# Nature and Scope of Financial Management – Financial Management MCQ

Nature and Scope of Financial Management – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

## Nature and Scope of Financial Management – Financial Management MCQ

Question 1.
………….. is the life blood of a business.
(A) Finance Manager
(B) Finance
(C) Financial Management
(D) Corporate Financial Management
(B) Finance

Question 2.
“Shareholder wealth” in a firm is represented by –
(A) The number of people employed in the firm.
(B) The book value of the firm’s assets less the book value of its liabilities.
(C) The amount of salary paid to its employees.
(D) The market price per share of the firm’s common stock.
(D) The market price per share of the firm’s common stock.

Question 3.
Financial Management is study –
(I) of the process of procuring and judicious use of financial resources
(II) undertaken to maximize the value of the firm/owners.
Select the correct answer from the options given below.
(A) (I) only
(B) (II) only
(C) Both (I) and (II)
(D) Neither (I) nor (II)
(C) Both (I) and (II)

Question 4.
To increase a given present value, the discount rate should be adjusted –
(A) upward
(B) downward
(C) keep as it is
(D) none of the above
(B) downward

Question 5.
Long-run objective of financial management is to –
(A) Maximize earnings per share.
(B) Maximize the value of the firm’s common stock.
(C) Maximize return on investment.
(D) Maximize market share.
(B) Maximize the value of the firm’s common stock.

Question 6.
Financial Management is concerned with –
(A) Investment Decisions
(B) Finance Decisions
(C) Dividend Decisions
(D) All of the above
(D) All of the above

Question 7.
Procurement of funds interalia includes-
(a) Identification of sources of finance
(b) Determination of finance mix
(c) Raising of funds
(d) Division of profits between dividends and retention of profits of internal funds generation
Select the correct answer from the options given below.
(A) (a) & (b)
(B) (a)(c) & (d)
(C) (b) & (c)
(D) (c), (a), (d) & (b)
(D) (c), (a), (d) & (b)

Question 8.
The market price of a share of common stock is determined by:
(A) the board of directors of the firm.
(B) the stock exchange on which the stock is listed.
(C) the president of the company.
(D) individuals buying and selling the stock.
(D) individuals buying and selling the stock.

Question 9.
Which of the following is / are basic aspect of financial management?
(1) Procurement of funds.
(2) Appointment of capable financial personnel.
(3) Effective use of funds to achieve business objectives.
(4) Increase the national resources.
Select the correct answer from the options given below.
(A) (1) & (3)
(B) (2) & (4)
(C) (1) & (4)
(D) (2) & (3)
(A) (1) & (3)

Question 10.
The focal point of financial management in a firm is – .
(A) the number and types of products or services provided by the firm.
(B) the minimization of the amount of taxes paid by the firm.
(C) the creation of value for shareholders.
(D) the profits earned by the firm.
(C) the creation of value for shareholders.

Question 11.
A business organization can obtain funds from –
(A) Issue of preference or equity share capital
(B) Issue of debentures
(C) Loan from banks and financial institution
(D) All of the above
(D) All of the above

Question 12.
The decision function of financial management can be broken down into the ………….. decisions.
(A) financing and investment
(B) investment, financing & asset management
(C) financing and dividend
(D) capital budgeting, cash management & credit management
(B) investment, financing & asset management

Question 13.
Statement (I):
Since funds can be obtained from different sources therefore their procurement is always considered as complex problem by business concerns.
Statement (II):
Funds produced from different sources have a different characteristic in terms of risk, cost and control.
Select the correct answer from the options given below.
(A) Statement I is correct but Statement II is incorrect.
(B) Statement II is correct but Statement I is incorrect.
(C) Statement I & Statement II both are correct and Statement II support Statement I.
(D) Statement I & Statement II both are incorrect.
(C) Statement I & Statement II both are correct and Statement II support Statement I.

