Sample MCQ Questions

1. Time value of money indicates that:

a) A unit of money obtained today is worth more than a unit of money obtained in future
b) A unit of money obtained today is worth less than a unit of money obtained in future
c) There is no difference in the value of money obtained today and tomorrow
d) A unit of money obtained today is equivalent to a unit of money obtained in future
2. Ramesh has an opportunity to receive Rs. 500 one year from now. If he can earn 7% on his
investments in the normal course of events, what is the most he should pay now for this
opportunity?
a) 567.28
b) 236.29
c) 467.28
d) 524.29
e) None of the above
3. Ordinary annuity is an annuity for which the cash flows occurs at the:
a) Beginning of each period
b) End of each period
c) Mid of each period
d) Alternate period
4. The future value of an annuity due is always ……………than the future value of of another wise
identical ordinary annuity.
a) Greater
b) Lesser
c) Equal
d) Less than equal
5. Which of the statements are /is false?
a) Perpetuity is an annuity with an infinite life providing continual cash flows.
b) An annuity for which the cash flows occur at the beginning of each year is the ordinary
annuity
c) The multiplier used to calculate the present value of an ordinary annuity at a specified
discount rate over a given period of time is called present value interest factor of an
ordinary annuity
d) 𝑃𝑉𝐼𝐹𝐴𝑖,∞ =1/i
6. Shalini wants to determine the number of years it will take for her initial Rs.1000 deposit earning 8%
annual interest , to grow to equal Rs. 2500.
a) 11 years
b) 15 years
c) 12 years
d) 14 years
7. Which of the basic equations are incorrect? Where i=interest rate and n=number of years.
a) 𝐹𝑉𝑛 =PV×(𝐹𝑉𝐼𝐹𝑖,𝑛 )
b) 𝐹𝑉𝐴𝑛 =PMT×(𝐹𝑉𝐼𝐹𝐴𝑖,𝑛 )
 c) 𝑃𝑉𝐴𝑛 =PMT×(𝑃𝑉𝐼𝐹𝐴𝑖,𝑛 )
d) 𝐹𝑉𝑛 (𝐹𝑉𝐼𝐹)=PV
8. Which of the following is false about debt ratio?
a) It measure the proportion of total assets financed by the firm’s creditors
b) The higher the ratio the grater the amount of other people’s money being used to generate
profits
c) Measures the firm’s ability to pay certain fixed charges
d) Is total assets divide by total liabilities.
9. Debt Equity Ratio is 3:1, the amount of total assets Rs.20 lakh ,current ratio is 1.5:1 and owned
funds Rs.3 lakh. What is the amount of current asset?
a) 12 lakh
b) 18 lakh
c) 13 lakh
d) 16 lakh
10. Which of the following is not an activity ratio?
a) Inventory turnover
b) Average payment period
c) Assets turnover
d) Fixed payment coverage
11. Net profit margin measures the percentage of each sales rupee remaining after all cost and
expenses , including interest , tax and preferred stock dividends have been
a) Added
b) Ignored
c) Deducted
d) Multiplied

12. ………………….ratio measures the amount that the investors are willing to pay for each rupee of a
firms earnings.
a) P/E
b) ROE
c) EPS
d) ROA
13. Which of the following statements is/are true?
a) Liquidity is the firm’s ability to satisfy its long term obligations
b) Current ratio is measured by dividing current liabilities with current assets
c) The higher the current ratio the more liquid the firm is considered
d) Inventory is never sold on credit.

14. ………………………… measures the percentage of each sale rupee remaining after all costs and expenses
other than interest , taxes , bonus shares and preferred stock dividends are deducted; the pure
profits earned on each sales rupee.
a) Gross profit margin
b) Operating profit margin
c) Net profit margin
d) Earnings Per Share

15. a) The lower turnover ratio highlights the under utilizations of the resources accessible at the
disposal of the firm.
a) Turn over ratios are also called activity ratios
 b) The degree of solvency of two firms can be compared by measuring
c) The ideal level of current ratio is 1:1
Which of the above statements are/is false?

