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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-3 section-8

Each section contains 100 MCQs on Financial Management .
21
Stock portfolio with lowest book for market ratios is considered as
Discuss
Answer & Solution
Answer: Option D
Solution:
Stock portfolio with lowest book for market ratios is considered as L portfolio.
22
A measure which is not included in Fama French Three-Factor model is
Discuss
Answer & Solution
Answer: Option D
Solution:
A measure which is not included in Fama French Three-Factor model is risk premium. The Fama-French three-factor model is an expansion of the capital asset pricing model (CAPM) CAPM formula shows the return of a security is equal to the risk-free return plus a risk premium, based on the beta of that security. The model is adjusted for outperformance tendencies.
23
An average return of portfolio divided by its standard deviation is classified as
Discuss
Answer & Solution
Answer: Option C
Solution:
An average return of portfolio divided by its standard deviation is classified as Sharpe's reward to variability ratio. The sharpe ratio definition is the excess return or risk premium of a well diversified portfolio or investment per unit of risk. Measure sharpe ratio using standard deviation. You may also know this ratio as the reward to variability ratio or the reward to volatility ratio.
24
According to capital asset pricing model assumptions, variances, expected returns and covariance of all assets are
Discuss
Answer & Solution
Answer: Option A
Solution:
According to capital asset pricing model assumptions, variances, expected returns and covariance of all assets are identical. The Capital Asset Pricing Model ( CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks.
25
Sum of market risk and diversifiable risk are classified as total risk which is equivalent to
Discuss
Answer & Solution
Answer: Option D
Solution:
Sum of market risk and diversifiable risk are classified as total risk which is equivalent to variance.
26
Betas tend to move towards 1.0 with passage of time are classified as
Discuss
Answer & Solution
Answer: Option D
Solution:
Betas tend to move towards 1.0 with passage of time are classified as adjusted betas. The Adjusted Beta is an estimate of a security's future Beta. Adjusted Beta is initially derived from historical data, but modified by the assumption that a security's true Beta will move towards the market average, of 1, over time.
27
Stock issued by company have higher rate of return because of
Discuss
Answer & Solution
Answer: Option B
Solution:
Stock issued by company have higher rate of return because of high book to market ratio. A high ratio is preferred by value managers who interpret it to mean that the company is a value stock, that is, it is trading cheaply in the market compared to its book value.
28
Betas that are constantly adjusted to reflect changes in capital structure and firms operations are classified as
Discuss
Answer & Solution
Answer: Option C
Solution:
Betas that are constantly adjusted to reflect changes in capital structure and firms operations are classified as fundamental betas. Estimate of potential risk, accounting for various factors like company size, volatility, momentum, and such. It facilitates identifying potential risk of a company’s security using current and future (predicted) market-related and financial data.
29
Type of relationship exists between an expected return and risk of portfolio is classified as
Discuss
Answer & Solution
Answer: Option B
Solution:
Type of relationship exists between an expected return and risk of portfolio is classified as linear.
30
Capital market line reflects an attitude of investors towards risk which is considered as an/a
Discuss
Answer & Solution
Answer: Option D
Solution:
Capital market line reflects an attitude of investors towards risk which is considered as an aggregate. The capital market line (CML) represents portfolios that optimally combine risk and return. Capital asset pricing model (CAPM), depicts the trade-off between risk and return for efficient portfolios.