Financial Management

Financial Management MCQs with Answers and Explanations | Corporate Finance & Investment Objective Questions

Master the core concepts of Financial Management with our comprehensive set of MCQs with answers and detailed explanations. Covering topics such as time value of money, capital budgeting, cost of capital, working capital management, capital structure, dividend policy, risk and return, portfolio management, and financial planning, these questions are ideal for students, teachers, and candidates preparing for professional and competitive exams (CA, ACCA, ICMA, CFA, MBA, BBA, CSS, PMS, NTS, FPSC, PPSC, UPSC, etc.). Each MCQ is followed by a clear explanation to build strong concepts, sharpen decision-making skills, and enhance exam readiness. Perfect for practice, revision, and self-assessment in the field of Financial Management and Corporate Finance.

161. Markets dealing with residential loans, industry real estate loans, agricultural loans and commercial loans are called

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residential markets
mortgage markets
agriculture markets
commercial markets
✅ The correct answer is B.
Markets dealing with residential loans, industry real estate loans, agricultural loans and commercial loans are called mortgage markets. The mortgage market can seem complicated to the uninitiated. The fact is that it is not as complicated as it is ever-changing. Most people have no idea how the market works. By understanding this, you will get a better idea about mortgage programs that are offered by certain lenders. Armed with this new information, you can make an informed decision in your quest for the perfect mortgage.

162. In binomial approach of option pricing model, value of stock is subtracted from call option obligation value to calculate

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current value of portfolio
future value of portfolio
put option value
call option value
✅ The correct answer is A.
In binomial approach of option pricing model, value of stock is subtracted from call option obligation value to calculate current value of portfolio. It is referred to as mark-to-market and involves multiplying the current share price of the stock by the number of shares owned and summing these values for a total portfolio value.

163. In Corporation characteristics, losses are subject to funds invested actually is considered as

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limited liability
unlimited liability
general liability
controlled ownership liability
✅ The correct answer is A.
In Corporation characteristics, losses are subject to funds invested actually is considered as limited liability. Limited liability is a type of legal structure for an organization where a corporate loss will not exceed the amount invested in a partnership or limited liability company. In other words, investors’ and owners’ private assets are not at risk if the company fails.

165. An uncovered cost at start of year is divided by full cash flow during recovery year then added in prior years to full recovery for calculating

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original period
investment period
payback period
forecasted period
✅ The correct answer is C.
An uncovered cost at start of year is divided by full cash flow during recovery year then added in prior years to full recovery for calculating payback period. The payback period refers to the amount of time it takes to recover the cost of an investment. Simply put, the payback period is the length of time an investment reaches a breakeven point.

167. A bond issue is broken up so that some investors will receive only interest payments while others will receive only principal payments, which is an example of ________.

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bundling
un-bundling
financial engineering
credit enhancement
✅ The correct answer is E.
A bond issue is broken up so that some investors will receive only interest payments while others will receive only principal payments, which is an example of un-bundling and financial engineering.

169. The risk that arises due to change in the purchasing power is called ?

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Financial risk
Interest rate risk
Business risk
Inflation risk
✅ The correct answer is D.
The risk that arises due to change in the purchasing power is called Inflation risk. Inflation risk, also called purchasing power risk, is the chance that the cash flows from an investment won’t be worth as much in the future because of changes in purchasing power due to inflation.

170. A premium which reflects possibility of issuer who does not pay principal amount of bonds is called

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seasoned risk premium
nominal risk premium
default risk premium
quoted risk premium
✅ The correct answer is C.
A premium which reflects possibility of issuer who does not pay principal amount of bonds is called default risk premium. A default risk premium is effectively the difference between a debt instrument’s interest rate and the risk-free rate.