Finance quiz

Try out this amazing Finance quiz to test your knowledge

Finance Quiz
Q1. Which of the following actions taken by a central bank is expansionary?
a) Increasing the reserve requirement
b) The purchase of government bonds
c) Increasing its policy rate
d) None of the above
Q2. In contrast to forward contracts, futures contracts:
a) have negotiable expiration dates
b) have contract sizes tailored to investor needs
c) trade on organized exchanges
d) have credit risk
Q3. Swati finds that Agarwal Ltd has a head and shoulders pattern with the peak being at Rs. 75,
the neckline at Rs. 66 and shoulders around Rs.70. On today's trading session, the stock crosses
Rs. 66 to the downside. What is the most probable outcome the analyst predicts for the stock?
a) The stock will rebound to Rs.70
b) The stock will rebound to Rs.75
c) The stock will keep going down to Rs.57
d) The stock will rebound to Rs.66
Q4. Which of the following bonds contains an embedded option that provides the issuer certain
rights?
a) Putable bond
b) Callable bond
c) Convertible bond
d) None of the above
Q5. An attempt to replicate a price-weighted index would necessary require holding an equal:
a) percentage of outstanding shares of each security in the index
b) amount invested in each security in the index
c) number of units (shares) of each security in the index
d) None of the above
Q6. Diversification will not help reduce a portfolio’s:
a) systematic risk
b) specific risk
c) overall risk
d) residual risk
Q7. Mr Rishabh feels that Gupta & Company’s earnings and dividends will grow at 25% for two
years, after which growth will fall to a constant rate of 6%. If the projected discount rate is 10%,
and Gupta’s most recently paid dividend was Rs 1, the value of Gupta’s stock using the
multistage dividend discount model is closest to:
a) Rs. 31.25
b) Rs. 33.54
c) Rs. 36.65
d) Rs. 32.55
Q8. Which of the following can be attributed to a fund manager’s alpha, as a part of fund’s
return:
a) The market
b) Skill
c) Luck
d) Externality
Q9. Mr. Shubham is presented with two investment opportunities. He would choose the one with
the higher NPV. A lump-sum of Rs. 20 lakhs OR Annuity with 25 payments of Rs. 2,50,000 p.a.
with the first payment starting today. The interest rate is 9% per year compounded annually.
Which one will you choose?
a) The annuity
b) The lump-sum
c) There's no difference between the two options
d) Data is insufficient
Q10. A limitation of the value at risk (VaR) approach to measuring risk is that it fails to specify:
a) the probability that a loss could occur
b) a time frame for potential losses
c) the maximum loss that could occur
d) none of the above
Q11. If AB Kumar Ltd’s sales increase by 10%, AB Kumar Ltd’s EBIT increases by 15%. If AB
Kumar Ltd’s EBIT increases by 10%, AB Kumar Ltd’s EPS increases by 12%. AB Kumar Ltd’s
degree of operating leverage (DOL) and degree of total leverage (DTL) are closest to:
a) 1.2 DOL and 1.5 DTL
b) 1.2 DOL and 2.7 DTL
c) 1.5 DOL and 1.8 DTL
d) 1.8 DOL and 1.5 DTL
Q12. The possibility of losing capital because of wrong valuation model is a case of:
a) operational risk
b) investment risk
c) compliance risk
d) none of the above
Q13. Mr Mit, Chartered Accountant, has forecasted that Parekh Ltd will pay its first dividend
two years from now in the amount of Rs. 1.25. For the following year he forecasts a dividend of
Rs. 2.00 and expects dividends to increase at an average rate of 7% for the foreseeable future
after that. If the risk-free rate is 4.5%, the expected market risk premium is 7.5%, and Parekh
Ltd. beta is 0.9, Mit would estimate the current value of Parekh Ltd shares as being closest to:
a) Rs. 37
b) Rs. 39
c) Rs. 40
d) Rs. 47
Q14. Which of the following are NOT part of other comprehensive income? 1. Exchange
differences on translating foreign operations. 2. Issuance of equity shares. 3. Actuarial
gains/losses. 4. Loss from sale of machinery
a) 2 and 4
b) 2 and 3
c) 1 and 4
d) 1 and 3
Q15. According to the Efficient Market Hypothesis, stocks always tend to trade _________ on
stock exchanges, making it impossible for investors to either consistently purchase undervalued
stocks or sell stocks at inflated prices.
