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Financial Management MCQ Questions and Solutions with Explanations | Commerce

Financial Management MCQ Questions and answers with easy and logical explanations. Commerce provides you all type of quantitative and competitive aptitude mcq questions with easy and logical explanations. Financial Management MCQ is important for exams like B.COM, M.COM, BBA, BBM, CA, CS, CMA, CPA, CFA, UPSC, NET, Banking and other commerce department exam. Page-2 section-9

Each section contains 100 MCQs on Financial Management .
11
Portfolio which consists of perfectly positive correlated assets having no effect of
Discuss
Answer & Solution
Answer: Option D
Solution:
Portfolio which consists of perfectly positive correlated assets having no effect of diversification. Diversification reduces the variability when the prices of individual assets are not perfectly correlated. In other words, investors can reduce their exposure to individual assets by holding a diversified portfolio of assets. As a result, diversification will allow for the same portfolio return with reduced risk.
12
Weighted average of probabilities is classified as
Discuss
Answer & Solution
Answer: Option B
Solution:
Weighted average of probabilities is classified as expected rate of return. The expected return on a financial investment is the expected value of its return. It is a measure of the center of the distribution of the random variable that is the return.
13
Market risk and diversifiable risk are two components of
Discuss
Answer & Solution
Answer: Option A
Solution:
Market risk and diversifiable risk are two components of stock's risk. Risk in stock and bond investments is all about what might cause you to lose money on those investments.
14
Market risk premium is 8% and risk free return is 7% then market required return would be
Discuss
Answer & Solution
Answer: Option A
Solution:
Required market return = Market risk premium + Risk free return
= 8% + 7% = 15%.
15
Range of probability distribution with 68.26% lies within
Discuss
Answer & Solution
Answer: Option C
Solution:
Financial Management mcq solution image
16
In capital asset pricing model, an amount of risk that stock contributes to portfolio of market is classified as
Discuss
Answer & Solution
Answer: Option D
Solution:
In capital asset pricing model, an amount of risk that stock contributes to portfolio of market is classified as beta coefficient. Beta coefficient is a measure of sensitivity of a company's stock price to movement in the broad market index. It is an indicator of a stock's systematic risk which is the undiversifiable risk inherent in the whole financial system. Beta coefficient is an important input in the capital asset pricing model (CAPM)
17
Case in which average investors risk aversion is greater than slope of line and risk premium respectively is
Discuss
Answer & Solution
Answer: Option A
Solution:
Case in which average investors risk aversion is greater than slope of line and risk premium respectively is steeper, greater. Risk aversion means that investors will tend to purchase safe assets like highly rated bonds and CDs. Risk-averse individuals seek capital preservation over growth, which may actually be detrimental for those who are younger.
18
Expected returns weighted average on assets in portfolio is considered as
Discuss
Answer & Solution
Answer: Option B
Solution:
Expected returns weighted average on assets in portfolio is considered as expected return on portfolio. The expected return for an investment portfolio is the weighted average of the expected return of each of its components.
19
Correct measure of risk of stock is called
Discuss
Answer & Solution
Answer: Option B
Solution:
Correct measure of risk of stock is called beta. The beta of an investment is a measure of the risk arising from exposure to general market movements as opposed to idiosyncratic factors.
20
Standard deviation is 18% and coefficient of variation is 1.5% an expected rate of return will be
Discuss
Answer & Solution
Answer: Option C
Solution:
Expected rate of return = Standard deviation + Coefficient of variation
= 18% + 1.5% = 19.50%.