16. Collection of debtors result in:

a) Decrease in current ratio
b) Increase in current ratio
c) Has no effect
d) Increase in liabilities

17. Tanu palces Rs. 900 in a savings account paying 7% interest compounded annually. She wants to
know how much money will be in the account at the end of 5 years.
a) Rs.1328.7
b) Rs.2178.2
c) Rs.1262.7
d) Rs.1546.7

18. Future value interest factor(𝐹𝑉𝐼𝐹𝑖,𝑛 ) is ………………….,where i=interest rate and n=number of years.
a) ((1 + 𝑛)𝑖
b) (1 + 𝑖)𝑛
c) (1 − 𝑛)𝑖
d) (1 ∗ 𝑛)𝑖

19. Ritika can borrow Rs. 30000 at 12% annual interest rate, equal, annual, end-of-year payments of Rs.
5800are required. She wishes to determine how long it will take to fully repay the loan.
a) 12 years
b) 16 years
c) 9 years
d) 15 years
20. Which one of the features does not fall under Sole proprietorship entity?
a. Limited liability
b. Easy to start
c. least regulated
d. difficult to sell

21. Given sales Rs.4,00,000, Cost of goods sold as Rs.2,33,000, calculate the Gross profit margin in
percentage.
a) 51.25%
b) 36.25%
c) 41.75%
d) 25.55%

22. Find the present value of a 6 year ordinary annuity of Rs.800, assuming 8 % opportunity cost.
a) Rs.3698.4
b) Rs.2688.6
 c) Rs.4648.4
d) Rs.5398.5
23. Tarun wants to find the effective annual rate associated with an 8% nominal annual rate when
interest is compounded semi-annually .
a) 8.16%
b) 9.16%
c) 7.4%
d) 9.00%
24. Given Quick ratio is 1.7, Current ratio is 2.5 and Current liabilities is 50000. Determine the value
of stock.
a) Rs.30,000
b) Rs.55,000
c) Rs.65,000
d) Rs.40,000
25. Rakesh has Rs. 10,000 that he can deposit in any of the three savings account for a three year
period . Bank A compounds interest on an annual basis. Bank B compounds interest twice each
year and bank C compounds interest each quarter. All three banks have stated annual interest
rate of 4 %.What effective annual rate would he earn in each of the banks?
a) Bank A 4%, Bank B 4.04%, Bank C 4.06%
b) Bank A 5%, Bank B 4.04%, Bank C 3.06%
c) Bank A 6%, Bank B 4.04%, Bank C 4.06%
d) Bank A 3%, Bank B 4.04%, Bank C 2.06%
26. …………………….. is the price at which the holder of the option can buy the stock at any time prior
to the option’s expiration date.
a) Exercising price
b) Striking price
c) Market price
d) Real price
27. Which one of the following is not included in calculating CAPM?
a) beta of the firm
b) the risk free rate
c) earnings for the next time period
d) the expected market return for the time period
28. Only those investments are recommended whose:
a) NPV>0
b) NPV<0
c) IRR>COST OF CAPITAL
d) Only a and c
29. Which one of the following is not a source of long term funds available to a business firm?
a) Preferred stock
b) Retained earnings
c) Current liabilities
d) Stockholder’s equity
30. Calculate the before-tax cost of debt of a 20 year bond of Rs.1000 with 8% coupon interest rate.
The net proceeds is Rs.940.
a) 9.56%
b) 8.55%
c) 7.56%
d) 7.64%
31. TATA Motors is contemplating issuance of a 10% preferred stock that is expected to sell for its
Rs.85 per share par value. The cost of issuing and selling the stock is expected to be Rs.5 per
share. Calculate the cost of preferred stock.
a) 10.665%
b) 9.656%
c) 10%
d) 9.265%

32. The weighted average of a firm's cost of equity and after tax cost of debt is called the:
a) Weighted capital gain rate
b) Weighted average cost of capital
c) Subjective cost of capital.
d) Reward to risk ratio
33. Which of the following statements is true?
a) Dividends are not paid out of firm’s earnings.
b) Cost of retained earnings is the same as the cost of an equivalent fully subscribed issue of
additional common stock.
c) For a new issue to sell , it has to be overpriced i.e sold at a price above its current market
price.
d) The net proceeds from sale of new common stock will be more than the current market
price.
34. ………………… uses accounting values to measure the proportion of each type of capital in the
firm’s financial structure.
a) Market value weights
b) Current value weights
c) Book value weights
d) Real value weights