a) at their fair value
b) at their mis-priced value
c) at their technical value
d) at their expected value
Q16. The shareholders are asked by the company to waive their pre-emptive rights. The
company is saying that investors:
a) defer their right to vote on the next stockholders meeting
b) take the vote similar to the vote of the Board during the stockholders meeting
c) Will maintain their ownership percentage in the company
d) agree not to buy new common shares before the stocks are offered to other investors
Q17. Find the intrinsic value of Praveen Ltd if dividends are expected to grow at 5%, the most
recent dividend was Rs 1, and investors’ required rate of return for this stock is 10%
a) Rs 20.00
b) Rs 21.00
c) Rs 22.05
d) Rs 22.15
Q18. If a portfolio manager is trying to maximize its risk adjusted return, they will seek to invest
in more securities that have:
a) Lower values of Jensen alpha
b) Values of Jensen alpha equal to 0
c) Higher values of Jensen alpha
d) None of the above
Q19. The following is the data about Shubham Ltd. The opening inventory is Rs 41,000, closing
inventory is Rs 39,000, sales is Rs 3,20,000 and gross profit ratio is 30% on sales. What will be
the inventory turnover ratio?
a) 3.1 times
b) 6.1 times
c) 3.2 times
d) 5.6 times
Q20. Gosalia Pvt Ltd has an expected dividend payout ratio of 60% and an expected future
growth rate of 7%. What should the company’s fundamental price-to-earnings (P/E) ratio be if
the required rate of return on stocks of this type is 15%?
a) 5.0x
b) 7.5x
c) 10.0x
d) 12.5x
Q21. Which of the following firms would most appropriately be valued using an asset-based
model?
a) Gajju Ltd - An energy exploration firm in financial distress that owns drilling rights for
offshore areas.
b) Agarwal & Associates - A paper firm located in a country that is experiencing high
inflation.
c) Himani & Partners - A software firm that invests heavily in research and development
and frequently introduces new products.
d) Jain Dhan Bank - A bank which invested heavily on blockchain technology in designing
its processes
Q22. Mrs Tannu values stocks using a dividend discount model and the CAPM. Holding all
other factors constant, which of the following is least likely to increase the estimated value of a
stock valued by her?
a) An increase in the next period’s expected dividend.
b) A decrease in the stock’s systematic risk.
c) A decrease in the expected growth rate of dividends
d) An increase in stock’s systematic risk
Q23. Mr. Jatin is an analyst with Meghtin Corporation, a major U.S.-based discount retailer.
Meghtin is considering opening new stores in Brazil and wants to estimate its cost of equity
capital for this investment. Meghtin has found that - the appropriate beta to use for the project is
1.3, the market risk premium is 6%, the risk-free interest rate is 4.5%, the country risk premium
for Brazil is 3.1%. Which of the following is closest to the cost of equity that Mr Jatin should use
in his analysis?
a) 10.5%
b) 15.6%
c) 16.3%
d) 16.6%
Q24. Rate of return which considers riskiness and an available returns on investments is
classified as
a) constant dividend
b) constant rate
c) maximum rate of return
d) minimum acceptable rate of return
Q25. Jay & Veeru Ltd is planning a INR 50 million expansion. The expansion is to be financed
by selling INR 20 million in new debt and INR 30 million in new common stock. The before-tax
required return on debt is 9% and 14% for equity. If the company is in the 40% tax bracket, the
company’s marginal cost of capital is closest to:
a) 7.2%
b) 10.6%
c) 12.0%
d) 13.5%
Q26. Which of the following statements is correct?
a) The P/E ratio is a useful measure to analyze supergrowth firms
b) The P/E ratio as an investment criterion is not based on the principle of discounted future
cash flows
c) The constant dividend valuation formula cannot be employed for super growth firms
d) Both a and b
Q27. Mitra & Mitra Ltd, sells blue ink for $4 a bottle. The ink’s variable cost per bottle is $2. Ink
has fixed operating costs of $4,000 and fixed financing costs of $6,000. What is Mitra and
Mitra’s break-even quantity of sales, in units?
a) 2000
b) 3000
c) 5000
d) 3500
Q28. Onkar & Sons' earnings per share increased from INR 2 to INR 2.40, its dividends
increased from INR 0.40 to INR 0.48, and its share price increased from INR 60 to INR 67.