Question 14.
The funds raised by the issue of ……….. are the best from the risk point of view for the company.
(A) equity shares
(B) debentures
(C) both (A) & (B)
(D) none of the above
(A) equity shares

Question 15.
Financial management is –
(A) Science
(B) Art
(C) Both
(D) None
(C) Both

Question 16.
A 30-year bond issued by Reliance Ltd. in 2007 would now trade in the –
(A) Primary money market
(B) Secondary money market
(C) Primary capital market
(D) Secondary capital market
(D) Secondary capital market

Question 17.
Which of the following is not function of finance manager?
(A) Investor relations
(B) Credit & collections
(C) Investments
(D) Appointment of financial personnel
(D) Appointment of financial personnel

Question 18.
Money market mutual funds –
(A) are also known as finance companies
(B) enable individuals and small businesses to invest indirectly in money-market instruments.
(C) are available only to high net-worth individuals.
(D) are involved in acquiring and placing mortgages.
(B) enable individuals and small businesses to invest indirectly in money-market instruments.

Question 19.
Match the following:

Select the correct answer from the options given below

(A)

Question 20.
The purpose of financial markets is to:
(A) increase the price of common stocks
(B) lower the yield on bonds
(C) allocate savings efficiently
(D) control inflation
(C) allocate savings efficiently

Question 21.
Investment decisions are concerned with –
(A) Efficient allocation of funds to specific assets
(B) Determining the proper amount of funds to be employed in the firm.
(C) Determining the composition of liabilities
(D) Short run projects
(A) Efficient allocation of funds to specific assets

Question 22.
_____ ensures that firm utilizes its available resources most efficiently under conditions of competitive markets.
(A) Wealth Maximization
(B) Profit Maximization
(C) Value Maximization
(D) Relation Maximization
(B) Profit Maximization

Question 23.
For which of the following reason(s) profit maximization concept is criticized –
1. It is vague conceptually.
2. It ignores timing of returns.
3. It ignores the risk factor
4. Its emphasis is generally on short run projects.
Select the correct answer from the options given below.
(A) 1
(B) 1 & 2
(C) 1, 2 & 3
(D) 1, 2,3 & 4
(D) 1, 2,3 & 4

Question 24.
…………. consistent with the object of maximizing owner’s economic welfare.
(A) Profit Maximization
(B) Wealth Maximization
(C) Relation Maximization
(D) All of the above
(B) Wealth Maximization

Question 25.
Financial Management is concerned with
(A) Profit Maximization
(B) Both (A) & (C)
(C) Wealth Maximization
(D) Both (A) & (C) plus Relation Maximization
(B) Both (A) & (C)

Question 26.
Assertion (A):
Profit maximization as an objective does not take into account the time pattern of returns.
Reason (R):
Finance manager will accept highly risky proposals if they give high profits by applying profit maximization concept.
Select the correct answer from the options given below.
(A) Both A and R are true and R is correct explanation of A.
(B) Both A and R true but R is not correct explanation of A.
(C) A is true but R is false
(D) A is false but R is true
(B) Both A and R true but R is not correct explanation of A.

Question 27.
Profit maximization –
(A) cannot be the sole objective of a company
(B) is at best a limited objective.
(C) has to be attempted with a realization of risks involved
(D) all of the above
(D) all of the above

Question 28.
Under inflationary conditions the value of money, expressed in terms of its purchasing power over goods and services
(A) Incline
(B) Declines
(C) Increases
(D) Remains constant
(B) Declines

Question 29.
………… is a condition where a company cannot meet, or has difficulty paying off, its financial obligations to its creditors, typically due to high fixed costs, illiquid assets or revenues sensitive to economic downturns.
(A) Financial risk
(B) Financial uncertainty
(C) Financial certainty
(D) Financial distress
(D) Financial distress

Question 30.
………….. means the organization can no longer meet its financial obligations with its lender or lenders as debts become due.
(A) Financial certainty
(B) Financial insolvency
(C) Financial risk
(D) Indentified risk
(B) Financial insolvency

Question 31.
Assertion (A):
Profit maximization, as an objective is too narrow.
Reason (R):
It ignores timing of returns and also fails to take into account the social considerations as also the obligations to various interests of workers, consumers, society, ethical trade practices.
(A) Both A and Rare true and R is correct explanation of A.
(B) Both A and R true but R is not correct explanation of A.
(C) A is true but R is false
(D) A is false but R is true
(A) Both A and Rare true and R is correct explanation of A.

