MCQ-Time Value Of Money 2

 

MCQ-Time Value Of Money 2

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) 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

 

1. 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:

 

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