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.

802. According to Fama French Three-Factor model, market value of company equity is used to calculate

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size of portfolio
size of industry
size of market
size of company
✅ The correct answer is D.
According to Fama French Three-Factor model, market value of company equity is used to calculate size of company. The Fama and French model has three factors: size of firms, book-to-market values and excess return on the market. In other words, the three factors used are SMB (small minus big), HML (high minus low) and the portfolio’s return less the risk free rate of return.

803. One reason for the declining importance of pension funds is the_______________.

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decrease in pension benefits for workers
downsizing of US companies
large number of conversions into self-directed plans
increasing number of federal regulations that restrict pension fund portfolios
✅ The correct answer is B.
One reason for the declining importance of pension funds is the downsizing of US companies.

804. The method of raising equity capital from existing members by offering securities on pro rata basis is referred to as __________.

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Public issue
Right Issue
Private placement
Bought-Out-Deal
✅ The correct answer is B.
The method of raising equity capital from existing members by offering securities on pro rata basis is referred to as Right Issue. A rights issue is an invitation to existing shareholders to purchase additional new shares in the company.

805. Which of the following is a basic principle of finance as it relates to the management of working capital?

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Profitability varies inversely with risk
Liquidity moves together with risk
Profitability moves together with risk
Profitability moves together with liquidity
✅ The correct answer is C.
Profitability moves together with risk is a basic principle of finance as it relates to the management of working capital. Profitability is ability of a company to use its resources to generate revenues in excess of its expenses.

806. Difference between bond’s yield and any other security yield having same maturities is considered as

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maturity spread
bond spread
yield spread
interest spread
✅ The correct answer is B.
Difference between bond’s yield and any other security yield having same maturities is considered as bond spread. The term “bond spreads” or “spreads” refers to the interest rate differential between two bonds.

807. Which of the following ratios is not affected by the financial structure and the tax rate of a company?

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Net profit margin
Earning power
Earnings per share
Capitalization rate
✅ The correct answer is C.
Earnings per share ratios is not affected by the financial structure and the tax rate of a company.
It is calculated by dividing the company’s net income with its total number of outstanding shares. It is a tool that market participants use frequently to gauge the profitability of a company before buying its shares.

808. Dividend present value for period of non-constant growth in addition with horizon value is used to calculate

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stock extrinsic value
stock intrinsic value
dividend intrinsic value
stock intrinsic value
✅ The correct answer is B.
Dividend present value for period of non-constant growth in addition with horizon value is used to calculate stock intrinsic value. Intrinsic value refers to an investor’s perception of the inherent value of an asset, such as a company, stock, option, or real estate. Knowing an investment’s intrinsic value is useful for value investors who have a goal of buying stocks and other investments at a discount to this amount.

809. Tendency of moving together of two variables is classified as

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correlation
move tendency
variables tendency
double tendency
✅ The correct answer is A.
Tendency of moving together of two variables is classified as correlation. Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other.

810. In market analysis, market multiple is multiplied by firm earning before interest, taxes, depreciation and amortization to calculate

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market total value
firm total value
industry value
taxes value
✅ The correct answer is B.
In market analysis, market multiple is multiplied by firm earning before interest, taxes, depreciation and amortization to calculate firm total value. The value of the firm is measured as the sum of the value of the firm’s equity and the value of the debt.