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1.

Book value per share is


(a) Market price of the share
(b) Net worth of the company
(c) Selling price of the product produced by the company
(d) None of these
2. Liquidation value per share is excess of the amount realised from the sale of assets over
amount paid to creditors and preference share holder divided by total number of
outstanding equity shares:
(a) True
(b) False
3. The equity stock of ABC limited is currently selling for Rs. 50 per share. The dividend
expected next year is Rs. 5. The investors’ required rate of return on this stock is 15
percent. If the constant growth model applies to the company, what is the expected
growth rate?
(a) 8 percent
(b) 10 percent
(c) 20 percent
(d) 5 percent
4. XYZ Co. Ltd.‘s previous dividend was Rs. 11. Earnings and dividends are expected to
grow at a rate of 8 percent. The required rate of return on company’s stock is 18
percent. The market price of the share will be:
(a) Rs. 1188
(b) Rs. 118.88
(c) Rs. 118.80
(d) Rs. 11.88
5. Constant Growth Model for equity valuation was originally propounded by
(a) Myron J. Gordon
(b) Walter
(c) Myron J. Gordon & Walter jointly
(d) Harry markowitz
6. Which of the following is/are assumption/s of H model for equity valuation
(a) The current dividend growth rate, ‘ga’ is greater than the long run normal growth
rate ‘gn’.
(b) The current growth rate ‘ga’ declines linearly for 2H years after which it becomes
equal to gn.
(c) At H year growth rate is exactly between ga and gn.
(d) All of these are the assumptions of H model.
7. With a rise in the expected growth in dividend, other things remaining same, the
expected return would depend more on
(a) Capital gain
(b) Dividend yield
(c) Expected return will remain same
(d) None of these
8. Low dividend yield and high price earning ratio imply good growth prospects for a
company
(a) True
(b) False
9. Which of the following is not a determinants of the P/E ratio :
(a) Retention Ratio
(b) Interest Rate
(c) Risk Factor
(d) GDP growth
10. An efficient market is one in which the market price of a security is an unbiased
estimate of its intrinsic value :
(a) True
(b) False
11. A common stock pays an annual dividend per share of Rs. 3.40. The risk free rate is 8
percent, and the risk premium for the stock is 3 percent. If the annual dividend is
expected to remain at Rs. 3.40, the value of the stock is closest to:
(a) Rs. 30.000
(b) Rs. 30.909
(c) Rs. 45.255
(d) Rs.60.000
12. Which of the following assumptions does the constant growth dividend discount model
require
I. Dividends grow at a constant rate
II. The dividend growth rate continues indefinitely
III. The required rate of return is less than the dividend growth rate
(a) I only
(b) III only
(c) I and II only
(d) I, II and III
13. PQR Stock has an expected ROE of 12% per year, expected earnings per share of Rs. 2,
and an expected dividend of Rs. 1.50 per share. Its market capitalisation rate is 10%
per year. What are its expected growth rate, its price and its P/E ratio?
(a) 3%, Rs. 21.43, 10.71
(b) 7%, Rs. 21.43, 10.71
(c) 3%, Rs. 24.13, 9.81
(d) 6%, Rs. 23.53, 8.71
14. If current market price of ANZ Ltd. is Rs. 51.65 which is equal to its intrinsic value, what
is the next year’s expected price if the dividend is expected to grow at 11.2% per year?
(a) 56.000
(b) 57.435
(c) 54.455
(d) 60.000
15. The dividend growth model assumes that the price of a share depends ultimately on the
dividend expected from it
(a) True
(b) False
16. The _____ is a measure of efficiency in using share holders’ funds (1 Mark)
(a) ROW
(b) ROI
(c) ROE
(d) ROA
17. Risk free return is 8.3%, beta of a stock being 0.65 and the historical equity earnings
being 14%, what is the required rate of return of the stock?
(a) 12.005
(b) 13.005
(c) 15.005
(d) 14.005
18. Market gives companies a benchmark for their evaluation
(a) True
(b) False
19. What constitute optimal debt ratio; varies from one industry to another. Ideally it
should be
(a) 3.5 to 4
(b) 4 to 4.5
(c) 2.5 to 3
(d) 1.5 to 2
20. Valuation is required for
(a) Investment analysis
(b) Capital budgeting
(c) Merger and acquisition
(d) All of these reasons
21. Which of the following is a type of valuation models?
(a) Future Value Models
(b) Relative Value Models
(c) Present Value Models
(d) Future Pricing Models
22. Market price of a share always reflects its intrinsic value
(a) Yes
(b) No
23. Option pricing models are not used for
(a) Warrants and callable bonds
(b) Put and call options
(c) Equity
(d) ESOPS
24. The degree of operating leverage is a measure of financial risk
(a) True
(b) False
25. The degree of financial risk is a measure of business risk.
(a) True
(b) False
26. The operating and cost data of Rainbow Ltd. are
Sales = Rs. 20,00,000
