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.

421. Stock issued by company have lower rate of return because of

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high market to book ratio
low book to market ratio
low market to book ratio
high book to market ratio
✅ The correct answer is B.
Stock issued by company have lower rate of return because of low book to market ratio. The book-to-market ratio is used to find a company’s value by comparing its book value to its market value.

424. Nominal rate which is quoted to consumers on loans is considered as

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annual percentage rate
annual rate of return
loan rate of return
local rate of return
✅ The correct answer is A.
Nominal rate which is quoted to consumers on loans is considered as annual percentage rate. An annual percentage rate (APR) is the annual rate charged for borrowing or earned through an investment. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan.

425. In capital budgeting, two projects who have cost of capital as 12% is classified as

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hurdle rate
capital rate
return rate
budgeting rate
✅ The correct answer is A.
In capital budgeting, two projects who have cost of capital as 12% is classified as hurdle rate. A hurdle rate is the minimum rate of return on a project or investment required by a manager or investor.

426. Case in which average investors risk aversion is greater than slope of line and risk premium respectively is

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steeper, greater
steeper, smaller
steeper, zero
Both A and B
✅ The correct answer is A.
Case in which average investors risk aversion is greater than slope of line and risk premium respectively is steeper, greater. Risk aversion means that investors will tend to purchase safe assets like highly rated bonds and CDs. Risk-averse individuals seek capital preservation over growth, which may actually be detrimental for those who are younger.

428. Under trading means.

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Having low amount of working capital
High turnover of working capital
Sales are less compared to assets employed
Low turnover of working capital
✅ The correct answer is D.
Under trading means low turnover of working capital. Under-trading is the reverse of over-trading. It means keeping funds idle and not using them properly. This is due to the under employment of assets of the business, leading to the fall of sales and results in financial crises.

429. Rate of return which is required to satisfy stockholders and debt holders is classified as

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weighted average cost of interest
weighted average cost of capital
weighted average salvage value
mean cost of capital
✅ The correct answer is B.
Rate of return which is required to satisfy stockholders and debt holders is classified as weighted average cost of capital. Weighted average cost of capital ( WACC) is the average after-tax cost of a company’s various capital sources used to finance the company.

430. Right of common stockholders to purchase additional stock issued by company is classified as

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common right
pre-emptive right
purchase right
selling right
✅ The correct answer is B.
Right of common stockholders to purchase additional stock issued by company is classified as pre-emptive right. A preemptive right offers select shareholders of a corporation the right to buy a proportional interest in any future issue of the company’s common stock.