**FCI 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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