Financial Management

✅ ANSWER: B
Real rate expected cash flows and nominal rate expected cash flows must be equal. Nominal cash flow is the true dollar amount of future revenues the company expects to receive and expenses it expects to pay out, without any adjustments for inflation. In the short term and under conditions of low inflation, the amounts attributed to nominal and real cash flows are nearly identical.

✅ ANSWER: A
Preferred Dividend = Value of stock * Required rate of return
= 400 * 20% = Rs. 80.00

✅ ANSWER: D
Market in which bonds are traded over-the-counter than in an organized exchange is classified as bond markets. The bond market (also debt market or credit market) is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market.

✅ ANSWER: B
While calculating weighted average cost of capital cost of issue is considered. Weighted average cost of capital ( WACC) is the average after-tax cost of a company’s various capital sources used to finance the company.

✅ ANSWER: B
According to capital asset pricing model assumptions, investors will borrow unlimited amount of capital at any given risk free rate of interest. The risk-free interest rate is the rate of return of a hypothetical investment with no risk of financial loss, over a given period of time.

✅ ANSWER: A
Total return is equal to capital gain and yield. Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested.

✅ ANSWER: C
Financial security which is tax exempted and issues by state governments to individuals is classified as municipal bonds. Municipal bonds are loans investors make to local governments. They are issued by cities, states, counties, or other local governments. For that reason, the interest they pay on the bonds is tax-free.

✅ ANSWER: A
The weak form of the EMH is supported if successive price changes over time are independent of each other. The efficient-market hypothesis (EMH) is a theory in financial economics that states that asset prices fully reflect all available information.

✅ ANSWER: B
Risk free return = Required return – Premium for risk
= 15% – 11% = 4%.

✅ ANSWER: A
An income available for shareholders after deducting expenses and taxes from revenues is classified as net income. Net income represents the amount of money remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company’s total revenue.