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.

213. Firms that specialize in helping companies raise capital by selling securities are called ________.

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commercial banks
investment banks
savings banks
credit unions
✅ The correct answer is B.
Firms that specialize in helping companies raise capital by selling securities are called investment banks. An investment bank (IB) is a financial intermediary that performs a variety of services.

215. Pricing model approach in which it is assumed that stock price can have one of two values of stock is classified as

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valued approach
marketability approach
stock approach
binomial approach
✅ The correct answer is D.
Pricing model approach in which it is assumed that stock price can have one of two values of stock is classified as binomial approach. The binomial option pricing model is an options valuation method developed in 1979. The binomial option pricing model uses an iterative procedure, allowing for the specification of nodes, or points in time, during the time span between the valuation date and the option’s expiration date.

216. Ratios which relate firm’s stock to its book value per share, cash flow and earnings are classified as

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return ratios
market value ratios
marginal ratios
equity ratios
✅ The correct answer is B.
Ratios which relate firm’s stock to its book value per share, cash flow and earnings are classified as market value ratios. Market value ratios are used to evaluate the current share price of a publicly-held company’s stock.

217. Risk free rate is subtracted from expected market return is considered as

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country risk
diversifiable risk
equity risk premium
market risk premium
✅ The correct answer is C.
Risk free rate is subtracted from expected market return is considered as equity risk premium. Equity risk premium refers to the excess return that investing in the stock market provides over a risk-free rate.

218. Type of financial security in which loans are secured by borrower’s property is classified as

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municipal bonds
corporate bonds
U.S treasury bonds
mortgages
✅ The correct answer is D.
Type of financial security in which loans are secured by borrower’s property is classified as mortgages. A mortgage is a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments.

219. In regression of capital asset pricing model, an intercept of excess returns is classified as

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Sharpe’s reward to variability ratio
tenor’s reward to volatility ratio
Jensen’s alpha
tenor’s variance to volatility ratio
✅ The correct answer is C.
In regression of capital asset pricing model, an intercept of excess returns is classified as Jensen’s alpha. Jensen’s Alpha, also known as the Jensen’s Performance Index, is a measure of the excess returns earned by the portfolio compared to returns suggested by the CAPM model. It represents by the symbol α. The value of the excess return may be positive, negative, or zero.