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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-5 section-8

Each section contains 100 MCQs on Financial Management .
41
A line which shows relationship between an expected return and risk on efficient portfolio is considered as
Discuss
Answer & Solution
Answer: Option C
Solution:
A line which shows relationship between an expected return and risk on efficient portfolio is considered as capital market line. Capital market line (CML) is a graph that reflects the expected return of a portfolio consisting of all possible proportions between the market portfolio and a risk-free asset.
42
Relationship between total risk of stock, diversifiable risk and market risk is classified as
Discuss
Answer & Solution
Answer: Option A
Solution:
Relationship between total risk of stock, diversifiable risk and market risk is classified as total risk. Total risk is an assessment that identifies all of the risk factors associated with pursuing a specific course of action.
43
In arbitrage pricing theory, higher required rate of return is usually paid on stock
Discuss
Answer & Solution
Answer: Option B
Solution:
In arbitrage pricing theory, higher required rate of return and higher dividend is usually paid on stock. The Arbitrage Pricing Theory (APT) is a theory of asset pricing that holds that an asset’s returns can be forecasted with the linear relationship of an asset’s expected returns and the macroeconomic factors that affect the asset’s risk.
44
Formula written as market risk premium divided by standard deviations of returns on market portfolio is used to calculate
Discuss
Answer & Solution
Answer: Option A
Solution:
Formula written as market risk premium divided by standard deviations of returns on market portfolio is used to calculate capital market line. Capital market line (CML) is a graph that reflects the expected return of a portfolio consisting of all possible proportions between the market portfolio and a risk-free asset.
45
In capital asset pricing model, investors assume that buying and selling activity will
Discuss
Answer & Solution
Answer: Option B
Solution:
In capital asset pricing model, investors assume that buying and selling activity will not affect stock prices. The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital.
46
For investors, steeper slope of indifference curve shows more
Discuss
Answer & Solution
Answer: Option A
Solution:
For investors, steeper slope of indifference curve shows more risk averse investor. A risk averse investor is an investor who prefers lower returns with known risks rather than higher returns with unknown risks. In other words, among various investments giving the same return with different level of risks, this investor always prefers the alternative with least interest.
47
Positive minimum risk portfolio of any security shows that market security sold
Discuss
Answer & Solution
Answer: Option D
Solution:
Positive minimum risk portfolio of any security shows that market security sold greater than original price. A minimum variance portfolio indicates a well-diversified portfolio that consists of individually risky assets, which are hedged when traded together, resulting in the lowest possible risk for the rate of expected return.
48
Third factor in Fama French three factor model is ratio which is classified as
Discuss
Answer & Solution
Answer: Option B
Solution:
Third factor in Fama French three factor model is ratio which is classified as market to book ratio. The Fama and French model has three factors: size of firms, book-to-market values and excess return on the market. In other words, the three factors used are SMB (small minus big), HML (high minus low) and the portfolio's return less the risk free rate of return.
49
In capital asset pricing model, assumptions must be followed including
Discuss
Answer & Solution
Answer: Option D
Solution:
In capital asset pricing model, assumptions must be followed including no taxes, no transaction costs and fixed quantities of assets.
50
Two alternative expected returns are compared with help of
Discuss
Answer & Solution
Answer: Option A
Solution:
Two alternative expected returns are compared with help of coefficient of variation. The coefficient of variation (CV) is a statistical measure of the dispersion of data points in a data series around the mean.