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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-7 section-6

Each section contains 100 MCQs on Financial Management .
61
Bond which is issued in market and few days are passed of its issuance is classified as
Discuss
Answer & Solution
Answer: Option B
Solution:
Bond which is issued in market and few days are passed of its issuance is classified as outstanding bond. Outstanding Bonds means the aggregate principal amount of the total number of Bonds not redeemed or otherwise discharged.
62
Real risk-free rate is applicable when it is expected that there will be
Discuss
Answer & Solution
Answer: Option D
Solution:
The risk-free rate of return is the theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time.
63
Bonds that do not pay original coupon payment but payment is made from additional bonds are classified as
Discuss
Answer & Solution
Answer: Option A
Solution:
Bonds that do not pay original coupon payment but payment is made from additional bonds are classified as payment in-kind bonds. A payment-in-kind (PIK) bond is a type of bond that pays interest in additional bonds rather than in cash.
64
According to top rating agencies S&P double-B and other lower grade bonds are classified as
Discuss
Answer & Solution
Answer: Option B
Solution:
According to top rating agencies S&P double-B and other lower grade bonds are classified as junk bonds. Junk bonds represent bonds issued by companies that are struggling financially and have a high risk of defaulting or not paying their interest payments or repaying the principal to investors.
65
Bond call provision that is not practiced even after several years of issuance is classified as
Discuss
Answer & Solution
Answer: Option B
Solution:
Bond call provision that is not practiced even after several years of issuance is classified as deferred call. A provision that prohibits the company from calling the bond before a certain date. During this period the bond is said to be call protected.
66
Price of an outstanding bond increases when market rate
Discuss
Answer & Solution
Answer: Option C
Solution:
Price of an outstanding bond increases when market rate decreases.
67
An average inflation rate which is expected over life of security is classified as
Discuss
Answer & Solution
Answer: Option A
Solution:
An average inflation rate which is expected over life of security is classified as inflation premium. An inflation premium is the part of prevailing interest rates that results from lenders compensating for expected inflation by pushing nominal interest rates to higher levels. Key points : Investors seek this premium to compensate for the erosion in the value of their capital due to inflation.
68
Type of bond which pays interest payment only when it earns is classified as
Discuss
Answer & Solution
Answer: Option A
Solution:
Type of bond which pays interest payment only when it earns is classified as income bond. An income bond is a type of debt security in which only the face value of the bond is promised to be paid to the investor, with any coupon payments paid only if the issuing company has enough earnings to pay for the coupon payment.
69
Type of bonds that pays no coupon payment but provides little appreciation are classified as
Discuss
Answer & Solution
Answer: Option C
Solution:
Type of bonds that pays no coupon payment but provides little appreciation are classified as zero coupon bond. A zero-coupon bond is a bond where the face value is repaid at the time of maturity. Note that this definition assumes a positive time value of money. It does not make periodic interest payments, or have so-called coupons, hence the term zero-coupon bond.
70
In call provision, it is stated that company will pay to issue an amount
Discuss
Answer & Solution
Answer: Option A
Solution:
In call provision, it is stated that company will pay to issue an amount higher than par value. A call provision is a provision in a bond contract that gives the issuing corporation the right to redeem the bonds under specified terms prior to the normal maturity date. The call provision generally states that the company must pay the bondholders an amount greater than the par value if they are called.