FCI Management Trainees Finance Question Paper 2020 Sample Papers

FCI Management Trainees Finance Question Paper 2020 Sample PapersFCI Management Trainees Finance Question Paper 2020 Sample Papers.

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1. type of risk is avoidable through proper diversification.
portfolio risk
systematic risk
unsystematic risk
total risk

2. A statistical measure of the degree to which two variables (e.g., securities’ returns)
move together.
coefficient of variation
variance
covariance
certainty equivalent

3. An “aggressive” common stock would have a “beta”
equal to zero.
greater than one.
equal to one.
less than one.

4. A line that describes the relationship between an individual security’s returns and
returns on the market portfolio.
characteristic line
security market line
capital market line
beta

5. According to the capital-asset pricing model (CAPM), a security’s expected
(required) return is equal to the risk-free rate plus a premium
equal to the security’s beta.
based on the unsystematic risk of the security.
based on the total risk of the security.
based on the systematic risk of the security.

6. The risk-free security has a beta equal to, while the market portfolio’s beta is equal
to .
one; more than one.
one; less than one.
zero; one.
less than zero; more than zero.

7. Carrie has a “certainty equivalent” to a risky gamble’s expected value that is less than
the gamble’s expected value. Carrie shows
risk aversion.
risk preference.
risk indifference.

a strange outlook on life.
8. Beta is the slope of
the security market line.
the capital market line.
a characteristic line.
the CAPM.

9. A measure of “risk per unit of expected return.”
standard deviation
coefficient of variation
correlation coefficient
beta

10. The greater the beta, the of the security involved.
greater the unavoidable risk
greater the avoidable risk
less the unavoidable risk
less the avoidable risk

Select correct option:
Sales variability
Level of fixed operating costs
Closeness to its operating break-even point
Debt-to-equity ratio

What is the expected return of a zero-beta security?
Select correct option:
The risk-free rate
Zero rate of return
A negative rate of return
The market rate of return

The objective of financial management is to maximize _________ wealth.
Select correct option:
Stakeholders
Shareholders
Bondholders
Directors

Which of the following formulas represents a correct calculation of the degree of
operating leverage?
Select correct option:
(Q – QBE)/Q
(EBIT) / (EBIT – FC)
[Q(P-V) + FC] /[Q(P-V)]
Q(P-V) / [Q(P-V) – FC]

Which of the following is a capital budgeting technique that is NOT considered as
discounted cash flow method?Select correct option:
Payback period
Internal rate of return
Net present value
Profitability index

When taxes are considered, the value of a levered firm equals the value of the________.
Select correct option:
Unlevered firm
Unlevered firm plus the value of the debt
Unlevered firm plus the present value of the tax shield
Unlevered firm plus the value of the debt plus the value of the tax shield

At the termination of project, which of the following needs to be considered relating to
project assets?
Select correct option:
Salvage value
Book value
Intrinsic value
Fair value

What is the most important criteria in capital budgeting?
Select correct option:
Return on investment
Profitability index
Net present value
Pay back period

Which of the following is the cash required during a specific period to meet interest
expenses and principal payments?
Select correct option:
Debt capacity
Debt-service burden
Adequacy capacity
Fixed-charge burden

Which of the following is the maximum amount of debt (and other fixed-charge
financing) that a firm can adequately service?
Select correct option:
Debt capacity
Debt-service burden
Adequacy capacity
Fixed-charge burden

Which of the following shows ALL possible Risk –Return combinations for All
combinations of the stocks in the portfolio- whether efficient or not.
Select correct option:
Parachute graph
Capital market line
Security market line
All of the given options

Which of the following factors might affect stock returns?
Select correct option:
Business cycle
Interest rate fluctuations
Inflation rates
All of the above

The weighted average of possible returns, with the weights being the probabilities of
occurrence is referred to as __________.
Select correct option:
Probability distribution
Expected return
Standard deviation
Coefficient of variation

Which of the following formulas represents a correct calculation of the degree of
operating leverage?
Select correct option:
(Q – QBE)/Q
(EBIT) / (EBIT – FC)
[Q(P-V) + FC] /[Q(P-V)]
Q(P-V) / [Q(P-V) – FC]

Which of the following is as EBIT?
Select correct option:
Funds provided by operations
Earnings before taxes
Net income
Operating profit

Total portfolio risk is a combination of:
Select correct option:
Systematic risk plus non-diversifiable risk
Avoidable risk plus diversifiable risk
Systematic risk plus unavoidable risk
Systematic risk plus diversifiable risk

In which of the following approach you need to bring all the projects to the same
length in time?
Select correct option:
MIRR approach
Going concern approach
Common life approach
Equivalent annual approach

Which of the following is NOT the form of cash flow generated by the investments of the
shareholders?
Select correct option:
Income
Capital loss
Capital gain
Operating income

What are two major areas of capital budgeting?
Select correct option:
Net present value, profitability index
Net present value; internal rate of return
Net present value; payback period
Pay back period; profitability index

Which of the following factors might affect stock returns?
Select correct option:
Business cycle
Interest rate fluctuations
Inflation rates
All of the above

Which of the following is related to the use Lower financial leverage?
Select correct option:
Fixed costs
Variable costs
Debt financing
Common equity financing

Who determine the market price of a share of common stock?
Select correct option:
The board of directors of the firm
The stock exchange on which the stock is listed
The president of the company
Individuals buying and selling the stock

_________ is equal to (common shareholders’ equity/common shares outstanding).
Select correct option:
Book value per share
Liquidation value per share
Market value per share
None of the above

Where the efficient stock combination of risk and return in efficient market should lie?
Select correct option:
On the SML
Below the SML
Above the SML

It may lie anywhere for efficient combination
An annuity due is always worth _____ a comparable annuity.
Select correct option:
Less than
More than
Equal to
Can not be found from the given information

Where the stock points will lie, if a stock is a part of totally diversified portfolio?
Select correct option:
It will lie below the regression line
It will line above the regression line
It will line exactly on the regression line
It will be tangent to the regression line

What is the easiest method to diversify away firm-specific risks?
Select correct option:
To buy stocks with a beta of 1.0
To build a portfolio with 5-10 individual stocks
To purchase the shares of a mutual fund
To purchase stocks that plot above the security market line

Nominal Interest Rate is also known as:
Select correct option:
Effective interest Rate
Annual percentage rate
Periodic interest rate
Required interest rate

When taxes are considered, the value of a levered firm equals the value of the________.
Select correct option:
Unlevered firm
Unlevered firm plus the value of the debt
Unlevered firm plus the present value of the tax shield
Unlevered firm plus the value of the debt plus the value of the tax shield

Which of the following is correct regarding the opportunity cost of capital for a project?
Select correct option:
The opportunity cost of capital is the return that investors give up by investing in the
project rather than in securities of equivalent risk.
Financial managers use the capital asset pricing model to estimate the opportunity
cost of capital
The company cost of capital is the expected rate of return demanded by investors in a
company
All of the given options

For which of the following costs is it generally necessary to apply a tax adjustment to a
yield measure?
Select correct option:
Cost of debt
Cost of preferred stock
Cost of common equity
Cost of retained earnings

Which of the followings expressed the proposition that the cost of equity is a positive
linear function of capital structure?
Select correct option:
The Capital Asset Pricing Model
M&M Proposition I
M&M Proposition II
The Law of One Price

The current yield on a bond is equal to ________.
Select correct option:
Annual interest divided by the current market price
The yield to maturity
Annual interest divided by the par value
The internal rate of return

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