MGT201 Quiz

Question # 1
What are two major areas of capital budgeting?
Net present value, profitability index
Net present value; internal rate of return
Net present value; payback period
Pay back period; profitability index

Question # 2
Consider two bonds, A and B. Both bonds presently are selling at their par value of Rs. 1,000. Each pays interest of Rs. 120 annually. Bond A will mature in 5 years while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 10%, ____________
Both bonds will increase in value, but bond A will increase more than bond B

Both bonds will increase in value, but bond B will increase more than bond A

Both bonds will decrease in value, but bond A will decrease more than bond B

Both bonds will decrease in value, but bond B will decrease more than bond A

Question # 4
The weighted average of possible returns, with the weights being the probabilities of occurrence is referred to as __________.

Probability distribution

Expected return

Standard deviation

Coefficient of variation

Question # 6
Which one of the following selects the combination of investment proposals that will provide the greatest increase in the value of the firm within the budget ceiling constraint?


Cash budgeting

Capital budgeting

Capital rationing

Capital expenditure

Question # 8
Which of the following is a major disadvantage of the corporate form of organization?
Double taxation of dividends

Inability of the firm to raise large sums of additional capital

Limited liability of shareholders

Limited life of the corporate form

Question # 9
What type of long-term financing most likely has the following features: 1) it has an infinite life, 2) it pays dividends, and 3) its cash flows are expected to be a constant annuity stream?
Long-term debt

Preferred stock

Common stock

None of the given options

Question # 10
A set of possible values that a random variable can assume and their associated probabilities of occurrence are referred to as __________
Probability distribution

The expected return

The standard deviation

Coefficient of variation

Question # 12
Which of the following is not the present value of the bond?
Intrinsic value

Market price

Fair price

Theoretical price

Question # 13
When a bond will sell at a discount?
The coupon rate is greater than the current yield and the current yield is greater than yield to maturity

The coupon rate is greater than yield to maturity

The coupon rate is less than the current yield and the current yield is greater than the yield to maturity

The coupon rate is less than the current yield and the current yield is less than yield to maturity

Question # 14
Which of the following will NOT equate the future value of cash inflows to the present value of cash outflows?
Discount rate
Profitability index
Internal rate of return
Multiple Internal rate of return

Question # 16
A project that tells us the number of years required to recover our initial cash investment based on the project’s expected cash flows is:

Pay back period

Internal rate of return

Net present value

Profitability index

Question # 17
A capital budgeting technique through which discount rate equates the present value of the future net cash flows from an investment project with the project’s initial cash outflow is known as:

Payback period

Internal rate of return

Net present value

Profitability index

Question # 19
A statistical measure of the variability of a distribution around its mean is referred to as __________.
Probability distribution

Expected return

Standard deviation

Coefficient of variation

Question # 20
What is the present value of Rs.8,000 to be paid at the end of three years if the correct risk adjusted interest rate is 11%?

Rs.5,850

Rs.4,872

Rs.6,725

Rs.1,842

Question # 3
Which of the following is NOT an example of a financial intermediary?
Wisconsin S&L, a savings and loan association

Strong Capital Appreciation, a mutual fund

Microsoft Corporation, a software firm

College Credit, a credit union