MGT201

Financial Management
LESSON # 1

1. When company issues new share, _______ shareholders will have the first right to receive the shares:

a. Existing Common b. New Common

c. Both Existing and New d. Given Information is sufficient

2. Available finances should be invested effectively in a way that the investment must provide:

a. Required rate return b. Coupon rate c. Continues rate of return d. Yield to maturity

3. Which of the following is not part of grass working capital?

a. Raw Material b. Accounts Receivable c. Accounts Payable d. Store & Spares

4. Transforming financial statements data into useful information for decision making is known as:

a. Technical analysis b. Capital budgeting analysis c. Cost and price analysis d. Financials analysis

5. Debt is an internal source of finance for a company.

a. TRUE b. FALSE

6. Which of the following is the function of financial management?

a. Working Capital management b. Finance activity

c. Investing activity d. All of the above given Options

7. Short term financing is generally cheaper than long term financing.

a. TRUE b. FALSE

8. In a company, owners are treated separately from the business.

a. TRUE b. FALSE

9. Which of the following statement is incorrect about investing activities?

a. These depict the effective use of available funds

b. These include short term as well as long term investments
c. These refer to arrange the funds effectively
d. None of the given options

10. Which of the following tools is used for financial analysis?

a. Ration b. Risk c. Index d. All of the given options

11. Financial analysis is important for:

a. Financial managers and decision makers b. lenders

c. Stockholders d. All of the given options

12. Cash management deals with the anticipation of:

a. Surplus and deficit of cash b. Needs and availability of Cash

c. Cash inflows and outflows d. All of the given options

13. Long term investments are riskier than short term investments:

a. FALSE b. TRUE

14. Which of the following represents cost of financing?

a. Coupon Payment b. Dividend paid on shares

c. Interest paid on loan d. All of the given options

15. Capital budgeting refers to the planning of:

a. Investments which are short-term in nature

b. Investments which are Long-term in nature
c. Investments in stock exchange
d. None of the given options

16. Which of the following investments can be considered as long term investments?

a. Investments in operating fixed assets

b. All of the given options
c. Investments in Capital assets
d. Investments in assets categorized as capital work in progress

17. Which of the following is the internal source of finance?

a. Bonds b. Common Equity c. Bank Loans d. Retained Earnings

18. If needs of cash are more than availability of cash then it will result in cash surplus:

a. FALSE b. TRUE

19. Ratio analysis includes analysis of all the following except:

a. Market analysis b. Profitability analysis c. Index analysis d. Liquidity analysis

20. Cash flow statement of an organization depicts its:

a. Actual cash flows that have been incurred b. Cash forecast for upcoming
c. Index analysis d. All of given options

21. Financial management is a process through which funds of an organization are managed.

a. FALSE b. TRUE

22. Working Capital management refers to the management of:

a. All of the given options b. Cash c. Accounts Receivable d. Inventory

23. There are only three functions of financial management including working management, financial
analysis and technical analysis.

a. TRUE b. FALSE

24. Financial leverage will be beneficial for a business if the interest earned is ______ than the interest
charged on the loan.

a. Lower b. Higher

25. Which of the following kind of inventory is consumed by business for its own use?

a. Stock in Trade b. finished goods c. Store and Spares d. working in Progress

26. Which of the following ratio analysis provides the comparison of company’s debt and equity in capital
structure?

a. Liquidity analysis b. Leverage analysis c. Activity analysis d. Turnover analysis

27. In Working Capital management, the management of collecting cash from the customers to whom the
stock is sold on credit basis is known as:

a. Cash collection management b. Creditors management

c. Receivable management d. Stock management
28. Which of the following is the external source of finance?

a. long term loan b. Bonds c. Short term loan d. All of the given

29. Which of the following is correct about net working capital?

a. it is the aggregate of total assets and total liabilities

b. It is the difference of total assets and total liabilities
c. it is the aggregate of current assets and current liabilities
d. It is the difference of current assets and current liabilities

30. Equity is the ______ source of finance.

a. Hybrid b. Internal c. Moderate d. External

31. Which of the following ratios is part of activity ratio analysis.

a. Acid Test Ratio b. Net Profit Margin

c. Interest coverage ratio d. Receivables turnover

32. Which of the following deal with short term investments?

a. Stock Exchanges b. Money markets

c. Capital markets d. All of the given options

33. Taking loan from a bank will result in cash outflow.

a. TRUE b. FALSE

34. An investment decision will be acceptable only when the:

a. Required rate of return becomes equal to total cost of financing

b. Required rate of return becomes equal to the cost of equity but lower than cost of debt
c. Required rate of return is lower than both the cost of debt and equity
d. Required rate of return is lower than cost of equity but higher than cost of debt