Variable Cost = 14,00,000
Fixed Cost = 4,00,000(including 15 percent interest on Rs. 10,00,000)
The operating, financial and combined leverage of the firm will be
(a) 1.71, 1.75 and 2.99
(b) 1.75, 1.71 and 2.99
(c) 1.79, 1.71 and 3.06
(d) 1.68, 1.78 and 2.99
27. On the basis of the following the ROI of the firm will be
Sales = Rs. 75,00,000
Variable Cost = Rs. 42,00,000
Fixed Cost = Rs. 6,00,000
The firm has borrowed Rs. 45,00,000 at 9 percent and its equity capital is Rs. 55,00,000.
(a) 27%
(b) 25%
(c) 17%
(d) None of these
28. In case, the projected level of EBIT is substantially higher than the indifference point
(a) Equity plan will be more beneficial
(b) Levered plan will be more beneficial
(c) Both plans will be equally effective
(d) Cannot be ascertained, which plan will be more useful
29. If projected EPS of a company is Rs. 5 and appropriate PE multiple is 6.87 its value
anchor will
(a) 11.87
(b) 1.87
(c) 34.35
(d) Value anchor is independent of EPS and PE multiple
30. If a company has low ROE and high PBV its share will be
(a) Fairly valued
(b) Over Valued
(c) Under Valued
(d) Cannot be determined
31. As per Growth duration matrix a stock is deemed to be__________ if it has a high
expected five year EPS growth rate and a low duration
(a) Undervalued
(b) Overvalued
(c) Dividend low
(d) Promise of Growth
32. As per Growth- Duration matrix Duration of an equity stock is
(a) Independent of its dividend yield
(b) Dependent on its market price
(c) Inverse of its dividend yield
(d) Inverse of its PE ratio
33. Expectations Risk index was developed by
(a) Al Rappaport
(b) Miller
(c) Al Rappaport and Miller jointly
(d) None of these
34. In Expectations Risk Index, expectations reflect the risk in realising the expectations
embedded in the current market price
(a) True
(b) False
35. Expectations Risk Index (ERI) is defined as
(a) ERI = proportion of the stock price coming from investors’ expectations of future
growth X Acceleration Ratio
(b) ERI = proportion of the stock price coming from investors’ expectations of future
growth/ Acceleration Ratio
(c) ERI = proportion of the stock price coming from investors’ expectations of future
growth + Acceleration Ratio
(d) None of these
36. Built up method is a method of calculating required rate of return.
(a) Yes
(b) No
37. Which of the following relationship is correct between trailing and leading P/E ratio
(a) Justified trailing P/E = Justified leading P/E * (1+g)
(b) Justified leading P/E = Justified trailing P/E * (1+g)
(c) Justified trailing P/E = Justified leading P/E / (1+g)
(d) Justified leading P/E = Justified trailing P/E / (1+g)
38. Which of the following is/are component(s) of P/E ratio
(I) Tangible P/E
(II) Franchise P/E
(III) Growth P/E
(a) I only
(b) II only
(c) I and II
(d) I and III
39. EBITDA margin is calculated as
(a) (Net Sales – Cost of Goods Sold – Selling, General and Admin Expenses –
Depreciation) / Net sales
(b) (Net Sales – Cost of Goods Sold – Selling, General and Admin Expenses) / Net sales
(c) (Net Sales – Cost of Goods Sold – Selling, General and Admin Expenses –
Depreciation) / Cost of Goods Sold
(d) (Net Sales – Cost of Goods Sold – Selling, General and Admin Expenses) / Cost of
Goods Sold
40. If debt equity ratio is zero for a company
(a) The company is a levered company
(b) The company is an unlevered company
(c) The company is trading on equity
(d) Financial leverage of the company cannot be predicted with debt equity ratio
41. _____ ratio measures the size of the stock market
(a) Market capitalisation
(b) Turnover
(c) Value traded
(d) None of these
42. The value traded ratio capture trading relative to the size of the __________
(a) Economy
(b) Market
(c) Industry
(d) Economy and Market both
43. Which of the following is/are factor(s) of Fama French Model of valuation
I. RMRF
II. Size factor
III. Book to market ratio factor
a. Only I
b. I and II
c. II and III
d. All three
44. Levered Beta is computed by
a. Unlevered Beta * [1+ D/E * (1-t)]
b. Unlevered Beta + [1- D/E * (1-t)]
c. Unlevered Beta - [1+ D/E * (1-t)]
d. None of the above
45. For firms with sustainable competitive advantage, the greater the retention ratio
a. Higher will be g and lower is the franchise P/E
b. Higher will be g and higher is the franchise P/E
c. Lower will be the g and higher is the franchise ratio
d. None of these
46. Valuation is the essence of Assets Management
a. True
b. False
47. The EPS of a company is Rs. 10. It has an internal rate of return of 12% and
capitalisation rate of 14%. As per Walter Model, the optimum payout ratio of the firm
will be
a. Can’t be determined
b. 0%
c. 100%
d. 50%
48. As per Modigliani and Miller Hypothesis dividend decisions are
a. Not relevant
b. Relevant
49. As per which model(s) dividend decisions are relevant
