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.

332. A measure which is not included in Fama French Three-Factor model is

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realized risk free rate
rate of return on market
random error
risk premium
✅ The correct answer is D.
A measure which is not included in Fama French Three-Factor model is risk premium. The Fama-French three-factor model is an expansion of the capital asset pricing model (CAPM) CAPM formula shows the return of a security is equal to the risk-free return plus a risk premium, based on the beta of that security. The model is adjusted for outperformance tendencies.

333. The value of a derivative security _______.

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depends on the value of the related primitive security
can only cause increased risk
is unrelated to the value of the related primitive security
is worthless today
✅ The correct answer is A.
The value of a derivative security depends on the value of the related primitive security. A derivative security is a financial instrument whose value depends upon the value of another asset. The main types of derivatives are futures, forwards, options, and swaps.

334. An additional desired compensation by investors for assuming an additional risk on investment is classified as

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risk premium
investor premium
additional premium
assumed premium
✅ The correct answer is A.
An additional desired compensation by investors for assuming an additional risk on investment is classified as risk premium. A risk premium is the return in excess of the risk-free rate of return an investment is expected to yield; an asset’s risk premium is a form of compensation for investors who tolerate the extra risk, compared to that of a risk-free asset, in a given investment.

335. Preferred dividend is divided by preferred stock price multiply by (1-floatation cost) is used to calculate

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transaction cost of preferred stock
financing of preferred stock
weighted cost of capital
component cost of preferred stock
✅ The correct answer is D.
Preferred dividend is divided by preferred stock price multiply by (1-floatation cost) is used to calculate component cost of preferred stock. Cost of preferred stock is the rate of return required by holders of a company’s preferred stock. It is calculated by dividing the annual preferred dividend payment by the preferred stock’s current market price.

336. The price to book value ratio tends to be close for_____________.

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high-tech companies
banks
utilities
service companies
✅ The correct answer is B.
The price to book value ratio tends to be close for banks. Price-to-book value (P/B) is the ratio of market value of a company’s shares (share price) over its book value of equity. The book value of equity, in turn, is the value of a company’s assets expressed on the balance sheet.

337. Default free financial security sells by U.S treasury is classified as

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U.S treasury bills
commercial paper
certificate of deposit
mutual funds
✅ The correct answer is A.
Default free financial security sells by U.S treasury is classified as U.S treasury bills. A Treasury Bill (T-Bill) is a short-term debt obligation backed by the U.S. Treasury Department with a maturity of one year or less.

338. An average inflation rate which is expected over life of security is classified as

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inflation premium
off season premium
nominal premium
required premium
✅ The correct answer is A.
An average inflation rate which is expected over life of security is classified as inflation premium. An inflation premium is the part of prevailing interest rates that results from lenders compensating for expected inflation by pushing nominal interest rates to higher levels. Key points : Investors seek this premium to compensate for the erosion in the value of their capital due to inflation.

339. If net present value is positive then profitability index will be

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greater than two
equal to
less than one
greater than one
✅ The correct answer is D.
If net present value is positive then profitability index will be greater than one. A positive net present value indicates that the projected earnings generated by a project or investment – in present dollars – exceeds the anticipated costs, also in present dollars. It is assumed that an investment with a positive NPV will be profitable, and an investment with a negative NPV will result in a net loss.