Under investment would result in

Select one:
a. Neither accepting nor rejecting +npv projects
b. rejecting +npv projects
c. accepting -npv projects
d. accepting +npv projects
e. rejecting -npv projects
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Your answer is correct.

The correct answer is: rejecting +npv projects

WACC for an unleveraged firm is equal to

Select one:
a. Cost of Equity + Cost of Debt
b. None of the given options
c. Cost of Equity
d. Cost of Debt
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The correct answer is: Cost of Equity

Indirect costs includes EXCEPT

Select one:
a. Loss of Customers
b. Legal Fee
c. Reduction in Credit
d. Reduction in productivity
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The correct answer is: Legal Fee
investors often perceive an additional issuance of stock
Select one:
a. Positive Signal
b. Negative Signal
c. Neither negative nor positive
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The correct answer is: Negative Signal

Optimal capital structure would help to achieve which of the following goals
i Maximize Firm Value
ii Maximize Profits
iii Minimize WACC
iv Maximize ROIC
v Maximize shareholder Wealth (Max share price)

Select one:
a. i, ii , iii
b. i, iii, v
c. i, ii, v
d. All of the given options
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Your answer is incorrect.

The correct answer is: i, iii, v

The formula for WACC is

Select one:
a. = wd rd + ws (1-T) rs
b. wd rd + wsrs
c. wd (1-T) rd + wsrs
d. wd (1-T) rs + wsrd
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Your answer is correct.
The correct answer is: wd (1-T) rd + wsrs

which of the following advocates "time to market" concept

Select one:
a. None of the given options
b. Trade-off theory
c. MM theory
d. Pecking-order Theory
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The correct answer is: None of the given options

Leverage ___________ both, risk and returns

Select one:
a. both, magnifies and suppress
b. magnifies
c. suppress
d. neither magnifies nor suppress
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The correct answer is: magnifies

a higher portion of debt would

Select one:
a. increase operating leverage
b. decrease operating leverage
c. decreased financial leverage
d. increase financial leverage
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Your answer is correct.
The correct answer is: increase financial leverage

MM theory proposition II with corporate taxes assume

Select one:
a. VL = VU
b. VL = VU + TD
c.

D E
WACC = kd × + ke ×
V V

d. None of the given options

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The correct answer is: VL = VU + TD

pecking-order theory propose to issue/utilise

I : retain earnings
II : debt
III: equity
Select one:
a. III, II, I
b. any of the combination can be used
c. I, II, III
d. III, I, II
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The correct answer is: I, II, III
The issue short-term debt when the term structure is ____________ sloping and long-
term debt when it is relatively flat
Select one:
a. downward & flat
b. flat & upward
c. downward & upward
d. upward & flat
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The correct answer is: upward & flat

windows of opportunity is contradict with

Select one:
a. trade-off theory
b. MM theory
c. all of the given options
d. Pecking-order theory
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The correct answer is: Pecking-order theory

Selling stock will send a signal to the market that

Select one:
a. none of the given options
b. stock is under valued
c. stock is at intrinsic value
d. stock is overvalued
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Your answer is correct.

The correct answer is: stock is overvalued
Under-investment is
Select one:
a. rejecting negative NPV projects
b. rejecting positive NPV projects
c. accepting positive NPV projects
d. accepting negative NPV projects
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The correct answer is: rejecting positive NPV projects

at optimal capital structure

Select one:
a. WACC, price per share, and value of the firm will be lowest
b. WACC, price per share, and value of the firm will be highest
c. WACC and value of the firm will be lowest but price per share will be high
d. WACC will be lowest but price per share and value of the firm will be high
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The correct answer is: WACC will be lowest but price per share and value of the firm
will be high

Basic earning power (BEP) will be

Select one:
a. same for leveraged firms as unleveraged
b. none of the given option
c. high for leveraged firms compared to unleveraged
d. low for leveraged firms compared to unleveraged
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The correct answer is: same for leveraged firms as unleveraged
a high standard deviation value represents
Select one:
a. higher risk
b. no risk
c. moderate risk
d. lower risk
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The correct answer is: higher risk

Leverage will provide greater return as long as

Select one:
a. BEP is lower than cost of debt
b. BEP is greater than cost of debt
c. none of the given options
d. BEP is equal than cost of debt
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The correct answer is: BEP is greater than cost of debt

from risk's perspective, which firm is more risky

Select one:
a. leveraged
b. none of the given options
c. unleveraged
d. both, leveraged and unleveraged have same risk
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The correct answer is: leveraged
for leverage to be positive,
Select one:
a. BEP < cost of debt
b. none of the given options
c. BEP = cost of debt
d. BEP > cost of debt
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Your answer is correct.

