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.

591. Which of the following portfolios has the least reduction of risk?

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A portfolio with securities all having positive correlation with each other
A portfolio with securities all has zero correlation with each other
A portfolio with securities all having negative correlation with each other
A portfolio with securities all has skewed correlation with each other
✅ The correct answer is A.
A portfolio with securities all having positive correlation with each other has the least reduction of risk. A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds.

592. Third step in calculating value of stock with non-constant growth rate is to find

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PV of expected dividends
FV of expected dividends
PV of intrinsic rate
FV of intrinsic rate
✅ The correct answer is A.
Third step in calculating value of stock with non-constant growth rate is to find PV of expected dividends. The first component of value is the present value of the expected dividends during the high growth period.

594. Setup cost is a type of __________ cost.

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fixed
variable
semi variable
carrying
✅ The correct answer is A.
Setup cost is a type of fixed cost. Setup cost is the cost incurred to get equipment ready to process a different batch of goods. Hence, setup cost is regarded as a batch-level cost in activity based costing. Setup cost is considered to be a non-value-added cost that should be minimized.

596. An increase in value of option leads to low present value of exercise cost only if it has

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low volatility
interest rates are high
interest rates are low
high volatility
✅ The correct answer is B.
An increase in value of option leads to low present value of exercise cost only if it has interest rates are high. Because higher interest rates mean higher borrowing costs, people will eventually start spending less. The demand for goods and services will then drop, which will cause inflation to fall.

597. Mr. A is a daring portfolio manager. He wants to increase the return in his portfolio. He should choose stocks from_______________.

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defensive industry
industry at a growth stage
industry in the maturity period
industry with more export potential
✅ The correct answer is B.
Mr. A is a daring portfolio manager. He wants to increase the return in his portfolio. He should choose stocks from industry at a growth stage.

598. An inflation rate including in quoted interest rate on security, is inflation rate

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expected over security life
expected at deferred call
at bond issuance
expected at time of maturity
✅ The correct answer is A.
An inflation rate including in quoted interest rate on security, is inflation rate expected over security life. Inflation is measured in a variety of ways depending upon the types of goods and services considered and is the opposite of deflation which indicates a general decline occurring in prices for goods and services when the inflation rate falls below 0 percent.

599. According to put call parity relationship, call option plus present value of exercise price minus stock is to calculate

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present value of option
call option
put option
future value of option
✅ The correct answer is C.
According to put call parity relationship, call option plus present value of exercise price minus stock is to calculate put option. A put option is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time frame.

600. Coupon payment is calculated with help of interest rate, then this rate considers as

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payment interest
par interest
coupon interest
yearly interest rate
✅ The correct answer is C.
Coupon payment is calculated with help of interest rate, then this rate considers as coupon interest. A coupon rate is the yield paid by a fixed-income security; a fixed-income security’s coupon rate is simply just the annual coupon payments paid by the issuer relative to the bond’s face or par value.