Financial Management

✅ The correct answer is B.
Market where market makers keep record of stock of financial instruments is classified as dealer market. A dealer market is a financial market mechanism wherein multiple dealers post prices at which they will buy or sell a specific security of instrument.

✅ The correct answer is D.
Periodic rate if it is multiplied with per year number of compounding periods is called nominal annual rate. The nominal interest rate is the interest rate before taking inflation into account, in contrast to real interest rates and effective interest rates.

✅ The correct answer is B.
Dividend expected on stock during coming year is classified as expected dividend yield. Dividend yield ratio is a measure of the productivity of your investment.

✅ The correct answer is A.
Bonds issued by small companies tend to have high liquidity premium. Liquidity premium is a premium demanded by investors when any given security cannot be easily converted into cash for its fair market value. When the liquidity premium is high, the asset is said to be illiquid, and investors demand additional compensation for the added risk of investing their assets over a more extended period since valuations can fluctuate with market effects.

✅ The correct answer is D.
Capital markets are perfect, Investors are assumed to be rational and behave accordingly and there is no corporate or personal income tax are the assumptions underlying the Miller and Modigliani analysis.

✅ The correct answer is C.
Relevant cash flow which company expects when its will implement project is classified as incremental cash flow. Incremental cash flow is the additional operating cash flow that an organization receives from taking on a new project. A positive incremental cash flow means that the company’s cash flow will increase with the acceptance of the project.

✅ The correct answer is D.
All the firms pay tax on their income at the same rate is not an assumption in the Miller & Modigliani approach. The Modigliani and Miller Approach further states that the market value of a firm is affected by its operating income, apart from the risk involved in the investment. The theory stated that the value of the firm is not dependent on the choice of capital structure or financing decisions of the firm.

✅ The correct answer is A.
If stock has a great risk related to it than a required return is higher.

✅ The correct answer is B.
Dividend yield = Dividend paid / Current price * 100
= 10 / 40 * 100 = 25%

✅ The correct answer is D.
Constant growth model would not be used in condition if growth rate is greater than realized rate of return. A real rate of return is the annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external factors.