Question 32.
A permanent ……………. may lead an organization to the chaotic state!
(A) financial insolvency; financial certainty
(B) financial distress; Indentified risk
(C) Indentified risk; financial insolvency
(D) financial distress; financial insolvency
(D) financial distress; financial insolvency

Question 33.
Using in ………… the capital structure of a company is called financial gearing.
(A) borrowed funds or fixed cost funds
(B) owners funds or fixed cost funds
(C) owners funds
(D) reserve or balance of profit & loss account
(A) borrowed funds or fixed cost funds

Question 34.
High financial gearing will -……………….
(A) decrease the EPS of the company if earnings before interest and taxes are rising
(B) increase the EPS of the company if earnings before interest and taxes are declining
(C) decrease the EPS of the company if earnings before interest and taxes are declining
(D) increase the EPS of the company if earnings before interest and taxes are rising
(D) increase the EPS of the company if earnings before interest and taxes are rising

Question 35.
Higher the level of financial gearing -………….
(A) Greater will be the risk.
(B) Lower will be the risk.
(C) Risk will be constant.
(D) None of the above
(A) Greater will be the risk.

Question 36.
Financial management is broadly concerned with -…………….
(A) Raising of funds
(B) Creating value to the assets of the business enterprise
(C) Efficient allocation of funds
(D) All of the above
(D) All of the above

Question 37.
Financial Management can be judged by the study of the nature of -…………
(A) Corporate, social & benefit decisions.
(B) Accounting, financing & dividend decisions.
(C) Personnel, human cost & economic decisions
(D) Investment, financing & dividend decisions.
(D) Investment, financing & dividend decisions.

Question 38.
Which of the following is/are a major aspect of investment decision making process?
(A) Capital budgeting
(B) Formulation of Functional Strategy
(C) Strategic implementation
(D) All of the above
(A) Capital budgeting

Question 39.
Investment decisions encompass -……………
(A) Cost of capital
(B) Capital budgeting
(C) Management of liquidity and current assets
(D) All of the above
(D) All of the above

Question 40.
Optimal investment decisions need to be made taking into consideration such factors as –
(A) Estimation of capital outlays and the future earnings of the proposed project focusing on the task of value engineering and market forecasting.
(B) Availability of capital and considerations of cost of capital focusing attention on financial analysis.
(C) A set of standards by which to select a project for implementation and maximizing returns therefrom focusing attention on logic and arithmetic.
(D) All of the above
(D) All of the above

Question 41.
Financing decisions are concerned with -………….
(A) question whether adding to capital assets today will increase the revenue of tomorrow to cover costs.
(B) commitments of monetary resources at different times in expectation of economic returns in future.
(C) the determination of how much funds to procure from amongst the various avenues available
(D) problem of accepting one proposal and leaving other persists.
(C) the determination of how much funds to procure from amongst the various avenues available

Question 42.
According to Solomon, …………. means maximizing the net present value of a course of action to shareholders.
(A) Wealth maximization
(B) Profit maximization
(C) Dividend maximization
(D) None of the above
(A) Wealth maximization

Question 43.
Match the following:
List — I — List — II
(I) Profit maximization — (P) Recognizes risk or uncertainty
(II) Wealth maximization — (Q) Ignores the timing of returns
(III) Liquidity — (R) ability to meet short obligations
(IV) Profitability — (S) evaluating the performance in different spheres
Select the correct answer from the options given below.

(B)

Question 44
Return on Investment is –
(A) Profitability ratio
(B) Volume ratio
(C) Short term solvency ratio
(D) Operating ratio
(A) Profitability ratio

Question 45.
Theory on cost of capital as propounded by Modigliani and Miller argues that –
(A) Risk is associated with fixed charges in the shape of interest on debt capital.
(B) Cost of capital is independent of the capital structure
(C) High financial gearing will increase the earnings per share of a company if earnings before interest and taxes are rising
(D) Business works as a system comprised of sub-systems.
(B) Cost of capital is independent of the capital structure

Question 46.
Example of solvency ratio –
(A) Debt to Equity Ratio
(B) Debt to Total Funds Ratio
(C) Interest Coverage Ratio
(D) All of the above
(D) All of the above

Question 47.
Dividend decision is to decide –
(A) How much profit to earn
(B) Whether the firm should distribute all profits or retain them or distribute a portion and retain the balance.
(C) Where the fund should be invested so that maximum dividend can be earned on investment
(D) How to improve dividend yield ratio
(B) Whether the firm should distribute all profits or retain them or distribute a portion and retain the balance.