36. …………………….. is a popular measure to determine whether an investment contributes positively

to the owner’s wealth , calculated as the difference between an investment’s net operating
profit after tax(NOPAT) and cost of funds used to finance the investment.
a) Gross Value Added
b) Net Value Added
c) Economic value added
d) Gross Capital formation
37. Which of the following statement is incorrect?
a) Interest payments to debt holders are treated as tax deductible expenses by the issuing
firm.
 b) Dividend payments of the firm’s common and preferred stock holders are tax-deductible.
c) Equity capital is a permanent form of financing.
d) The tax deductibility of interest lowers the corporation’s cost of debt financing.

38. The common stock of TATA Industries is currently selling for Rs.60 per share. The risk free rate is
currently 6%, the market return rate is 11%and the stock beta is 1.2Using CAPM model calculate
the current required return.
a) 13%
b) 15%
c) 165
d) 12%

39. ………………….. is the role of an investment banker to purchase the security issue from the issuing
corporation at an agreed on price and bearing the risk of reselling it to the public at a profit.
a) Rights offering
b) Underwriting
c) Red herring
d) Private placement
40. Which of the following statement is false?
a) Diversifiable risks are also called systematic risks.
b) Diversifiable risk are firm specific
c) Non -diversifiable risks are also called market risks
d) Factors such as war, inflation, international incidents etc. account for non -diversifiable risk.
41. Which of the following statement is true?
a) The beta coefficient is a relative measure of diversifiable risk.
b) The steeper the SML slope the lesser is the degree of risk aversion.
c) Risk premiums decrease with increasing risk avoidance.
d) The portfolio standard deviation is found by using the formula for the standard deviation of
a single asset.
42. Czar Company’s its risk free rate is 10%, market return 14% and beta is 1.70.Calculate the
required return.
a) 12%
b) 16.8%
c) 16%
d) 14%
43. Johnson Industries has outstanding a Rs. 1000 par value bond with a 9% coupon interest rate.
The bond has 16 years remaining to maturity. If the interest rate is paid annually, find the value
of the bond when the required return is 10%.
a) Rs. 800
b) Rs. 922.16
c) Rs. 836.54
d) Rs. 869.67

44. In a business parlance, Which one of the following items is not an asset ?
 a. Knowledge
b. Opportunity
c. Commitment
d. reputation
45. Interest rate can’t be otherwise termed as …………………….
a. Required rate of return
b. Discount rate
c. Opportunity cost
d. Liquidity rate

46. Given the 10% interest rate, investment horizon of 1 year and $1000 investment, what would be
the FVs of that investment at the end of 1 year for daily compounding frequencies?
a. 1105.16
b. 1106.16
c. 1104.16
d. 1106.06
47. If you invest Rs.20,000 each year for the next two years at 11% starting in one year, how much
will you have at the end of the two years?
a. Rs. 42200
b. Rs.42210
c. Rs. 42220
d. Rs.42230
48. Ramesh currently own a rental house that yields annual rent of Rs. 1,000. There is a rent
payment due today and one each at the end of the next two years. If he deposit all three into his
bank account, which earns 2%, how much money will he have at the end of Year 2?
a. Rs.3060.40
b. Rs. 3060.30
c. Rs. 3060.60
d. Rs. 3060.50
49. ----------ratio indicates the ability of the firm to meet its short-term, immediate obligations
a. Liquidity ratio
b. Profitability ratio
c. Activity ratio
d. Solvency ratio
50. Which one of the risk is not part of the shareholders specific risk?
a. Business Risk
b. Liquidity Risk
c. Market Risk
d. Financial Risks
51. Ramesh has an opportunity to receive Rs. 500 one year from now. If he can earn 8% on his
investments in the normal course of events, what is the most he should pay now for this
opportunity?
f) 567.28
g) 236.29
h) 467.28
i) 524.29
j) None of the above
52. Ordinary due is an annuity for which the cash flows occurs at the:
e) Beginning of each period
f) End of each period
g) Mid of each period
h) Alternate period
i) None of the above