35. Ratio analysis of a company provides insight into:

a. Financial performance over a period of time

b. Financial condition at particular time
c. Liquidity, profitability, leverage and operating efficiency
d. All of the given options

36. Selling goods on credit basis will have no effect on cash.

a. FALSE b. TRUE
37. Selling of inventory on credit basis instead of cash generates accounts receivable.

a. FALSE b. TRUE

38. Functions of financial management are mainly performed by:

a. Cash collection management b. Chief Executive

c. Finance Manager d. None of the given options

39. The system that tracks the stocks and identifies that what and how much stock is needed at which time
is known as:

a. Inventory management system b. None of the given options

c. Tracking system d. Cash management system

40. If a company offers to its debtors that it will provide 3% discount on sales if they pay within 15 days
from the day of sale. However, if debtors don’t pay within 15 days then they will have a time of 30 days to
clear their payments. What is the actual credit period in this case?

a. 50 days b. 15 days c. 60 days d. 30 days

41. If bank interest rate is above 3% of KIBOR and KIBOR is 12% then total interest on a loan will be:

a. 12% b. 16% c. 9% d. 15%

42. Between the two costs of inventory, ordering cost and carrying cost, if carrying cost increases then order
cost will?

a. Increase b. Remain same c. Decrease d. Given information is insufficient

43. Under the head of financing activities, a business mainly considers:

a. How it will manage its operations b. From where the funds will be generated
c. Where the available funds will be invested d. All of the given options

44. Which of the following instruments of cash management depicts estimated cash inflows and out flows?

a. Cash flow statement b. Cash Ratios c. Cash Budget d. All of the given options

LESSON # 2

45. Like the commercial banks, Non-banking Financial institutions also take part in payment mechanism of a
country.

a. FALSE b. TRUE
46. One of the prime roles of SECP is to support investment in the country.

a. FALSE b. TRUE

47. A bank which operates in any other country with it’s headquarter in the home/local country is called
foreign bank.

a. FALSE b. TRUE

48. Increase in size of an economy is known as economic growth and presented by growth rate.

a. FALSE b. TRUE

49. Value of currency of a country is attached to the reserves and assets kept by that country.

a. FALSE b. TRUE

50. A payment mode without any exchange of goods and services is known as transfer of payments.

a. FALSE b. TRUE

51. State Bank of a country regulates and supervise:

a. Commercial Banks b. Overall financial system

c. Financial institutions d. All of the given options

52. Commercial loan provide by a non-banking financial company are less regulated as compared to the
loan provided by a banking company.

a. FALSE b. TRUE

53. The fixed rate of return which is charged on use-able commodity can be called:

a. Riba b. Rent

54. Which of the following is not the type of Development Finance Institution?

a. Microfinance Institutions b. Multilateral Development Banks

c. Commercial Banks d. National Development Institutions

55. Every Stock market carries an in-built risk which is known as:

a. Unsystematic risk b. unique risk c. Systematic risk d. Total risk

56. Stock exchanges are a leading indicator of an economy as suggested by some research studies:
a. TRUE b. FALSE

57. Companies normally create sinking fund for replacement of assets in future.

a. TRUE b. FALSE

58. Which of the following is an example of unsecured loan?

a. Home loan b. Credit Card c. Car Loan d. Lease

59. Development Finance Institution provide funds for the projects which focus on economic development.

a. TRUE b. FALSE

60. What will be the bank spread if interest paid on deposits is 6% while interest charged on lending is 14%?

a. 14% b. 6% c. 8% d. 20%

61. IMF and World Bank both primarily provide finances to cover the operation cost of country which is in
crisis.

a. TRUE b. FALSE

62. In an economy, financial environment exists around ------- which are part of that economy.

a. Large Corporations Only b. None of the given options

c. Every Business d. Small business only

63. In Pakistan, taxes are collected by Securities and Exchange Commission of Pakistan.

a. TRUE b. FALSE

64. Which of the following stock exchanges were operating in Pakistan before the formation of Pakistan
Stock Exchange?

a. Lahore Stock Exchange b. Karachi Stock Exchange

c. Islamabad Stock Exchange d. All of the given options

65. Foreign Banks comply with the rules and regulations of:

a. Home Country Only b. Both the home and host countries

c. Host Country Only d. None of the given options
66. When the government expenditures exceeds the revenue then it results in:

a. Fiscal balance b. Fiscal deficit c. Fiscal Surplus d. None of the given options