Question 48.
Which of the following is/are ‘fund-based service’ provided by the commercial banks in India?
(A) Term loan
(B) Bill discounting
(C) Overdraft
(D) All of the above
(A) Term loan

Question 50.
Which of the following aspects are taken up in detail under the study of financial management?
(1) Determination of size of the enterprise and determination of rate of growth.
(2) Determining the composition of assets of the enterprise.
(3) Determining the mix of enterprise’s financing.
(4) Analysis, planning and control of financial affairs of the enterprise.
Select the correct answer from the options given below.
(A) (4) & (1)
(B) (4), (3) & (2)
(C) (3)&(1)
(D) (2), (4), (1) & (3)
(D) (2), (4), (1) & (3)

Question 51.
Which of the following statement is correct?
(1) The term profit is vague.
(2) Profit maximization as an objective is too narrow.
(3) Value / wealth maximization decision do not takes into consideration time value of money and uncertainty of risk.
(4) Investment decisions relate to the
determination as to how much and how frequently cash can be paid out of the profits of an organization as income.
Select the correct answer from the options given below.
(A) (3) & (1)
(B) (2) & (1)
(C) (2) & (4)
(D) (1) & (4)
(B) (2) & (1)

Question 52.
Which of the following statement is incorrect?
1. Profit Maximization ignores risk or uncertainty.
2. Wealth Maximization Emphasizes the long term gains.
Select the correct answer from the options given below.
(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2
(D) Neither 1 nor 2

Question 53.
Select the correct statement from the following:
(i) In accounting, the measurement of funds is based on cash flows.
(ii) The treatment of funds in financial management is based on the accrual principle.
Select the correct answer from the options given below.
(A) Both (i) and (ii) are correct
(B) Only (i) is correct
(C) Only (ii) is correct
(D) None of the above
(A) Both (i) and (ii) are correct

Question 54.
………… may be defined as interest that is calculated as a percentage of the original principal amount.
(A) Compound Interest
(B) Simple Interest
(C) Simple Compound Interest
(D) Compounded Simple Interest
(A) Compound Interest

Question 55.
When interest is calculated on total of previously earned interest and the original principal it is
(A) Simple Compound Interest
(B) Effective Rate of Interest
(C) Simple Interest
(D) Compound Interest
(D) Compound Interest

Question 56.
Which of the following statement is correct?
1. Discounting converts future amount into present value amount.
2. Compounding converts present value
amount into future value amount.
Select the correct answer from the options given below.
(A) Only 1
(B) Both 1 and 2
(C) Only 2
(D) Neither 1 nor 2
(B) Both 1 and 2

Question 57.
………….. is a series of equal payments or receipts occurring over a specified number of periods
(A) Present cash flow
(B) An annuity
(C) Annuity factor
(D) Present value factor
(B) An annuity

Question 58.
What is the most appropriate goal of the firm?
(A) Shareholder wealth maximization
(B) Profit maximization
(C) Stakeholder maximization
(D) EPS maximization
(A) Shareholder wealth maximization

Question 59.
The ability of a firm to convert an asset to cash is called …………
(A) Solvency
(B) Return
(C) Marketability
(D) Liquidity
(D) Liquidity

Question 60.
Which of the following shows the details of the company’s activities involving cash during a period of time?
(A) Income statement
(B) Statement of financial position
(C) Revenue – Costs = Profits
(D) None of the above
(D) None of the above

Question 61.
The long-run objective of financial management is to:
(A) Maximize earnings per share.
(B) Maximize the value of the firm’s common stock.
(C) Maximize return on investment.
(D) Maximize market share.
(B) Maximize the value of the firm’s common stock.

Question 62.
In the …………………… the future value of all cash inflow at the end of time horizon at a particular rate of interest is calculated.
(A) Risk-free rate
(B) Compounding technique
(C) Discounting technique
(B) Compounding technique

Question 63.
…………. is the price at which the bond is traded in the stock exchange.
(A) Redemption value
(B) Face value
(C) Market value
(D) Maturity value
(C) Market value

Question 64.
enhance the market value of shares and therefore equity capital is not free of cost
(A) Face value
(B) Dividends
(C) Redemption value
(D) Book value
(B) Dividends

Question 65.
………… and ………… are the two versions of goals of the financial management of the firm.
(A) Profit maximization; Wealth maximization
(B) Production maximization; Sales maximization
(C) Sales maximization; Profit maximization
(D) Value maximization; Wealth maximization
(A) Profit maximization; Wealth maximization