Given this information, it follows that:
a) the required rate of return decreased
b) the stock experienced a drop in its P/E ratio
c) the firm increased its number of shares outstanding
d) the company had a decrease in its dividend payout ratio
Q29. Venkat & Co.’s $100, 8% preferred is currently selling for INR 85. What is the company’s
cost of preferred equity?
a) 8.0%
b) 9.4%
c) 10.8%
d) 7.2%
Q30. Which of the following life cycle phases is typically characterized by high prices and slow
growth?
a) Mature
b) Growth
c) Shakeout
d) Embryonic

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Finance quiz

  • 1. Finance Quiz Q1. Which of the following actions taken by a central bank is expansionary? a) Increasing the reserve requirement b) The purchase of government bonds c) Increasing its policy rate d) None of the above Q2. In contrast to forward contracts, futures contracts: a) have negotiable expiration dates b) have contract sizes tailored to investor needs c) trade on organized exchanges d) have credit risk Q3. Swati finds that Agarwal Ltd has a head and shoulders pattern with the peak being at Rs. 75, the neckline at Rs. 66 and shoulders around Rs.70. On today's trading session, the stock crosses Rs. 66 to the downside. What is the most probable outcome the analyst predicts for the stock? a) The stock will rebound to Rs.70 b) The stock will rebound to Rs.75 c) The stock will keep going down to Rs.57 d) The stock will rebound to Rs.66 Q4. Which of the following bonds contains an embedded option that provides the issuer certain rights? a) Putable bond b) Callable bond c) Convertible bond d) None of the above Q5. An attempt to replicate a price-weighted index would necessary require holding an equal: a) percentage of outstanding shares of each security in the index b) amount invested in each security in the index c) number of units (shares) of each security in the index d) None of the above Q6. Diversification will not help reduce a portfolio’s: a) systematic risk b) specific risk c) overall risk d) residual risk Q7. Mr Rishabh feels that Gupta & Company’s earnings and dividends will grow at 25% for two years, after which growth will fall to a constant rate of 6%. If the projected discount rate is 10%, and Gupta’s most recently paid dividend was Rs 1, the value of Gupta’s stock using the multistage dividend discount model is closest to:
  • 2. a) Rs. 31.25 b) Rs. 33.54 c) Rs. 36.65 d) Rs. 32.55 Q8. Which of the following can be attributed to a fund manager’s alpha, as a part of fund’s return: a) The market b) Skill c) Luck d) Externality Q9. Mr. Shubham is presented with two investment opportunities. He would choose the one with the higher NPV. A lump-sum of Rs. 20 lakhs OR Annuity with 25 payments of Rs. 2,50,000 p.a. with the first payment starting today. The interest rate is 9% per year compounded annually. Which one will you choose? a) The annuity b) The lump-sum c) There's no difference between the two options d) Data is insufficient Q10. A limitation of the value at risk (VaR) approach to measuring risk is that it fails to specify: a) the probability that a loss could occur b) a time frame for potential losses c) the maximum loss that could occur d) none of the above Q11. If AB Kumar Ltd’s sales increase by 10%, AB Kumar Ltd’s EBIT increases by 15%. If AB Kumar Ltd’s EBIT increases by 10%, AB Kumar Ltd’s EPS increases by 12%. AB Kumar Ltd’s degree of operating leverage (DOL) and degree of total leverage (DTL) are closest to: a) 1.2 DOL and 1.5 DTL b) 1.2 DOL and 2.7 DTL c) 1.5 DOL and 1.8 DTL d) 1.8 DOL and 1.5 DTL Q12. The possibility of losing capital because of wrong valuation model is a case of: a) operational risk b) investment risk c) compliance risk d) none of the above Q13. Mr Mit, Chartered Accountant, has forecasted that Parekh Ltd will pay its first dividend two years from now in the amount of Rs. 1.25. For the following year he forecasts a dividend of Rs. 2.00 and expects dividends to increase at an average rate of 7% for the foreseeable future after that. If the risk-free rate is 4.5%, the expected market risk premium is 7.5%, and Parekh Ltd. beta is 0.9, Mit would estimate the current value of Parekh Ltd shares as being closest to:
  • 3. a) Rs. 37 b) Rs. 39 c) Rs. 40 d) Rs. 47 Q14. Which of the following are NOT part of other comprehensive income? 1. Exchange differences on translating foreign operations. 2. Issuance of equity shares. 3. Actuarial gains/losses. 4. Loss from sale of machinery a) 2 and 4 b) 2 and 3 c) 1 and 4 d) 1 and 3 Q15. According to the Efficient Market Hypothesis, stocks always tend to trade _________ on stock exchanges, making it impossible for investors to either consistently purchase undervalued stocks or sell stocks at inflated prices. a) at their fair value b) at their mis-priced value c) at their technical value d) at their expected value Q16. The shareholders are asked by the company to waive their pre-emptive rights. The company is saying that investors: a) defer their right to vote on the next stockholders meeting b) take the vote similar to the vote of the Board during the stockholders meeting c) Will maintain their ownership percentage in the company d) agree not to buy new common shares before the stocks are offered to other investors Q17. Find the intrinsic value of Praveen Ltd if dividends are expected to grow at 5%, the most recent dividend was Rs 1, and investors’ required rate of return for this stock is 10% a) Rs 20.00 b) Rs 21.00 c) Rs 22.05 d) Rs 22.15 Q18. If a portfolio manager is trying to maximize its risk adjusted return, they will seek to invest in more securities that have: a) Lower values of Jensen alpha b) Values of Jensen alpha equal to 0 c) Higher values of Jensen alpha d) None of the above Q19. The following is the data about Shubham Ltd. The opening inventory is Rs 41,000, closing inventory is Rs 39,000, sales is Rs 3,20,000 and gross profit ratio is 30% on sales. What will be the inventory turnover ratio? a) 3.1 times
  • 4. b) 6.1 times c) 3.2 times d) 5.6 times Q20. Gosalia Pvt Ltd has an expected dividend payout ratio of 60% and an expected future growth rate of 7%. What should the company’s fundamental price-to-earnings (P/E) ratio be if the required rate of return on stocks of this type is 15%? a) 5.0x b) 7.5x c) 10.0x d) 12.5x Q21. Which of the following firms would most appropriately be valued using an asset-based model? a) Gajju Ltd - An energy exploration firm in financial distress that owns drilling rights for offshore areas. b) Agarwal & Associates - A paper firm located in a country that is experiencing high inflation. c) Himani & Partners - A software firm that invests heavily in research and development and frequently introduces new products. d) Jain Dhan Bank - A bank which invested heavily on blockchain technology in designing its processes Q22. Mrs Tannu values stocks using a dividend discount model and the CAPM. Holding all other factors constant, which of the following is least likely to increase the estimated value of a stock valued by her? a) An increase in the next period’s expected dividend. b) A decrease in the stock’s systematic risk. c) A decrease in the expected growth rate of dividends d) An increase in stock’s systematic risk Q23. Mr. Jatin is an analyst with Meghtin Corporation, a major U.S.-based discount retailer. Meghtin is considering opening new stores in Brazil and wants to estimate its cost of equity capital for this investment. Meghtin has found that - the appropriate beta to use for the project is 1.3, the market risk premium is 6%, the risk-free interest rate is 4.5%, the country risk premium for Brazil is 3.1%. Which of the following is closest to the cost of equity that Mr Jatin should use in his analysis? a) 10.5% b) 15.6% c) 16.3% d) 16.6% Q24. Rate of return which considers riskiness and an available returns on investments is classified as a) constant dividend b) constant rate
  • 5. c) maximum rate of return d) minimum acceptable rate of return Q25. Jay & Veeru Ltd is planning a INR 50 million expansion. The expansion is to be financed by selling INR 20 million in new debt and INR 30 million in new common stock. The before-tax required return on debt is 9% and 14% for equity. If the company is in the 40% tax bracket, the company’s marginal cost of capital is closest to: a) 7.2% b) 10.6% c) 12.0% d) 13.5% Q26. Which of the following statements is correct? a) The P/E ratio is a useful measure to analyze supergrowth firms b) The P/E ratio as an investment criterion is not based on the principle of discounted future cash flows c) The constant dividend valuation formula cannot be employed for super growth firms d) Both a and b Q27. Mitra & Mitra Ltd, sells blue ink for $4 a bottle. The ink’s variable cost per bottle is $2. Ink has fixed operating costs of $4,000 and fixed financing costs of $6,000. What is Mitra and Mitra’s break-even quantity of sales, in units? a) 2000 b) 3000 c) 5000 d) 3500 Q28. Onkar & Sons' earnings per share increased from INR 2 to INR 2.40, its dividends increased from INR 0.40 to INR 0.48, and its share price increased from INR 60 to INR 67. Given this information, it follows that: a) the required rate of return decreased b) the stock experienced a drop in its P/E ratio c) the firm increased its number of shares outstanding d) the company had a decrease in its dividend payout ratio Q29. Venkat & Co.’s $100, 8% preferred is currently selling for INR 85. What is the company’s cost of preferred equity? a) 8.0% b) 9.4% c) 10.8% d) 7.2% Q30. Which of the following life cycle phases is typically characterized by high prices and slow growth? a) Mature b) Growth