Multiple Choice Questions and
Answers on Analysis and Interpretation of Financial Statements,
The term ‘Financial Statement’ covers
a) Profit & Loss Statement
b) Balance sheet and Profit & Loss Statement
appropriation account
c) Profit & Loss Statement and Balance sheet
d) All of above are false
ANSWER: c) Profit & Loss Statement and Balance sheet
2. The form of balance sheet is
a) Vertical
b) Horizontal
c) Horizontal and vertical
d) Horizontal or vertical
ANSWER: d) Horizontal or vertical
3. The term current asset doesn’t cover
a) Car
b) Debtors
c) Stock
d) Prepaid expenses
ANSWER: a) Car
4. P&L statement is also known as
a) Statement of operations
b) Statement of income
c) Statement of earnings
d) All of the above
ANSWER: b) Statement of income
5. Which of the following is true about
financial statements?
A) Financial statement gives a summary of
accounts.
B) Financial statements can be stated as
recorded facts.
a) Only A
b) Only B
c) Both A and B
d) None of the above
ANSWER: c) Both A and B
6. The statement of financial position and
the balance sheet are synonyms.
a) True
b) False
ANSWER: a) True
7. Schedules attached with the balance sheet
forms a part of the financial statements.
a) True
b) False
ANSWER: a) True
8. Which of the following statements are
true?
A) Financial statements are only interim report.
B) Financial statements are also known as annual
records.
C) Financial statements are historic.
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C
ANSWER: c) Both B and C
9. Certain assumptions are essential to
prepare financial statements.
a) True
b) False
ANSWER: a) True
The only feasible purpose of financial management
is
a) Wealth Maximization
b) Sales Maximization
c) Profit Maximization
d) Assets maximization
ANSWER: Wealth Maximization
2. Financial management process deals with
a) Investments
b) Financing decisions
c) Both a and b
d) None of the above
ANSWER: b) Financing decisions
3. Agency cost consists of
a) Binding
b) Monitoring
c) Opportunity and structure cost
d) All of the above
ANSWER: d) All of the above
4. Finance Function comprises
a) Safe custody of funds only
b) Expenditure of funds only
c) Procurement of finance only
d) Procurement & effective use of funds
ANSWER: d) Procurement &
effective use of funds
5. The objective of wealth maximization takes
into account
a) Amount of returns expected
b) Timing of anticipated returns
c) Risk associated with uncertainty of returns
d) All of the above
ANSWER: d) All of the above
6. Financial management mainly focuses on
a) Efficient management of every business
b) Brand dimension
c) Arrangement of funds
d) All elements of acquiring and using means of
financial resources for financial activities
ANSWER: d) All elements of acquiring and using means of financial
resources for financial activities
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) None of the above
ANSWER: a) A unit of money obtained
today is worth more than a unit of money obtained in future
2. Time value of money supports the
comparison of cash flows recorded at different time period by
a) Discounting all cash flows to a common point
of time
b) Compounding all cash flows to a common point
of time
c) Using either a or b
d) None of the above.
ANSWER: c) Using either a or b
3. If the nominal rate of interest is 10% per
annum and there is quarterly compounding, the effective rate of interest will
be:
a) 10% per annum
b) 10.10 per annum
c) 10.25%per annum
d) 10.38% per annum
ANSWER: d) 10.38% per annum
4. Relationship between annual nominal rate
of interest and annual effective rate of interest, if frequency of compounding
is greater than one:
a) Effective rate > Nominal rate
b) Effective rate < Nominal rate
c) Effective rate = Nominal rate
d) None of the above
ANSWER: a) Effective rate >
Nominal rate
5. Mr. X takes a loan of Rs 50,000 from HDFC
Bank. The rate of interest is 10% per annum. The first installment will be paid
at the end of year 5. Determine the amount of equal annual installments if Mr.
X wishes to repay the amount in five installments.
a) Rs 19500
b) Rs 19400
c) Rs 19310
d) None of the above
ANSWER: c) Rs 19310
6. If nominal rate of return is 10% per annum
and annual effective rate of interest is 10.25% per annum, determine the
frequency of compounding:
a) 1
b) 2
c) 3
d) None of the above
ANSWER: b) 2
7. Present value tables for annuity cannot be
straight away applied to varied stream of cash flows.
a) True
b) False
ANSWER: a) True
8. Heterogeneous cash flows can be made
comparable by
a) Discounting technique
b) Compounding technique
c) Either a or b
d) None of the above
ANSWER: c) Either a or b
Risk of two securities with different expected
return can be compared with:
a) Coefficient of variation
b) Standard deviation of securities
c) Variance of Securities
d) None of the above
ANSWER: a) Coefficient of variation
2. A portfolio having two risky securities
can be turned risk less if
a) The securities are completely positively
correlated
b) If the correlation ranges between zero and
one
c) The securities are completely negatively
correlated
d) None of the above.
ANSWER: c) The securities are
completely negatively correlated
3. Efficient frontier comprises of
a) Portfolios that have negatively correlated
securities
b) Portfolios that have positively correlated
securities
c) Inefficient portfolios
d) Efficient portfolios
ANSWER: d) Efficient portfolios
4. Efficient portfolios can be defined as
those portfolios which for a given level of risk provides
a) Maximum return
b) Average return
c) Minimum return
d) None of the above
ANSWER: a) Maximum return
5. Capital market line is:
a) Capital allocation line of a market portfolio
b) Capital allocation line of a risk free asset
c) Both a and b
d) None of the above
ANSWER: c) Both a and b
6. CAPM accounts for:
a) Unsystematic risk
b) Systematic risk
c) Both a and b
d) None of the above
ANSWER: b) Systematic risk
7. The point of tangency between risk return
indifferences curves and efficient frontier highlights:
a) Optimal portfolio
b) Efficient portfolio
c) Sub-optimal portfolio
d) None of the above
ANSWER: a) Optimal portfolio
8. A portfolio comprises two securities and
the expected return on them is 12% and 16% respectively. Determine return of
portfolio if first security constitutes 40% of total portfolio.
a) 12.4%
b) 13.4%
c) 14.4%
d) 15.4%
ANSWER: c) 14.4%
9. A risk free security has zero variance.
a) True
b) False
ANSWER: b) False
10. Return on any financial asset consists of
capital yield and current yield.
a) True
b) False
ANSWER: a) True
11. There is no difference between the
capital market line and security market line as both the terms are same.
a) True
b) False
ANSWER: b) False
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