Financial Management

✅ The correct answer is B.
According to Black Scholes model, selling and buying of stock have transaction costs. Transaction costs are expenses incurred when buying or selling a good or service.

✅ 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.

✅ The correct answer is B.
One reason for the declining importance of pension funds is the downsizing of US companies.

✅ 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.

✅ 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.

✅ 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.

✅ 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.

✅ 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.

✅ 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.

✅ 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.