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.

711. Relationship between total risk of stock, diversifiable risk and market risk is classified as

by
total risk
standard deviation
standard alpha
treynor alpha
✅ The correct answer is A.
Relationship between total risk of stock, diversifiable risk and market risk is classified as total risk. Total risk is an assessment that identifies all of the risk factors associated with pursuing a specific course of action.

712. An attitude of investor towards dealing with risk determines the

by
rate of return
rate of exchange
rate of intrinsic stock
rate of extrinsic stock
✅ The correct answer is A.
An attitude of investor towards dealing with risk determines the rate of return. A rate of return (RoR) is the net gain or loss on an investment over a specified time period, expressed as a percentage of the investment’s initial cost. Gains on investments are defined as income received plus any capital gains realized on the sale of the investment.

713. If bond’s call provision is practiced in first year of issuance then an additional payment is classified as

by
issuance provision
bond provision
call provision
First provision
✅ The correct answer is C.
If bond’s call provision is practiced in first year of issuance then an additional payment is classified as call provision. A call provision is a provision on a bond or other fixed-income instrument that allows the issuer to repurchase and retire its bonds.

714. Risk on a stock portfolio which cannot be eliminated or reduced by placing it in diversified portfolio is classified as

by
diversifiable risk
market risk
stock risk
portfolio risk
✅ The correct answer is B.
Risk on a stock portfolio which cannot be eliminated or reduced by placing it in diversified portfolio is classified as market risk. Market risk is the possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets in which he or she is involved.

715. Term structure premium, an inflation of bond and bond default premium are included in

by
risk factors
premium factors
bond buying factors
multi model
✅ The correct answer is A.
Term structure premium, an inflation of bond and bond default premium are included in risk factors. Term Premium is the amount by which the yield-to-maturity of a long-term bond exceeds that of a short-term bond. Because one collects coupons on a long-term bond for a longer period of time, its yield-to-maturity will be more. The amount of a term premium depends on the interest rates of the individual bonds. Inflation-linked bonds, or ILBs, are securities designed to help protect investors from inflation. A default premium is the additional amount a borrower must pay to compensate a lender for assuming default risk. All companies or borrowers indirectly pay a default premium, through the rate at which they must repay the obligation.

716. The Debt-Equity ratio of a Company_______________.

by
Measure its financial leverage
Does not affect the Earnings per share
Affects the dividend decision of the company
None of the above.
✅ The correct answer is A.
The Debt-Equity ratio of a Company measure its financial leverage. The debt-to-equity (D/E) ratio is calculated by dividing a company’s total liabilities by its shareholder equity.

718. Rate of return which considers riskiness and an available returns on investments is classified as

by
constant dividend
constant rate
maximum rate of return
minimum acceptable rate of return
✅ The correct answer is D.
Rate of return which considers riskiness and an available returns on investments is classified as minimum acceptable rate of return. A minimum acceptable rate of return (MARR) is the minimum profit an investor expects to make from an investment, taking into account the risks of the investment and the opportunity cost of undertaking it instead of other investments.

719. Risk of doing business in particular country and arises from foreign investments is classified as

by
country risk
foreign risk
proffered risk
common risk
✅ The correct answer is A.
Risk of doing business in particular country and arises from foreign investments is classified as country risk. Country risk is the risk that a foreign government will default on its bonds or other financial commitments. Country risk also refers to the broader notion of the degree to which political and economic unrest affect the securities of issuers doing business in a particular country.

720. Purchase cost of assets over its useful life is classified as

by
appreciation
depreciation
appreciated assets
appreciated liabilities
✅ The correct answer is B.
Purchase cost of assets over its useful life is classified as depreciation. Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value. Businesses depreciate long-term assets for both tax and accounting purposes.