Financial Management

✅ The correct answer is A.
Process of calculating future value of money from present value is classified as compounding. Compounding is the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time.

✅ The correct answer is C.
Expected rate of return = Constant growth rate + Expected dividend yield
= 8% + 5.4% = 13.40%.

✅ The correct answer is B.
Firm’s promise to pay and is backed or guaranteed by bank is classified as banker’s acceptance. A banker’s acceptance (BA) is a short-term debt instrument issued by a company that is guaranteed by a commercial bank. Banker’s acceptances are issued as part of a commercial transaction.

✅ The correct answer is D.
Price earning ratio and price by cash flow ratio are classified as market value ratios. Market value ratios are used to evaluate the current share price of a publicly-held company’s stock.

✅ The correct answer is D.
Type of stock in which dividends are tied to any particular part of a firm is classified as tracking stock. A tracking stock is an equity issued by a parent company that tracks the financial performance of a particular division. Tracking stocks trade in the open market separately from the parent company’s stock. Gains or losses in the tracking stock price are based only on the division’s performance

✅ The correct answer is A.
Risk free return = Required return – Premium for risk
= 11% – 8% = 3%

✅ The correct answer is A.
An inflation free rate of return and inflation premium are two components of quoted rate. An inflation free rate of return and inflation premium are two components of quoted rate. A rate expressed on the basis which is conventional in the market in which the parties are dealing or proposing to deal.

✅ The correct answer is C.
An annual rate of 16% if quoted by credit card issuer usually a bank is classified as annual percentage rate. An annual percentage rate (APR) is the annual rate charged for borrowing or earned through an investment. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan.

✅ The correct answer is B.
A discount rate which equals to present value of TV to project cost present value is classified as modified internal rate of return. The internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.

✅ The correct answer is D.
Statement of cash flows includes cash flows from operating, financing and investing activities. Financing activities include the inflow of cash from investors, such as banks and shareholders and the outflow of cash to shareholders as dividends as the company generates income.