67. Islamic Banking system is based upon the concept that money has intrinsic value and thus can be sold
for profit.

a. TRUE b. FALSE

68. A commercial bank is a financial institution that provides the facility of:

a. Lending’s b. Savings and checking accounts

c. Deposits d. All of the given options

69. A commercial bank performs more functions as compared to state bank.

a. TRUE b. FALSE

70. Which of the following statements is correct about inflation?

a. Increase in the prices of goods and services over time

b. Decrease in purchasing power over time
c. Devaluation of money over time
d. All of the given options

71. If the first installment against a loan amount is paid at the end of the year, then interest will definitely
be charged.

a. TRUE b. FALSE

72. The compounding factor used to calculate the future value is also known as:

a. Future value discounting factor b. Future value Interest factor

c. Future value diminishing factor d. Future value Present factor

73. The formula to compute effective rate of interest (ERI) = [(1 + r/m)^m-1] * 100

a. Where m is the monthly rate of interest b. Where m is the number of years till maturity
c. Where m is the number of compounding period in a year d. Where m is the compounding rate

74. In loan amortization schedule, the outstanding balance keeps decreasing with time due to repayment of
principal amount.

a. TRUE b. FALSE
75. The sinking fund balance increases with increase in interest earned on deposited amount.

a. TRUE b. FALSE

76. There is always a remaining balance of principal amount after the repayment of each installment in loan
amortization schedule.

a. TRUE b. FALSE

77. A series of unequal amounts after regular or irregular intervals are generally categorized as:

a. Perpetuity b. Mixed Cash flow c. Annuity d. None of the given options

78. If portion of principal repayment gets higher with each installment in loan amortization schedule, then
portion of interest payment will:

a. Increase b. Decrease c. Remain Same d. None of the given options

79. Which of the following is the example of annuity due?

a. Rs. 2,000 on a loan are paid at start of every month for two year
b. Rs. 5,000 are deposited in bank for five years
c. Rs. 6,000 of pension are received at the end of every quarter
d. Rs. 10,000 are going to be received after three years

80. What will be the current worth of Rs. 10,000 received at the end of every year for up to 8 years at an
interest rate of 3% per annum?

a. Rs. 63,152 b. Rs. 7,894 c. Rs. 70,197 d. Rs. 89,812

81. Which of the following factors should be considered while creating a sinking fund?

a. The time period b. The Interest Rate

c. The future amount required d. All of the given options

82. The installment amount of sinking fund covers the amount set aside on regular basis plus the interest
earned on it.

a. TRUE b. FALSE

83. The rate interest which is adjusted for shorter period of compounding is called nominal interest rate.

a. TRUE b. FALSE
84. The effective rate of interest of 5% compounded quarterly is 5.18%.

a. TRUE b. FALSE

85. In present value working, time period can be determined if we know the values of:

a. Present amount, future amount and interest rate only b. Present amount and Interest Rate
c. Future amount and Interest Rate Only d. None of the given options

86. Which of the following is the example of annuity?

a. Paying Rs. 5,000 every year for up to 10 years b. Receiving Rs. 10,000 after 5 years
c. Paying Rs. 2,000 in first year and Rs. 3,000 in second year d. All of the given options

87. According to the concept of time value of money, value of money today is same as compared to the
same amount of money received at some future date.

a. TRUE b. FALSE

88. If same interest rate is applied more than once in a year on a principal amount, the future value of that
amount will ------------------

a. Increase b. Decrease c. Remain Same d. None of the given options

89. Higher the frequency of discounting of an interest rate in a year, lower will be the -----------------

a. Future Value b. Maturity period c. Present value d. None of the given options

90. What will be the future value of Rs. 8,000 paid at the end of every year if Future value interest Factor of
Annuity (FVIFA) is 3.153?

a. Rs. 15,224 b. Rs. 25,224 c. Rs. 35,224 d. Rs. 45,224

91. If present value is Rs. 10,000 and the future value interest Factor is 1.172 then the future value will be:

a. Rs. 11,720 b. Rs. 8,532 c. Rs. 9,312 d. Rs. 13,415

92. In loan amortization schedule, the amount of installment remains some but portion of interest and
principal repayment varies.