53. The future value of an annuity is always ……………than the future value of of another wise
identical ordinary annuity.
e) Greater
f) Lesser
g) Equal
h) Less than equal
i) None of the above

54. Shalini wants to determine the number of years it will take for her initial Rs.1000 deposit
earning 8% annual interest , to grow to equal Rs. 2500.
e) 11 years
f) 15 years
g) 12 years
h) 14 years
i) None of the above

55. Which of the basic equations are incorrect? Where i=interest rate and n=number of years.
e) 𝐹𝑉𝑛 =PV×(𝐹𝑉𝐼𝐹𝑖,𝑛 )
f) 𝐹𝑉𝐴𝑛 =PMT×(𝐹𝑉𝐼𝐹𝐴𝑖,𝑛 )
g) 𝑃𝑉𝐴𝑛 =PMT×(𝑃𝑉𝐼𝐹𝐴𝑖,𝑛 )
h) 𝐹𝑉𝑛 (𝐹𝑉𝐼𝐹)=PV
i) None of the above

56. Which of the following is false about debt ratio?

e) It measure the proportion of total assets financed by the firm’s creditors
f) The higher the ratio the grater the amount of other people’s money being used to generate
profits
 g) Measures the firm’s ability to pay certain fixed charges
h) Is total assets divide by total liabilities.
i) None of the above

57. Debt Equity Ratio is 3:1, the amount of total assets Rs.20 lakh ,current ratio is 1.5:1 and owned
funds Rs.3 lakh. What is the amount of current asset?
e) 12 lakh
f) 18 lakh
g) 13 lakh
h) 16 lakh
i) None of the above

58. Which of the following is not an activity ratio?

e) Inventory turnover
f) Average payment period
g) Assets turnover
h) Fixed payment coverage
i) None of the above

59. Net profit margin measures the percentage of each sales rupee remaining after all cost and
expenses , including interest , tax and preferred stock dividends have been
e) Added
f) Ignored
g) Deducted
h) Multiplied
i) None of the above
60. ………………….ratio measures the amount that the investors are willing to pay for each rupee of a
firms earnings.
e) P/E
f) ROE
g) EPS
h) ROA
i) None of the above
61. Which of the following statements is/are true?
e) Liquidity is the firm’s ability to satisfy its long term obligations
f) Current ratio is measured by dividing current liabilities with current assets
g) The higher the current ratio the more liquid the firm is considered
h) Inventory is never sold on credit.
i) None of the above

62. ………………………… measures the percentage of each sale rupee remaining after all costs and
expenses other than interest , taxes , bonus shares and preferred stock dividends are deducted;
the pure profits earned on each sales rupee.
e) Gross profit margin
f) Operating profit margin
g) Net profit margin
h) Earnings Per Share
i) None of the above
j)
63. Collection of creditors result in:
e) Decrease in current ratio
f) Increase in current ratio
g) Has no effect
h) Increase in liabilities
i) None of the above

64. Tanu palces Rs. 1000 in a savings account paying 7.7% interest compounded annually. She wants
to know how much money will be in the account at the end of 5 years.
e) Rs.1328.7
f) Rs.2178.2
g) Rs.1262.7
h) Rs.1546.7
i) None of the above

65. Present value interest factor(𝐹𝑉𝐼𝐹𝑖,𝑛 ) is ………………….,where i=interest rate and n=number of
years.
e) ((1 + 𝑛)𝑖
f) (1 + 𝑖)𝑛
g) (1 − 𝑛)𝑖
h) (1 ∗ 𝑛)𝑖
i) None of the above

66. Ritika can borrow Rs. 30000 at 11% annual interest rate, equal, annual, end-of-year payments of
Rs. 5800are required. She wishes to determine how long it will take to fully repay the loan.
e) 12 years
f) 16 years
g) 9 years
h) 15 years
i) None of the above

67. Which one of the features does not fall under Sole proprietorship entity?
a. Limited liability
b. Easy to start
c. least regulated
d. difficult to sell
e. None of the above

68. Given sales Rs.5,50,000, Cost of goods sold as Rs.2,33,000, calculate the Gross profit margin in
percentage.
 e) 51.25%
f) 36.25%
g) 41.75%
h) 25.55%
i) None of the above

