(a) Market price changes due to the supply demand of the bond in the market

(b) Market price changes due to Investor’s perception

(c) Market price changes due to change in the interest rate

(d) All of the given options


Wrong!
7. A bond will sell at a discount when
__________?
(a) The coupon rate is greater than the current yield and the current yield is greater
than yield to maturity

(b) The coupon rate is greater than yield to maturity

(c) The coupon rate is less than the current yield and the current yield is less than
yield to maturity

(d) The coupon rate is less than the current yield and the current yield is greater than
the yield to maturity
Wrong!
8. What is the value of 15 % Coupon
Bond that has $1,000 Face Value and
four years to Maturity that is priced to
Yield 10%?
(a) $1,255

(b) $677

(c) $875

(d) None
Wrong!
9. Which of the following statements is
most correct?
(a) All else equal, if a bond’s yield to maturity increases, its price will fall

(b) All else equal, if a bond’s yield to maturity increases, its price will rise
(c) If a bond’s yield to maturity exceeds the coupon rate, the bond will sell at a
premium over par

(d) All of the statements above are correct


Wrong!
10. Assume that you wish to purchase a
20-year bond that has a maturity value
of $1,000 and makes semi-annual
interest payments of $40. If you require
a 10 percent nominal yield to maturity
on this investment, what is the
maximum price you should be willing
to pay for the bond?
(a) $619

(b) $674

(c) $761

(d) $828
Wrong!

1. Which of the following is a series of constant cash flows that occur at the end of each period for some fixed number
of periods?
A. Ordinary annuity
B. Annuity due
C. Perpetuity
D. None of the given options
Ordinary annuity.

2. During the accounting period, sales revenue is Rs. 25,000 and accounts receivable increases by Rs. 8,000. What
will be the amount of cash received from customers for the period?
A. Rs. 33,000
B. Rs. 25,000
C. Rs. 17,000
D. Rs. 8,000
Right Answer: 17,000

Ref: Amount of cash received = total revenue increased - account receivable increased
= 25,000 - 8000 = 17,000.

3. The conflict of interest between stockholders and management is known as:


A. Agency problem
B. Interest conflict
C. Management conflict
D. Agency cost
Agency problem.

4. Which of the following form of business organization is least regulated?


A. Sole-proprietorship
B. General Partnership
C. Limited Partnership
D. Corporation
Sole-proprietorship.

5. Which of the following ratios are intended to address the firm’s financial leverage?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Asset Management Ratios
D. Profitability Ratios
Long Term Solvency Measures
· These ratios are intended to address the firm’s long-run ability to meet its obligations, or its financial leverage..

6. Balance Sheet is based upon which of the following formula?


A. Assets = Liabilities – Stockholder’s equity
B. Assets + Liabilities = Stockholder’s equity
C. Assets + Stockholder’s equity = Liabilities
D. Assets = Liabilities + Stockholder’s equity
Assets = Liabilities + Stockholder’s equity.

7. Quick Ratio is also known as:


A. Current Ratio
B. Acid-test Ratio
C. Cash Ratio
D. None of the given options
Acid-test Ratio.

8. Which of the following is a special case of annuity, where the stream of cash flows continues forever?
A. Ordinary Annuity
B. Special Annuity
C. Annuity Due
D. Perpetuity
Perpetuity.

9. You just won a prize, you can either receive Rs. 1000 today or Rs. 1,050 in one year. Which option do you prefer
and why if you can earn 5 percent on your money?
A. Rs. 1,000 because it has the higher future value
B. Rs. 1,000 because you receive it sooner
C. Rs. 1,050 because it is more money
D. Either because both options are of equal value
.
10. Which of the following ratios are particularly interesting to shortterm creditors?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Profitability Ratios
D. Market Value Ratios
Liquidity Ratios.

SET-2

Practice This Quiz on-line and evaluate your performance

1. AST Company has a current ratio of 4:3. Current Liabilities reported by the company are Rs.
30,000. What would be the Net Working Capital for the company?
A. Rs. 40,000
B. (–Rs. 40,000)
C. Rs. 10,000
D. (–Rs. 10,000)
C.
Current ratio = Current Assets / Current Liabilities
4:3 =? / 30,000
If 1/3 of 100% is 30,000 then .

2. In which form of Business, owners have limited liability.


A. sole proprietorship
B. partnership
C. joint stock company
D. none of the above
C.
Share holders of a company have the liability up to the number of shares purchased or amount
invested only.

3. Which of the following item provides the important function of shielding part of income from taxes?
A. Inventory
B. Supplies
C. Machinery
D. Depreciation
D.
Depreciation expenses are deducted from net income for tax purpose..

4. The process of determining the present value of a payment or a stream of payments that is to be
received in the future is known as:
A. Discounting
B. Compounding
C. Factorization
D. None of the given options
A.
Future value is discounted back at the given interest rate to find out the current worth of the amount
to be received in future..

5. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to invest at 5 percent
compounded annually, how long will you have to wait to buy the television?
A. 8.42 years
B. 10.51 years
C. 15.75 years
D. 18.78 years
B.
Using financial calculator, Put PV =6000, Rate = 5%, FV, 10,000 and solve for Nper. 10.47 Close to
the 10.51.

6. Which of the following equation is known as Cash Flow (CF)


identity?
A. CF from Assets = CF to Creditors – CF to Stockholder
B. CF from Assets = CF to Stockholders – CF to Creditors
C. CF to Stockholders = CF to Creditors + CF from Assets
D. CF from Assets = CF to Creditors + CF to Stockholder
D.
It’s the accounting equation
Assets = Liability + Equity.

7. In which of the following type of annuity, cash flows occur at the beginning of each period?
A. Ordinary annuity
B. Annuity due
C. Perpetuity
D. None of the given options
A.
Annuity due is paid at the end of the year that’s why its called annuity due..

8. Between the two identical bonds having different maturity periods, the price of the ______ bond
will change less than that of ______ bond.
A. long-term; short-term
B. short-term; long-term
C. lower-coupon; higher-coupon
D. None of the given options
B.
The longer the time to maturity, all else being equal, increases duration. Higher duration = higher
sensitivity to interest rate changes.
Interest rates higher = price lower..

9. Which of the given area is NOT addressed by Business Finance?


A. Financing
B. Investing
C. Managing day today expenses
D. None of the given options
D.
All of the given areas are addressed by Business Finance..

10. Which of the following form of business organization is least regulated?


A. Sole-proprietorship
B. General Partnership
C. Limited Partnership
D. Corporation
A.
They don’t have any obligation to be regulated according to business laws..

11. Which of the following is measured by profit margin?


A. Operating efficiency
B. Asset use efficiency
C. Financial policy
D. Dividend policy
A.
Profit margin ratio is calculated to determine how efficiently the business is generating cash from
operations (below taxes and interest).

12. A company having a current ratio of 1 will have ________ net working capital.
A. Positive
B. Negative
C. zero
D. None of the given options
C.
NWC = CA – CL
If Current ratio = 1:1, its means assets are equal to liabilities.
So, net working capital is zero..

13. Business Finance addresses which of the following?


A. Capital budgeting
B. Capital structure
C. Working capital management
D. All of the given options
D. .

14. In which type of business, all owners share in gains and losses and all have unlimited liability for
all business debts?
A. Sole-proprietorship
B. General Partnership
C. Limited Partnerhsip
D. Corporation

15. Which of the following is measured by retention ratio?


A. Operating efficiency
B. Asset use efficiency
C. Financial policy
D. Dividend policy
D.
Retention ratio determines how much amount of net income is retained for re-investment and how
much is paid as dividend..

16. How many years will it take to pay off a Rs. 11,000 loan with a Rs. 1,241.08 annual payment and
a 5% interest rate?
A. 6 years
B. 12 years
C. 24 years
D. 48 years

Using financial calculator in excel, Put, PV = 11,000, PMT, 1241.08, Rate = 5% and solve for Nper =
12 Years.

17. Which one of the following terms refers to the risk arises for bond owners from fluctuating interest
rates?
A. Fluctuations Risk
B. Interest Rate Risk 
C. Real-Time Risk
D. Inflation Risk

18. Which of the following set of ratios relates the market price of the firm's common stock to selected
financial statement items?
A. Liquidity Ratios
B. Leverage Ratios
C. Profitability Ratios
D. Market Value Ratios

It determines the market price or fair value of the common stock of company and compare it with the
items of balance sheet like shareholder’s equity etc.

19. If a firm uses cash to purchase inventory, its quick ratio will:
A. Increase
B. Decrease
C. Remain unaffected
D. Become zero

When inventory is purchased for cash, the cash is converted into inventories and there is no effect on
net current assets. The current assets remain the same as before the purchase of inventory the
current ratio will not be changed. Quick ratio, however, will be reduced if the cash is converted into
inventories because while computing quick ratio inventories are not added but cash is included in
quick assets. (Quick assets / current liab.) Quick assets = current assets-inventories.

20. Standard Corporation sold fully depreciated equipment for Rs.5,000. This transaction will be
reported on the cash flow
statement as a(n):
A. Operating activity
B. Investing activity
C. Financing activity
D. None of the given options

Investing activities – changes in investments and long-term assets


Cash inflows:
From sale of property, plant, and equipment.
From sale of investments in debt or equity securities of other entities.
From collection of principal on loans to other entities.
Cash outflows:
To purchase property, plant, and equipment.
To purchase investments in debt or equity securities of other entities.
To make loans to other entities..

SET-3

1. Which of the following ratios are particularly interesting to short term creditors?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Profitability Ratios
D. Market Value Ratios 
2. Financial policy is evaluated by which of the following?
A. Profit Margin
B. Total Assets Turnover
C. Debt-equity ratio
D. None of the given options
As this ratio determines how leveraged an organization is. Or how much an organization is relying on debt..

3. Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to employ which of the following type of
business?
A. Sole-proprietorship
B. Partnership
C. Corporation
D. None of the given options
Having more than 2 owners of a business entity is called “Partnership”. Having more than seven owners of a business entity is
called corporation..
4. When the market's required rate of return for a particular bond is much less than its coupon rate, the bond is selling at:
A. Premium
B. Discount
C. Par
D. Cannot be determined without more information

If the bond's price is higher than its par value, it will sell at a premium because its interest rate is higher than current prevailing
rates..

5. Which of the following statement is considered as the accountant’s snapshot of firm’s accounting value as of a particular date?
A. Income Statement
B. Balance Sheet
C. Cash Flow Statement
D. Retained Earning Statement
B. 

6. Finance is vital for which of the following business activity (activities)?


A. Marketing Research
B. Product Pricing
C. Design of marketing and distribution channels
D. All of the given options
D. 
Finance is important for all departments of an organization. 

7. The most important item that can be extracted from financial statements is the actual ________ of the firm.
A. Net Working Capital
B. Cash Flow
C. Net Present Value
D. None of the given options
B.

8. A firm has paid out Rs. 150,000 as dividends from its net income of Rs. 250,000. What is the retention ratio for the firm?
A. 12%
B. 25%
C. 40%
D. 60%
C. 
Retention ratio = Net income – Dividend / Net income
= 250 – 150 / 250 = 0.4 or 40%

9. If a firm’s debt ratio is 45%, this means _____ of the firm’s assets are financed by equity financing.
A. 50%
B. 55%
C. 45%
D. Cannot be determined without more information
B. 
The equity portion plus the debt portion must add up to 100%
Debt ratio = Debt / Total Assets
45% = 45 / 45 + 55 
45% = 45%

10. Which of the following ratios is NOT from the set of Asset Management Ratios?
A. Inventory Turnover Ratio
B. Receivable Turnover
C. Capital Intensity Ratio
D. Return on Assets
C. 
The capital intensity ratio is a financial calculation measuring how much a company is invested in total assets compared to how
much it is earning in revenue. Where as Asset turn over ratio determines how efficiently or effectively an organization is using its
assets.

11. Which of the following statement about bond ratings is TRUE?


A. Bond ratings are typically paid for by a company’s bondholders.
B. Bond ratings are based solely on information acquired from sources other than the bond issuer.
C. Bond ratings represent an independent assessment of the credit-worthiness of bonds.
D. None of the given options
C. 

12. If you plan to save Rs. 5,000 with a bank at an interest rate of 8%, what will be the worth of your amount after 4 years if
interest is compounded annually?
A. Rs. 5,400
B. Rs. 5,900
C. Rs. 6,600
D. Rs. 6,802
D. 
FV = PV * (1+ i) ^n
= 5,000 (1+0.08) ^4
= 6802

13. Which of the following statement is TRUE regarding debt?


A. Debt is an ownership interest in the firm.
B. Unpaid debt can result in bankruptcy or financial failure.
C. Debt provides the voting rights to the bondholders.
D. Corporation’s payment of interest on debt is fully taxable.
B. 

14. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs. 500,000. What would be the total worth of the firm’s
assets?
A. Rs. 300,000
B. Rs. 500,000
C. Rs. 800,000
D. Rs. 1100,000
C. 
Assets = Liabilities + Owner’s Equity
= 300,000 + 500,000
= 800,000

15. Which of the following measure reveals how much profit a company generates with the money shareholders have invested?
A. Profit Margin
B. Return on Assets
C. Return on Equity
D. Debt-Equity Ratio
C. 

16. If you have Rs. 850 and you plan to save it for 4 years with an interest rate of 10%, what will be the future value of your
savings?
A. Rs. 1,000
B. Rs. 1,244
C. Rs. 1,331
D. Rs. 1,464

FV = PV * (1+ i) ^n
= 850 * (1+0.1)^4
= 1244

17. In case of international business which of the given factor(s) must be considered?
A. Role of foreign exchange
B. Balance of payments
C. Attitude of Governments
D. All of the given options

18. Which of the following refers to the difference between the sale price and cost of inventory?
A. Net loss
B. Net worth
C. Markup
D. Markdown

Mark up/margin is the extra amount charged by business to it customer to earn profit. It’s the difference between sales price and
cost.

19. Who of the following make a broader use of accounting information?


A. Accountants
B. Financial Analysts
C. Auditors
D. Marketers
B. 
Financial analysts make extensive use of accounting information; they are some of the most important end users. Understanding
finance helps accountants recognize what types of information are particularly valuable and, more generally, how accounting
information is actually used (and abused) in practice.
20. Rule of 72 for finding the number of periods is fairly applicable
to which of the following range of discount rates?
A. 2% to 8%
B. 4% to 25%
C. 5% to 20%
D. 10% to 50%

This rule is fairly applicable to discount rates in 5% to 20% range. Finding the Number of Periods:.
21. A portion of profits, which a company distributes among its shareholders, is known as:
A. Dividends
B. Retained Earnings
C. Capital Gain
D. None of the given options

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