I. Walter Model
II. Modigliani and Miller Model
III. Gordon Model
a. I only
b. I and II
c. I and III
d. All of these
50. Lower average collection period means
a. High debtors’ turnover ratio
b. Low debtors’ turnover ratio
c. High level of sales
d. High debtors’ turnover ratio or low sales
51. From the following information calculate the cost of equity of a company
No. of outstanding equity shares = 50000
Net Earnings = Rs. 300000
Market value of a share = Rs. 48/-
a. 8%
b. 10%
c. 12.5%
d. 15%
52. If interest on Treasury bill is 9%, market return is 13% and beta = 1.8, what will be the
cost of equity?
a. 13.2
b. 20.2
c. 16.2
d. 18.2
53. CAPM is a multifactor model
a. True
b. False
54. APT model is based on
a. One factor only
b. Two factors
c. Systematic risk alone
d. Multiple factors
55. Acid test ratio tests _________ of a company
a. Productivity
b. Liquidity
c. Short term Liquidity only
d. Long term Liquidity only
56. Issue of new Equity Shares will __________ have following effect on the external and
internal equities of a firm
a. Increase the external equities and decrease the internal equities of the firm
b. Decrease the external equities and increase the external equities of the firm
c. External equities will remain same but internal equities will rise
d. Both external and internal equities will remain same
57. Fixed Assets Turnover Ratio =
a. Sales / Fixed Assets
b. Cost of Sales / Fixed Assets
c. Fixed Assets / Sales
d. Fixed Assets / Cost of Sales
58. Capital Turnover Ratio is given by
a. Costs of goods sold / Average Capital Employed
b. Sales / Average Capital Employed
c. Average Capital Employed / Sales
d. Average Capital Employed / Cost of goods sold
59. Dividend yield =
a. (Earning per Share / Dividend per Share)* 100
b. (Earning per Share / Market Price per Share)* 100
c. (Dividend per Share / Market Price per Share)*100
d. (Dividend per Share / Earning per Share)*100
60. Overpricing in a stock presents an opportunity for ______ in the stock
a. Hedging
b. Arbitrage
c. Going Short
d. Going Long
61. Price movement between two paper sector companies will generally have ________
variance
a. Zero
b. Positive
c. Negative
d. Unity
62. Book value of a share multiplied by total no. of outstanding shares is also called
a. Net worth of the company
b. Shareholders’ equity
c. Total Capital of the company
d. a and b both
63. For longer time horizons one should look at ________ assets
a. Riskier
b. Less Risky
64. Valuation is not required for
a. Investment analysis
b. Capital budgeting
c. Merger and acquisitions
d. Working capital management
65. Which of the following is not a type of valuation models?
a. Future pricing models
b. Absolute value models
c. Relative value models
d. Options pricing models
66. Options pricing models are used for
a. Warrants & callable bonds
b. Put and call options
c. Equity
d. ESOPs
67. Intrinsic value represents the price of a security “ought to have” based on all factors
bearing on valuation
a. Yes
b. No
68. Intrinsic value for an asset can be different as computed by different equity analysts
a. Yes
b. No
69. Gross Profit Ratio is given by __________. (2 marks)
a. Net Profit/ Cost of Sales
b. Net Profit/Sales
c. Gross Profit/Cost of Sales
d. Gross Profit/Net Sales
70. Fixed Assets Turnover Ratio is given by __________. (2 marks)
a. Net Sales/Average Net Fixed Assets
b. Net Sales/Gross Fixed Assets
c. Cost of Sales/Average Net Fixed Assets
d. Cost of Sales /Gross Fixed Assets
71. Market gives companies a benchmark for their evaluation (1 mark)
a. True
b. False
72. What constitute the optimal debt ratio varies from one industry to another, ideally it
should be
a. 2 to 2.5
b. 2.5 to 3
c. 1.5 to 2
d. 3 to 3.5
73. Low retained earnings means
a. The company has invested more in the business
b. The company has invested less in the business
74. EBIDTA of XYZ Ltd. is Rs. 350 crores; Amortisation is Rs. 5 crores, Depreciation is Rs. 40
crores and Interest payment is Rs. 10 crores. Interest coverage ratio for the company
will be
a. 30.5
b. 35
c. 31
d. 34.5
75. The price earnings ratio of a stock reflects
a. The growth of the company
b. The earnings retained and invested in the company
c. The market mood for the company’s stock
d. The dividend paid out for the company’s stock
76. Stock pay-out ratio
a. Measures the earnings of share as a percentage of its market price
b. Indicates the dividend expected in future
c. Can be zero for a growth firm
d. Is directly related to the company’s growth rate
77. Which of the following decision may result in dilution of the earning per share for a
company?
a. Issue of convertible bonds
b. Issue of ESOPs to employees
c. Issue of warrants
d. All of the above
78. An equity research analyst applied the DuPont System to the following data of a
company:

