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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-1 section-7

Each section contains 100 MCQs on Financial Management .
1
Rate on debt that increases as soon market rises is classified as
Discuss
Answer & Solution
Answer: Option B
Solution:
Rate on debt that increases as soon market rises is classified as floating rate debt. A bond or other type of debt whose coupon rate changes with market conditions (short-term interest rates).
2
If market interest rate rises above coupon rate then bond will be sold
Discuss
Answer & Solution
Answer: Option C
Solution:
If market interest rate rises above coupon rate then bond will be sold below its par value. Once a bond is issued the issuing corporation must pay to the bondholders the bond's stated interest for the life of the bond.
3
Bonds that can be converted into shares of common stock are classified as
Discuss
Answer & Solution
Answer: Option A
Solution:
Bonds that can be converted into shares of common stock are classified as convertible bonds. A convertible bond is a fixed-income debt security that yields interest payments, but can be converted into a predetermined number of common stock or equity shares.
4
Type of bonds that are issued by foreign governments or foreign corporations are classified as
Discuss
Answer & Solution
Answer: Option C
Solution:
Type of bonds that are issued by foreign governments or foreign corporations are classified as foreign bonds. A foreign bond is a bond issued in a domestic market by a foreign entity in the domestic market's currency as a means of raising capital.
5
Specific day at which bond value is repaid can be considered as
Discuss
Answer & Solution
Answer: Option D
Solution:
Specific day at which bond value is repaid can be considered as maturity date. The maturity date is the date on which the principal amount of a note, draft, acceptance bond or other debt instrument becomes due.
6
A usage of proceeds of new issue to retire issue with high-rate is classified as
Discuss
Answer & Solution
Answer: Option A
Solution:
A usage of proceeds of new issue to retire issue with high-rate is classified as refunding operation. Refunding is the process of retiring or redeeming an outstanding bond issue at maturity by using the proceeds from a new debt issue. The new issue is almost always issued at a lower rate of interest than the refunded issue, ensuring significant reduction in interest expense for the issuer.
7
If default probability is zero and bond is not called then yield to maturity is
Discuss
Answer & Solution
Answer: Option D
Solution:
If default probability is zero and bond is not called then yield to maturity is equal to expected return rate. The return on an investment as estimated by an asset pricing model. It is calculated by taking the average of the probability distribution of all possible returns.
8
Rate of return (in percentages) is consists of
Discuss
Answer & Solution
Answer: Option A
Solution:
Rate of return (in percentages) is consists of capital gain yield interest yield. A rate of return (RoR) is the net gain or loss on an investment over a specified time period, expressed as a percentage of the investment's initial cost.
9
Reinvestment risk of bonds is usually higher on
Discuss
Answer & Solution
Answer: Option B
Solution:
Reinvestment risk of bonds is usually higher on callable bonds. A callable bond is a bond that can be redeemed by the issuer prior to its maturity.
10
If market interest rate fall below coupon rate then bond will be sold
Discuss
Answer & Solution
Answer: Option B
Solution:
If market interest rate fall below coupon rate then bond will be sold above its par value. The prevailing rate of interest on loans determined by the demand and supply of credit and based on the duration (the longer the duration, the higher the rate) of loan and type of security offered (the higher the quality of security, the lower the rate).