Question 66.
…………. and ………… carry a fixed rate of interest and are to be paid off irrespective of the firm’s revenues.
(A) Debentures, Dividends
(B) Debentures, Bonds
(C) Dividends, Bonds
(D) Dividends, Treasury notes
(B) Debentures, Bonds

Question 67.
Credit policy of every company is largely influenced by ……….. and ………….
(A) Liquidity, accountability
(B) Liquidity, profitability
(C) Liability, profitability
(D) Liability, liquidity
(B) Liquidity, profitability

Question 68.
XYZ is an oil based business company, which does not have adequate working capital. It fails to meet its current obligation, which leads to bankruptcy. Identify the type of decision involved to prevent risk of bankruptcy.
(A) Investment decision
(B) Dividend decision
(C) Liquidity decision
(D) Finance decision
(C) Liquidity decision

Question 69.
How earnings per share is calculated?
(A) Use the income statement to determine earnings after taxes (net income) and divide by the previous period’s earnings after taxes. Then subtract 1 from the previously calculated value.
(B) Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding.
(C) Use the income statement to determine earnings after taxes (net income) and divide by the number of common and preferred shares outstanding.
(D) Use the income statement to determine earnings after taxes (net income) and divide by the fore casted period’s earnings after taxes. Then subtract 1 from the previously calculated value
(B) Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding.

Question 70.
The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if—
(A) Cost of goods sold increased relative to sales.
(B) Sales increased relative to expenses.
(C) Government increased the tax rate.
(D) Dividends were decreased.
(C) Government increased the tax rate.

Question 71.
Time value of money indicates that –
(A) A unit of money obtained today is worth less than a unit of money obtained in future.
(B) A unit of money obtained today is worth more than a unit of money obtained in future.
(C) There is no difference in the value of money obtained today and tomor-row.
(D) None of the above
(B) A unit of money obtained today is worth more than a unit of money obtained in future.

Question 72.
Time value of money supports the comparison of cash flows recorded at different time period by –
(I) Discounting all cash flows to a common point of time.
(II) Compounding all cash flows to a common point of time.
Select the correct answer from the options given below.
(A) (I) only
(B) (II) only
(C) Using either (I) or (II)
(D) None of the above
(C) Using either (I) or (II)

Question 73.
Heterogeneous cash flows can be made comparable by –
(A) Discounting technique
(B) Compounding technique
(C) Either (A) or (B)
(D) None of the above
(C) Either (A) or (B)

Question 74.
If ‘Profit Maximization’ concept is applied then which of the following Product will be selected?

Note: Above table shows projected earnings of the various products for next 5 years.
(A) Product A
(B) Product B
(C) Product C
(D) Product D
(B) Product B
More profit is at Product B; hence it should be selected.
(Profit maximization ignores timing of returns)

Question 75.
What is the present value factor for 10% at 6 years?
(A) 0.564
(B) 0.683
(C) 0.621
(D) 0.513
(A) 0.564
Type 1; press ÷ sign; type 1.1; press = sign six time.

Question 76.
What is the annuity factor for 13% at 5 years?
(A) 2.974
(B) 3.998
(C) 3.517
(D) 3.402
(C) 3.517
Type 1; press ÷ sign; type 1.13; press = sign five time; press ‘GT’ button on calcu¬lator

Question 77.
Find out the present value of projects cash flow from the following data if the cost of capital of the firm is 12%:
Year — Cash flow
1. — 10,000
2. — 12,000
3. — 14,000
4. — 16,000
5. — 22,000
(A) ₹ 51,112
(B) ₹ 51,221
(C) ₹ 51,211
(D) ₹ 52,112
(A) ₹ 51,112

Question 78.
Find out the present value of projects cash flow from the following data if the cost of capital of the firm is 12%:

(A) 71,200
(B) 72,001
(C) 72,430
(D) 72,100
(D) 72,100

Question 79.
If you invest ₹ 10,000 (P0) in a bank at simple interest of 7% p.a., what will be the amount at the end of 3 (n) years?
Note: Use simple interest rate method.
(A) ₹ 12,100
(B) ₹15,400
(C) ₹ 17,500
(D) ₹20,600
(A) ₹ 12,100
Future Value, FVn = Pn + SI = P0 + P0(z)(n) = 10,000 + 10,000 (0.07)(3) = 12,100

Question 80.
₹ 2,000 is deposited in a bank for 2 years at simple interest of 6%. How much will be the balance at the end of 2 years?
Note: Use simple interest rate method
(A) ₹ 2,000
(B) ₹ 2,240
(C) ₹ 2,420
(D) ₹ 2,640
(B) ₹ 2,240
Required balance is given by
FVn = P0 + Po(0)(n) = 2,000 + 2,000 (0.06)(2) = 2,000 + 240 = 2,240.

