Financial Management MCQ Questions and Solutions with Explanations | Commerce

If a preferred stock issue is cumulative, this means unpaid dividends will be paid in the future.

When a company uses debt fund in its financial structure, it will lead to a change in Financial leverage. Financial leverage is the amount of debt that an entity uses to buy more assets. Leverage is employed to avoid using too much equity to fund operations.

Reduced expenses is not a characteristic of investments companies.

Short term sources are Commercial papers. Commercial paper is a money-market security issued (sold) by large corporations to obtain funds to meet short-term debt obligations (for example, payroll) and is backed only by an issuing bank or company promise to pay the face amount on the maturity date specified on the note.

A company having easy access to the capital markets can follow a liberal dividend policy. It is a policy of distributing a major part of its earnings to its shareholders as dividend and retains a minimum amount as retained earnings.

Fixed cost per unit changes according to volume of production. A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold.

Re-order level is higher than safety level. Reorder level (or reorder point) is the inventory level at which a company would place a new order or start a new manufacturing run.

The most popular type of Investment Company is a mutual fund. A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities.

Variable cost in an organization changes with the volume of production. A variable cost is a cost that changes in relation to variations in an activity. In a business, the "activity" is frequently production volume, with sales volume being another likely triggering event.

A unit investment trust (UIT) is a type of investment company that offers a fixed, unmanaged portfolio of securities, typically bonds or other fixed income instruments.

Unlike actively managed funds, a UIT is not actively traded or adjusted by a fund manager after its creation; instead, it is held by an independent trustee who maintains the portfolio until maturity.

This makes UITs distinct because they follow a buy-and-hold strategy, ensuring that the original composition of the portfolio remains largely unchanged over time.

Therefore, an unmanaged fixed income security portfolio handled by an independent trustee is best described as a unit investment trust.