35. Find the present value of a 6 year ordinary annuity of Rs.900, assuming 8 % opportunity cost.
e) Rs.3698.4
f) Rs.2688.6
g) Rs.4648.4
h) Rs.5398.5
i) None of the above

36. Tarun wants to find the effective annual rate associated with an 12% nominal annual rate when
interest is compounded semi-annually .
e) 8.16%
f) 9.16%
g) 7.4%
h) 9.00%
i) None of the above

37. Given Quick ratio is 1.7, Current ratio is 3.5 and Current liabilities is 50000. Determine the value
of stock.
e) Rs.30,000
f) Rs.55,000
g) Rs.65,000
h) Rs.40,000
i) None of the above

38. Rakesh has Rs. 11,000 that he can deposit in any of the three savings account for a three year
period . Bank A compounds interest on an annual basis. Bank B compounds interest twice each
year and bank C compounds interest each quarter. All three banks have stated annual interest
rate of 5 %.What effective annual rate would he earn in each of the banks?
e) Bank A 4%, Bank B 4.04%, Bank C 4.06%
f) Bank A 5%, Bank B 4.04%, Bank C 3.06%
g) Bank A 6%, Bank B 4.04%, Bank C 4.06%
h) All of the above
i) None of the above
39. Which one of the following is included in calculating CAPM?
e) Downside beta of the firm
f) the risk free rate
g) earnings for the next time period
h) theun expected market return for the time period
i) None of the above
40. Only those investments are recommended whose:
e) NPV>0
f) NPV<0
g) IRR>COST OF CAPITAL
h) Only a and c
i) Only a and b
41. Calculate the before-tax cost of debt of a 20 year bond of Rs.1100 with 8% coupon interest rate.
The net proceeds is Rs.940.
e) 9.56%
f) 8.55%
g) 7.56%
h) 7.64%
42. TATA Motors is contemplating issuance of a 10% preferred stock that is expected to sell for its
Rs.85 per share par value. The cost of issuing and selling the stock is expected to be Rs.5.25 per
share. Calculate the cost of preferred stock.
e) 10.665%
f) 9.656%
g) 10%
h) 9.265%

43. The weighted average of a firm's cost of equity and after tax cost of debt is called the:
e) Weighted capital gain rate
f) Weighted average cost of capital
g) Subjective cost of capital.
h) Reward to risk ratio
44. Which of the following statements is true?
e) Dividends are not paid out of firm’s earnings.
f) Cost of retained earnings is the same as the cost of an equivalent fully subscribed issue of
additional common stock.
g) For a new issue to sell , it has to be overpriced i.e sold at a price above its current market
price.
h) The net proceeds from sale of new common stock will be more than the current market
price.

69. The common stock of TATA Industries is currently selling for Rs.60 per share. The risk free rate is
currently 6%, the market return rate is 11.25%and the stock beta is 1.2Using CAPM model
calculate the current required return.
e) 13%
f) 15%
g) 165
h) 12%
i) None of the above
70. ………………….. is the role of an broaker to purchase the security issue from the issuing
corporation at an agreed on price and bearing the risk of reselling it to the public at a profit.
e) Rights offering
f) Underwriting
g) Red herring
h) Private placement
i) None of the above

71. Which of the following statement is false?

e) Diversifiable risks are also called systematic risks.
f) Diversifiable risk are firm specific
g) Non -diversifiable risks are also called market risks
h) Factors such as war, inflation, international incidents etc. account for non -diversifiable risk.
i) None of the above
72. Czar Company’s its risk free rate is 10%, market return 14% and beta is 1.50.Calculate the
required return.
e) 12%
f) 16.8%
g) 16%
h) 14%
73. Johnson Industries has outstanding a Rs. 1000 par value bond with a 9% coupon interest rate.
The bond has 16 years remaining to maturity. If the interest rate is paid annually, find the value
of the bond when the required return is 10.5%.
e) Rs. 800
f) Rs. 922.16
g) Rs. 836.54
h) Rs. 869.67

74. In a business parlance, Which one of the following items is not an asset ?
a. Knowledge
b. Opportunity
c. attainment
d. reputation
75. Interest rate can’t be otherwise termed as …………………….
a. Required rate of return
b. Discount rate
c. Opportunity cost
d. overhead rate