The correct answer is: BEP > cost of debt

Mutual funds is an example of

Select one:
a. can be either direct or indirect
b. indirect investment
c. none of the given options
d. direct investment
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The correct answer is: indirect investment

if BEP for OGDCL is 12% and cost of debt is 15%

Select one or more:
a. leverage is not beneficial
b. leverage is beneficial
c. it will depress ROE and net income
d. it will suppress ROE and net income
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You have correctly selected 1.
The correct answers are: leverage is not beneficial, it will depress ROE and net
income
A security with maturity date of 5 months would be traded on
Select one:
a. money market
b. derivatives market
c. capital market
d. all of the given options
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Your answer is incorrect.

The correct answer is: money market

A market where new securities are bought and sold for the first time is known as a
__________ market.

Select one:

a. primary market

b. secondary market

c. derivatives market

d. money market

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Your answer is correct.

The correct answer is: primary market

A market for existing (used) securities, such as PSX, rather than new issues is known
as the __________ market
Select one:
a. money market
b. Primary market
c. all of the given
d. Secondary Market
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Your answer is correct.

The correct answer is: Secondary Market

Which of the following statements is correct regarding asymmetric information?

Select one:

a.

Asymmetric information is a theory of information flow, which has been proven to not have relevance in
the financial market place

b.

This is a theory where investors have better information than myopic (shortsighted) management.

c.

This occurs when one party has relevant information and uses it to intentionally damage another party.

d.

This occurs when one party, say management, has better information than another party, say investors,
about relevant information to each party.

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The correct answer is:

This occurs when one party, say management, has better information than another
party, say investors, about relevant information to each party.

The Pakistan Stock Exchange (PSX) can be considered as being a part of the
__________ and the __________
Select one:
a. capital and money market
b. secondary market for long-term securities; capital market
c. capital and primary market for new shares
d. OTC and money market
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Your answer is incorrect.

The correct answer is: secondary market for long-term securities; capital market

A market for relatively long-term (greater than one year original maturity) financial
instruments (e.g., bonds and stocks) is known as the __________ market.

Select one:

a. Money market

b. None of the given option

c. Secondary market

d. Primary market

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Your answer is correct.

The correct answer is: Secondary market

A temporary combination of investment banking firms formed to sell a new security

issue, can be referred to as a (an) __________
Select one:
a.
syndicate underwriter
b.
red herring
c. standby agreement
d.
registration statement
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Your answer is correct.

The correct answer is:
syndicate underwriter

under IPO, companies will issue

Select one or more:
a. issue shares to raise capital
b. first time going public
c. shares first time to the public
d. already trading shares
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You have correctly selected 1.
The correct answers are: shares first time to the public, issue shares to raise capital,
first time going public

all of the followings would be considered when choosing the investment bank
Select one:
a. reputation of the investment bank
b. industry expertise
c. prior relationship
d. all of the given option
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The correct answer is: all of the given option

an agreement in which underwriter purchase the whole offer is termed as

Select one:
a. all of the given options
b. Best efforts agreement
c. all or none agreement
d. firm commitment
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The correct answer is: firm commitment

a letter which contains the details of issuing company, offer price, and effective
date is known as
Select one:
a. registration statement
b. red herring
c. engagement letter
d. letter of intent
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The correct answer is: red herring

normally, IPOs will be under-priced because of

Select one:
a. both to reward and to sell whole issue
b. none of the given option
c. to reward shareholders
d. to sell the whole issue
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The correct answer is: both to reward and to sell whole issue

success or failure of IPO can be measured through

Select one:
a. both market pricing and capitalisation
b. market capitalisation
c. market pricing
d. total liabilities of the issuing company
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The correct answer is: both market pricing and capitalisation

after transition to market, prices will be decided

Select one:
a. by underwriters
b. market demand and supply forces
c. Both Market and issuing company
d. issuing company
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The correct answer is: market demand and supply forces

the price of derivatives will decrease with the____________ in price of underlying

Select one:
a. decrease
b. none of the given option
c. increase
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Your answer is incorrect.

The correct answer is: decrease

All of the following are benefits of derivatives

Select one or more:
a. liquidity
b. none of the given options
c. risk reduction
d. zero (lower) upfront cost
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You have correctly selected 1.
The correct answers are: risk reduction, liquidity , zero (lower) upfront cost

Derivatives are......
Select one:
a. secondary market securities
b. capital market securities
c. All of the given options
d. primary market securities
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Your answer is correct.

The correct answer is: secondary market securities