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.

261. Which of the following is the assumption of the MM model on dividend policy?

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The firm is an all-equity firm
The investments of the firm are financed solely by retained earnings
The firm has an infinite life
None of the above
✅ The correct answer is C.
The firm has an infinite life is the assumption of the MM model on dividend policy. According to Miller and Modigliani Hypothesis or MM Approach, dividend policy has no effect on the price of the shares of the firm and believes that it is the investment policy that increases the firm’s share value.

262. An interest rate which is used in calculation of cash flows of bonds is called

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required rate of redemption
required rate of earning
required rate of return
required option
✅ The correct answer is C.
An interest rate which is used in calculation of cash flows of bonds is called required rate of return. The required rate of return is the minimum return an investor expects to achieve by investing in a project. An investor typically sets the required rate of return by adding a risk premium to the interest percentage that could be gained by investing excess funds in a risk-free investment.

263. If coupon rate is less than going rate of interest then bond will be sold

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seasoned par value
more than its par value
seasoned par value
at par value
✅ The correct answer is B.
If coupon rate is less than going rate of interest then bond will be sold more than its par value. Most bonds have fixed coupon rates, meaning that no matter what the national interest rate may be and regardless of marker fluctuation the annual coupon payments remain static.

264. Situation in financial options in which strike price is less than current price of stock is classified as

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in-the-money
out-of-the-money
out-of-the-portfolio
in-the-portfolio
✅ The correct answer is A.
Situation in financial options in which strike price is less than current price of stock is classified as in-the-money. A call option is in the money (ITM) if the market price is above the strike price. A put option is in the money if the market price is below the strike price.

265. A usage of proceeds of new issue to retire issue with high-rate is classified as

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refunding operation
funding operation
proceeds operation
deferred operation
✅ The correct answer is A.
A usage of proceeds of new issue to retire issue with high-rate is classified as refunding operation. Refunding is the process of retiring or redeeming an outstanding bond issue at maturity by using the proceeds from a new debt issue. The new issue is almost always issued at a lower rate of interest than the refunded issue, ensuring significant reduction in interest expense for the issuer.

266. Betas tend to move towards 1.0 with passage of time are classified as

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standard betas
varied betas
historical betas
adjusted betas
✅ The correct answer is D.
Betas tend to move towards 1.0 with passage of time are classified as adjusted betas. The Adjusted Beta is an estimate of a security’s future Beta. Adjusted Beta is initially derived from historical data, but modified by the assumption that a security’s true Beta will move towards the market average, of 1, over time.

268. If market interest rate rises above coupon rate then bond will be sold

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equal to return rate
seasoned price
below its par value
above its par value
✅ The correct answer is C.
If market interest rate rises above coupon rate then bond will be sold below its par value. Once a bond is issued the issuing corporation must pay to the bondholders the bond’s stated interest for the life of the bond.