Financial management

21. Firm’s promise to pay and is backed or guaranteed by bank is classified as

customer's acceptance
banker's acceptance
federal acceptance
treasury acceptance

Detailed SolutionFirm’s promise to pay and is backed or guaranteed by bank is classified as

22. Financial securities that can be converted into cash at closing to their book value price are classified as

inventories
short-term investments
cash equivalents
long-term investments

Detailed SolutionFinancial securities that can be converted into cash at closing to their book value price are classified as

23. Operating Leverage is calculated as:

Contribution ÷ EBIT
EBIT ÷ PBT
EBIT ÷ Interest
EBIT ÷ Tax

Detailed SolutionOperating Leverage is calculated as:

24. According to traditional approach, the average cost of capital _______________.

Remains constant up to a degree of leverage and rises sharply thereafter with every increase in leverage
Rises constantly with increase in leverage
Decrease up to certain point, remains unchanged for moderate increase in leverage and rises beyond a certain point
Decrease at an increasing rate with increase in leverage

Detailed SolutionAccording to traditional approach, the average cost of capital _______________.

25. 80% of sales of Rs. 10,00,000 of a firm are on credit. It has a receivable turnover of 8. What is the average collection period (360 days a year) and average debtors of the firm?

45 days and Rs. 1,00,000
360 days and Rs. 1,00,000
45 days and Rs. 8,00,000
360 days and Rs. 1,25,000

Detailed Solution80% of sales of Rs. 10,00,000 of a firm are on credit. It has a receivable turnover of 8. What is the average collection period (360 days a year) and average debtors of the firm?

26. Rational traders immediately sell stock when price is

conditional
inefficient portfolio
too low
too high

Detailed SolutionRational traders immediately sell stock when price is

27. Markowitz’s main contribution to portfolio theory is___________.

that risk is the same for each type of financial asset
that risk is a function of credit, liquidity and market factors
risk is not quantifiable
insight about the relative importance of variances and co variances in determining portfolio risk

Detailed SolutionMarkowitz’s main contribution to portfolio theory is___________.

28. Bond call provision that is not practiced even after several years of issuance is classified as

original provision
deferred call
deferred provision
permanent provision

Detailed SolutionBond call provision that is not practiced even after several years of issuance is classified as

29. Risk-Return trade off implies:

Minimization of Risk
Maximization of Risk
Ignorance of Risk
Optimization of Risk

Detailed SolutionRisk-Return trade off implies:

30. Owning two securities instead of one will not reduce the risk taken by an investor if the two securities are______________.

perfectly positively correlated with each other
perfectly independent of each other
perfectly negatively correlated with each other
of the same category, eg blue chips

Detailed SolutionOwning two securities instead of one will not reduce the risk taken by an investor if the two securities are______________.

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