Equity turnover = 4.2

Net profit margin = 5.5%

Total asset turnover = 2

Dividend payout ratio = 30%

The company’s rate of return on equity will be

a. 11.1%
b. 23.1%
c. 13.1%
d. 17.1%
79. Issue of 11% preference share will _______________ debt equity ratio of a company
a. Increase
b. Decrease
80. Ploughing back of profits by the company will ________________ its debt equity ratio
a. Increase
b. Decrease
c. Debt equity ratio will remain same
d. None of these
81. Purchase of treasury bills will ____________ its acid test ratio
a. Improve
b. Weaken
c. Will not affect
d. Change may take place in either direction
82. The sustainable growth rate is the maximum rate at which the company can grow by
using its retained earnings
a. True
b. False
83. A company has sold goods worth Rs. 500000 with a gross profit margin of 15%. The
stock at the beginning and end of the year was Rs. 70000 and Rs. 80000 respectively.
The inventory turnover ratio of the company will be
a. 6.67
b. 5.87
c. 5.67
d. 7.67
84. Debt-Equity Ratio is a measure of
a. Long term solvency of the firm
b. Short term solvency of the firm
c. Efficiency of the firm
d. None of these
85. If Sales of a company is Rs. 200000, cost of goods sold is Rs. 100000 and other operating
expenses are Rs. 50000 its Gross Profit Margin and Net Profit Margin will be _________
and ______
a. 50% and 25%
b. 25% and 50%
c. Both ratios will be 25%
d. None of these
86. As per DuPont Model earning power of a company is
I. Net Profit Margin * Asset Turnover
II. Net Profit Margin / Asset Turnover
III. Gross Profit Margin * Asset Turnover
IV. Net Profit Margin * (Sales/Total Assets)
a. I only
b. II only
c. I and IV both
d. II and III both
87. Which of the following method/ratio is not a measure of profitability of a firm?
a. Return on capital employed
b. Return on net assets
c. Working capital turnover
d. DuPont Analysis

