MCQ:

1. Identify the concept that supports the following statement. "My loan instalments are always
paid on time." - PVIFA
2. Choose among the following which represents D in Walter's model. - Dividend per share
3. Required rate of return = Risk free rate + __________ . (Identify). – Risk premium
4. While calculating internal rate of return in trial and error process, the statistical method used
is called _____. Identify The correct answer. - Interpolation or extrapolation
5. Which of the following bonds have no coupon rate? Identify. – Zero-coupon bonds
6. What is the formula for the debt-to-equity ratio? Identify The correct answer. – Debt/Equity
7. Cost of equity = 10%; cost of debt = 10%. Calculate the WACC if both equity and debt are
there in equal proportions. - .10
8. _______ of a firm refers to the composition of its long-term funds and its capital structure.
Identify The correct answer. – Capitalization
Short

1. Describe liquidity ratio.

Ans. A liquidity ratio is a measurement which is used to indicate whether a debtor will be
able to pay their short-term debt off with the cash they have readily available, or whether
they’ll need to raise additional capital to cover the amount.
Charactestics:

• Liquidity ratios are types of ratios that show a company’s ability to pay off
short-term debts from its cash.
• There a number of different liquidity ratios that creditors and debtors use to
establish metrics about the liquidity of a business and its coverage of short-
term debts.

2. Explain the concept of annuity and annuity due with examples.

Ans. due : An
annuity due is an annuity whose payment is
due immediately at the beginning of each period. A common example
of an annuity due payment is rent, as landlords often require
payment upon the start of a new month as opposed to collecting it after
the renter has enjoyed the benefits of the apartment for an entire
month.
In investment, an annuity is a series of payments made at equal
intervals. Examples of annuities are regular deposits to a
savings account, monthly home mortgage payments, monthly
insurance payments and pension payments.
3. Explain the concept of payback period.

Ans. Payback period is defined as the number of years required to

recover the original cash investment. In other words, it is the
period of time at the end of which a machine, facility, or other
investment has produced sufficient net revenue to recover its
investment costs.
4. Explain capital asset pricing model (CAPM).
Ans. The Capital Asset Pricing Model (CAPM) describes the relationship
between systematic risk, or the general perils of investing,
and expected return for assets, particularly stocks. It is a finance model
that establishes a linear relationship between the required return on an
investment and risk.
Charactestics:

• The capital asset pricing model - or CAPM - is a financial model that

calculates the expected rate of return for an asset or investment.
• CAPM does this by using the expected return on both the market
and a risk-free asset, and the asset's correlation or sensitivity to the
market (beta).

5. A project has a cash outflow of Rs. 10000 and inflow of Rs. 5000 and Rs. 10000 in next two
years. Evaluate the payback period of the project.
6. Dividend now is Rs. 4.48 and equity capitalization rate is 17%.Evaluate the share price if the
dividend growth is zero percent.