76. Given the 10% interest rate, investment horizon of 1 year and $1000 investment, what would be
the FVs of that investment at the end of 1 year for weekly compounding frequencies
aproximately?
a. 1105.16
 b. 1106.16
c. 1104.16
d. 1106.06
77. If you invest Rs.30,000 each year for the next two years at 11% starting in one year, how much
will you have at the end of the two years?
a. Rs. 42200
b. Rs.42210
c. Rs. 42220
d. Rs.42230
78. Ramesh currently own a rental house that yields annual rent of Rs. 1,000. There is a rent
payment due today and one each at the end of the next two years. If he deposit all three into his
bank account, which earns 2%, how much money will he have at the end of Year 3?
a. Rs.3060.40
b. Rs. 3060.30
c. Rs. 3060.60
d. Rs. 3060.50
79. ----------ratio indicates the ability of the firm to meet its long-term, immediate obligations
a. Liquidity ratio
b. Profitability ratio
c. Activity ratio
d. Solvency ratio
80. Which one of the risk is not part of the idisyncratic risk?
a. Business Risk
b. Liquidity Risk
c. Market Risk
d. Financial Risks
81. Which of the following is not a basic form of options?
a) Rights
b) Call and put
c) Warrants
d) Preffered stock
e) None of the above

82. Calculate the before-tax cost of debt of a 20 year bond of Rs.1200 with 8% coupon interest rate.
The net proceeds is Rs.940.
i) 9.56%
j) 8.55%
k) 7.56%
l) 7.64%
m) None of the above
83. Ronald Corporation is contemplating issuance of a 10% preferred stock that is expected to sell
for its Rs.85 per share par value. The cost of issuing and selling the stock is expected to be Rs.5
per share. Calculate the cost of preferred stock.
i) 10.665%
 j) 9.656%
k) 10%
l) 9.265%
84. The weighted average of a firm's cost of equity and after tax cost of debt is called the:
i) Weighted capital gain rate
j) Weighted average cost of capital
k) Subjective cost of capital.
l) Reward to risk ratio
85. Linda Corporation Ltd. has common stock currently selling For Rs. 85 per share. The firm
expects to to pay cash dividends of Rs. 7 per share next year. . the firm’s dividends have been
growing at an annual rate of 7%, and this rate is expected to continue in the future. The stock
will have to be underpriced by Rs.4 per share and flotation costs are expected to amount to Rs.3
per share.The firm can sell an unlimited amount of new common stock under these terms.
Calculate cost of new common stock and cost of retained earnings.
a) 15.23% ; 15.975
b) 14.25% ; 14%
c) 13.5% ; 13.65%
d) 12.65% ;12.74%
86. Which of the following statements is true?
i) Dividends are not paid out of firm’s earnings.
j) Cost of retained earnings is the same as the cost of an equivalent fully subscribed issue of
additional common stock.
k) For a new issue to sell , it has to be overpriced i.e sold at a price above its current market
price.
l) The net proceeds from sale of new common stock will be more than the current market
price.
87. ………………… uses accounting values to measure the proportion of each type of capital in the
firm’s financial structure.
e) Market value weights
f) Current value weights
g) Book value weights
h) Real value weights
88. …………………….. is a popular measure to determine whether an investment contributes positively
to the owner’s wealth , calculated as the difference between an investment’s net operating
profit after tax(NOPAT) and cost of funds used to finance the investment.
e) Weighted average cost of capital
f) Weighted marginal cost of capital
g) Economic value added
h) Investment schedule.
89. Which of the following statement is false regarding Equity capital?
a) Holders of equity have claims on both assets and income that are secondary to the claims of
creditors.
b) Holders of equity do not have voice in the management.
c) They are the owners of the firm.
 d) They include preferred and common stockholders.
90. Which of the following features of common stockholders is not correct?
a) They are the residual owners because they receive what is left.
b) The preemptive rights allow them to maintain their proportionate ownership when new
shares are issued.
c) The common stock of a firm can be closely owned by a small group of investors.
d) Common stock of a firm cannot be owned by a board group of unrelated individual or
institutional investors.