Question 81.
Find the rate of interest if the amount owed after 6 (h) months is ₹ 1,050 (A), borrowed amount being ₹ 1,000 (P0).
Note: Use simple interest rate method.
(A) ₹ 5%
(B) ₹10%
(C) ₹ 4%
(D) ₹ 20%
(B) ₹10%
We know FVn = P0 + P()( i)( n)
ie. 1,050 = 1,000 + 1,000(i)(6/12)
Or 1,050 – 1,000 = 500(i)
Therefore (i) = 50/500 = 0.10
i..e. (i) = 10%

Question 82.
Determine the compound interest for an investment of ₹ 7,500 at 6% compounded half yearly. Given that (l+i)n for i = 0.03 and n = 12 is 1.42576.
(A) ₹ 3,193.20
(B) ₹ 3,913.20
(C) ₹ 3,319.20
(D) ₹ 3,139.20
(A) ₹ 3,193.20
$$i=\frac{6}{2 \times 100}$$ = 0.03; n = 6×2=12,P = 1,000
Compound Amount = 7,500 (1 + 0.03)12 = 7,500 × 1.42576 = 10,693.20
Compound Interest = 10,693.20 – 7,500 = 3,193.20

Question 83.
₹ 2,000 is invested at annual rate of interest of 10%. What is the amount after 2 years if the compounding is done annually?
(A) ₹ 2,420.00
(B) ₹ 2,431.00
(C) ₹ 2,440.58
(D) ₹ 2,442.70
(A) ₹ 2,420.00
The annual compounding is given by:
FV = P (1 + i)n, n being 2, i being 10/100 = 0.1 and P being 2,000
2,000 (1.1)2 = 2,000 × 1.21 = 2,420

Question 84.
₹ 2,000 is invested at annual rate of interest of 10%. What is the amount after 2 years if the compounding is done semi annually?
(A) ₹ 2,420.00
(B) ₹ 2,431.00
(C) ₹ 2,440.58
(D) ₹ 2,442.70
(B) ₹ 2,431.00
For Semi-annual compounding, n = 2 × 2 = 4, i =  0.1/2 = 0.05
FV4 = 2,000 (1 + 0.05)4 = 2,000 × 1.2155 = 2,431

Question 85.
₹ 2,000 is invested at annual rate of interest of 10%. What is the amount after 2 years if the compounding is done monthly?
(A) ₹ 2,420.00
(B) ₹ 2,431.00
(C) ₹ 2,440.58
(D) ₹ 2,442.70
(C) ₹ 2,440.58
For monthly compounding, n = 12 × 2 =. 24, i = 0.1 /12 = 0.00833
FV24 = 2,000 (1.00833)24 = 2,000 × 1.22029 = 2,440.58

Question 86.
Determine the compound interest on 1 1,000 at 6% compounded semi-annually for 6 years. Given that (1+i)n = 1.42576 for i = 3% and n = 12.
(A) ₹ 1,425.76
(B) ₹ 425.76
(C) ₹ 452.76
(D) ₹542.67
(B) ₹ 425.76
i(6/2)3%, n= 6×2 = 12,P = 1000
Compound amount P (1 + i)n = 1,000(1 + 3%)12 = 1,000 × 1.42576 = 1,425.76
Compound interest = 1,425.76 –  1,000
= 425.76

Question 87.
Ram has taken a 20 month car loan of ₹ 6,00,000. The rate of interest is 12% p.a. What will be the amount of monthly loan amortization?
(A) 33,294.1
(B) 33,249.1
(C) 33,924.1
(D) 32,349.1
(B) 33,249.1

Question 88.
What is the present value of ₹ 1 to be received after 2 years compounded annually at 10%?
(A) 0.83
(B) 0.91
(C) 0.75
(D) 0.68
(A) 0.83
Here FV =1, z = 0.1
Required Present Value = FVn (1+i)-n

Thus, 0.83 shall grow to 1 after 2 years at 10% compounded annually.