a. TRUE b. FALSE

93. A set of amount set aside on regular basis for some future payment is called:
a. Sinking fund b. Loan c. Current account d. All of the given options are correct

94. A series of amounts consists of two or more annuities can be described as:

a. Ordinal Annuity b. Annuity Due c. Perpetuity d. Mixed cash flow

95. If first installment of loan is paid at the end of the year, then we use ______ to calculate installment
amount?

a. Perpetuity formula b. Ordinary annuity formula

c. Annuity due formula d. All of the given options are correct

96. In loan amortization schedule, the amount of interest keeps decreasing with time due to repayment of
principal amount.

a. TRUE b. FALSE

97. The effective rate of interest of 10% compounded semi-annually is 10.25%.

a. TRUE b. FALSE

98. The Interest which is applied or changed on the principal amount is known as:

a. Inflation adjust interest b. Simple interest

c. Real Interest d. None of the given options

99. The formula to compute present value of an investment with continuous compounding is
present value = Future value x e^-(interest rate x time in years)

a. TRUE b. FALSE

100. The formula to compute present value of an investment with continuous compounding is
present value = Future value x e^ (interest rate / time in years)

a. TRUE b. FALSE

101. A series of equal cash flows after regular intervals is termed as mixed cash flow.

a. TRUE b. FALSE

102. Which of the following is considered for calculating amount of loan installment?
a. Loan time period b. Amount of loan c. Rate of Interest d. All of the given options

103. The value of money over a certain period of time mainly changes because of:

a. Required profit b. Interest rate c. Required Rate of return d. All of the given options

104. Shorter period discounting reduces the discounting period from a year to quarters or months.

a. TRUE b. FALSE

105. Present value for any sum of money can be determined if we know the:

a. Time period b. Future value c. Required Interest Rate d. All of the given options

106. Present value of Rs. 155,000 to be received after 6 years at an interest rate of 11% by using compound
interest will be:

a. Rs. 93,373 b. Rs. 75,621 c. Rs. 69,215 d. Rs. 82,869

107. An amount of Rs. 300,000 is invested in a bank at 10% per year for three years. What will be the
amount of simple interest?

a. Rs. 60,000 b. Rs. 120,000 c. Rs. 30,000 d. Rs. 90,000

108. An investor is going to receive Rs. 300,000 from a project after two years. The amount of interest
earned from this investment is Rs. 50,000. What is the present value of this investment?

a. Rs. 250,000 b. Rs. 400,000 c. Rs. 350,000 d. Rs. 300,000

109. Shorter period compounding reduces the compounding period from a year which results in increase in
future value of an investment.

a. TRUE b. FALSE

110. An investor has invested Rs. 150,000 at an interest rate of 5%. Future value of this amount after one
year calculated by using compound interest will be -------- if compared with future value calculated by using
simple interest rate.

a. Higher b. Lower c. Same d. Cannot be compared

111. If cash flows are combination of two or more annuities, we can apply future value of annuity formula
to each annuity and then sum them up to find the future value of total cash flow.

a. TRUE b. FALSE
112. A series of unequal cash flows after irregular intervals is termed as annuity.

a. TRUE b. FALSE

113. If the first installment against a loan amount is paid at the start of the year, then interest will definitely
be charged.

a. TRUE b. FALSE

114. Higher the frequency of discounting of an interest rate in a year, lower will be the -----------------

a. Future Value b. Maturity period c. Present value d. None of the given options

115. Which of the following is required to make a sinking fund?

a. Rate of interest b. Future amount c. Time period and frequency d. All of the given options

116. What will be present value of Rs. 2,000 to be paid at an annual interest rate of 5% every year forever?

a. Rs. 40,000 b. Rs. 27,000 c. Rs. 46,000 d. Rs. 19,000

117. In loan amortization schedule, each installment contains principal repayment and interest.

a. TRUE b. FALSE

118. What will be the future value of Rs. 50,000 invested in a project for 5 years at an interest rate of 12%?

a. Rs. 82,350 b. Rs. 80,000 c. Rs. 88,117 d. Rs. 93,110

119. The interest earned on the regularly deposited amount of sinking fund increase with time due to
increase in total balance.

a. TRUE b. FALSE

120. The present value of mixed cash flows can only be calculated with the help of annuity formula.

a. TRUE b. FALSE