88. __________ would mean that no investor would be able to outperform the market with
trading strategies based on historical information. [1 Mark]

(a) Semi strong form efficiency


(b) Weak-form efficiency
(c) Strong form efficiency
(d) None of these
89. A company's __________ provide the most accurate information to its management and
shareholders about its operations. [1 Mark]
(a) Advertisements
(b) Financial statements
(c) Products
(d) Vision statement
90.. A portfolio comprises of two stocks A and B. Stock A gives a return of 8%and stock B gives a
return of 7%. Stock A has a weight of 60% in the portfolio. What is the portfolio return? [2
Marks]
(a) 9%
(b) 11%
(c) 10%
(d) 8%
91. Evidence accumulated through research over the past two decades suggests that during
many episodes the markets are not efficient even in the weak form. [2 Marks]
(a) FALSE
(b) TRUE

92. Price movement between two stocks from different industries would generally have ______
co-variance. [1 Mark]
(a) zero
(b) positive
(c) negative
(d) can assume any value

93. Which of the following accounting statements form the backbone of financial analysis of a
company? [1 Mark]
(a) the income statement (profit & loss),
(b) the balance sheet
(c) statement of cash flows
(d) All of the above
94. The balance sheet of a company is a snapshot of the ______ of the firm at a point in time. [2
Marks]
(a) the sources and applications of funds of the company
(b) expenditure structure
(c) profit structure
(d) income structure

95. A company's net income for a period is Rs. 15,00,00,000 and the average shareholder's fund
during the period is Rs. 1,00,00,00,000. The Return on Average Equity is: [3 Marks]
(a) 13%
(b) 12%
(c) 15%
(d) 16%

96. The share price of PQR Company on 1st April 2009 and 31st March 2010 is Rs. 20 and Rs. 24
respectively. The company paid a dividend of Rs. 5 for the year 2009-10. Calculate the return
for a shareholder of PQR Company in the year 2009-10. [1 Mark]
(a) 45%
(b) 65%
(c) 75%
(d) 55%

97. Price mismatch in two markets of the same script provides an opportunity for [2Marks]
(a) hedging
(b) short selling
(c) arbitrage
(d) going long
98. What is the amount an investor will get on a 1-year fixed deposit of Rs. 10000 that pays 8%
interest compounded quarterly? [1 Mark]
(a) 12824.32
(b) 13824.32
(c) 10824.32
(d) 11824.32
99. For shorter investment horizons investors look at ______ . [2 Marks]
(a) riskier assets like equities
(b) low risk assets like government securities
100. Dividend Per Share = Total Dividend / Number of Shares in issue [1 Mark]
(a) TRUE
(b) FALSE
101. Price movement between two Metal company stocks would generally have a ______ co-
variance. [1 Mark]
(a) positive
(b) negative
(c) zero
(d) can be any value

Answers to the questions

Question no. Option


1 b
2 a
3 d
4 c
5 a
6 d
7 a
8 a
9 d
10 a
11 b
12 c
13 a
14 b
15 a
16 b
17 a
18 a
19 d
20 d
21 b
22 b
23 c
24 b
25 b
26 a
27 a
28 b
29 c
30 b
31 a
32 c
33 a
34 a
35 a
36 a
37 b
38 c
39 b
40 b
41 a
42 d
43 d
44 a
45 b
46 a
47 c
48 a
49 c
50 d
51 c
52 c
53 b
54 d
55 c
56 c
57 b
58 a
59 c
60 c
61 b
62 d
63 a
64 d
65 a
66 c
67 a
68 a
69 d
70 a
71 a
72 c
73 b
74 a
75 c
76 c
77 b
78 b
79 b
80 b
81 c
82 b
83 c
84 a
85 a
86 c
87 c
88 b
89 d
90 d
91 b
92 d
93 d
94 a
95 c
96 a
97 c
98 c
99 b
100 a
101 a