Question 89.
Find out the present value of ₹ 2,000 received after in 10 years, if discount rate is 8%.
(A) 926
(B) 1,000
(C) 858
(D) 905
(A) 926

=2,000(0.463)
= 926

Question 90.
Find the amount of an annuity if payment of ₹ 500is made annually for 7 years at interest rate of 14% compounded annually.
(A) ₹ 5,356.25
(B) ₹ 5,563.52
(C) ₹ 5,365.25
(D) ₹ 5,635.52
(C) ₹ 5,365.25
R= 500, n= 7 i=0.14
FVA = 500 × FVTFA (7, 0.14) = 500 × 10.7304915 = 5,365.25

Question 91.
A person is required to pay 4 equal annual payments of ₹ 5,000 each in his deposit account that pays 8% interest per year. Find out the future value of annuity at the end of 4 years.
(A) 22,535
(B) 22,553
(C) 22,355
(D) 23,255
(A) 22,535

= 5,000 (4.507)
= 22,535

Question 92.
Assume that the interest rate is greater than zero. Which of the following cash-in-flow streams should you prefer?

(D) Any of the above, since they each sum to ₹ 1,000.
(A)

Question 93.
If 18% is the best risk-free return available, then you would be indifferent to receiving f 100 now or ₹ 118 in one year’s time.
(A) Expressed another way the present value of ₹ 100 receivable one year hence is ₹ 118
(B) Expressed another way the present value of ₹ 118 receivable one year hence is ₹ 100
(C) Both are correct
(D) Data given is insufficient
(B) Expressed another way the present value of ₹ 118 receivable one year hence is ₹ 100

Question 94.
₹ 200 is invested at the end of each month in an account paying interest 6% per year compounded monthly. What is the amount of this annuity after 10th payment? Given that (1.005)10 = 1.0511
(A) ₹ 2,404
(B) ₹ 2,044
(C) ₹ 2,440
(D) ₹ 2,004
(B) ₹ 2,044
We have =$$\mathrm{A}(\mathrm{n}, \mathrm{i})=\left[\frac{(1+\mathrm{i})^{\mathrm{n}}-1}{\mathrm{i}}\right]^{\mathrm{n}}$$
i being the interest rate (in decimal) per payment period over n payment period.
Here, i = 0.06/12 = 0.005, n = 10.
Required amount is given by A = RA (10, 0.005)
= 200 × 10.22 = 2,044.

Question 95.
Y bought a TV costing ₹ 13,000 by making a down payment of ₹ 3,000 and agreeing to make equal annual payment for 4 years. How much would be each payment if the interest on unpaid amount be 14% compounded annually?
(A) 3,431.71
(B) 3,413.17
(C) 3,134.17
(D) 3,341.71
(A) 3,431.71

Question 96.
Determine the present value of ₹ 700 each paid at the end of each of the next 6 years. Assume an 8% interest.
(A) ₹ 3,263.10
(B) ₹ 3,632.01
(C) ₹ 3,326.01
(D) ₹ 3,236.10
(D) ₹ 3,236.10
As the present value of an annuity of ₹ 700 has to be computed. The present value factor of an annuity of ₹ 1 at 8 percent for 6 years is 4.623. Therefore, the present value of an annuity of ₹ 700 will be: 4.623 × ₹ 700 = ₹ 3,236.10

Question 97.
Ramu wants to retire and receive ₹ 3,000 a month. He wants to pass this monthly payment to future generations after his death. He can earn an interest of 8% compounded annually. How much will he need to set aside to achieve his perpetuity goal?
(A) ₹ 4,94,775
(B) ₹ 4,49,775
(C) ₹ 4,49,577
(D) ₹ 4,47,975
(B) ₹ 4,49,775

Question 98.
Assuming that the discount rate is 7% per annum, how much would you pay to receive ₹ 50, growing at 5%, annually, forever?
(A) 2,500
(B) 5,200
(C) 2,200
(D) 5,500
(A) 2,500

Question 99.
ABCL Company has issued debentures of ₹ 50 lakhs to be repaid after 7 years. How much should the company invest in a sinking fund earning 12% in order to be able to repay debentures?
(A) 4.96 lakhs
(B) 4.92 lakhs
(C) 4.98 lakhs
(D) 5.00 lakhs
PVA=$$\frac{3,000}{0.00667}$$=4,49,775