1. Which of the following ratios are particularly interesting to short term creditors?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Profitability Ratios
D. Market Value Ratios

2. Financial policy is evaluated by which of the following?
A. Profit Margin
B. Total Assets Turnover
C. Debt-equity ratio
D. None of the given options
As this ratio determines how leveraged an organization is. Or how much an organization is relying on debt..

3. Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to employ which of the following type of business?
A. Sole-proprietorship
B. Partnership
C. Corporation
D. None of the given options
Having more than 2 owners of a business entity is called “Partnership”. Having more than seven owners of a business entity is called corporation..

4. When the market's required rate of return for a particular bond is much less than its coupon rate, the bond is selling at:
A. Premium
B. Discount
C. Par
D. Cannot be determined without more information

If the bond's price is higher than its par value, it will sell at a premium because its interest rate is higher than current prevailing rates..

5. Which of the following statement is considered as the accountant’s snapshot of firm’s accounting value as of a particular date?
A. Income Statement
B. Balance Sheet
C. Cash Flow Statement
D. Retained Earning Statement
B.

6. Finance is vital for which of the following business activity (activities)?
A. Marketing Research
B. Product Pricing
C. Design of marketing and distribution channels
D. All of the given options
D.
Finance is important for all departments of an organization.

7. The most important item that can be extracted from financial statements is the actual ________ of the firm.
A. Net Working Capital
B. Cash Flow
C. Net Present Value
D. None of the given options
B.

8. A firm has paid out Rs. 150,000 as dividends from its net income of Rs. 250,000. What is the retention ratio for the firm?
A. 12%
B. 25%
C. 40%
D. 60%
C.
Retention ratio = Net income – Dividend / Net income
= 250 – 150 / 250 = 0.4 or 40%

9. If a firm’s debt ratio is 45%, this means _____ of the firm’s assets are financed by equity financing.
A. 50%
B. 55%
C. 45%
D. Cannot be determined without more information
B.
The equity portion plus the debt portion must add up to 100%
Debt ratio = Debt / Total Assets
45% = 45 / 45 + 55
45% = 45%

10. Which of the following ratios is NOT from the set of Asset Management Ratios?
A. Inventory Turnover Ratio
B. Receivable Turnover
C. Capital Intensity Ratio
D. Return on Assets
C.
The capital intensity ratio is a financial calculation measuring how much a company is invested in total assets compared to how much it is earning in revenue. Where as Asset turn over ratio determines how efficiently or effectively an organization is using its assets.

11. Which of the following statement about bond ratings is TRUE?
A. Bond ratings are typically paid for by a company’s bondholders.
B. Bond ratings are based solely on information acquired from sources other than the bond issuer.
C. Bond ratings represent an independent assessment of the credit-worthiness of bonds.
D. None of the given options
C.

12. If you plan to save Rs. 5,000 with a bank at an interest rate of 8%, what will be the worth of your amount after 4 years if interest is compounded annually?
A. Rs. 5,400
B. Rs. 5,900
C. Rs. 6,600
D. Rs. 6,802
D.
FV = PV * (1+ i) ^n
= 5,000 (1+0.08) ^4
= 6802

13. Which of the following statement is TRUE regarding debt?
A. Debt is an ownership interest in the firm.
B. Unpaid debt can result in bankruptcy or financial failure.
C. Debt provides the voting rights to the bondholders.
D. Corporation’s payment of interest on debt is fully taxable.
B.

14. A firm reports total liabilities of Rs. 300,000 and owner’s equity of Rs. 500,000. What would be the total worth of the firm’s assets?
A. Rs. 300,000
B. Rs. 500,000
C. Rs. 800,000
D. Rs. 1100,000
C.
Assets = Liabilities + Owner’s Equity
= 300,000 + 500,000
= 800,000

15. Which of the following measure reveals how much profit a company generates with the money shareholders have invested?
A. Profit Margin
B. Return on Assets
C. Return on Equity
D. Debt-Equity Ratio
C.

16. If you have Rs. 850 and you plan to save it for 4 years with an interest rate of 10%, what will be the future value of your savings?
A. Rs. 1,000
B. Rs. 1,244
C. Rs. 1,331
D. Rs. 1,464

FV = PV * (1+ i) ^n
= 850 * (1+0.1)^4
= 1244

17. In case of international business which of the given factor(s) must be considered?
A. Role of foreign exchange
B. Balance of payments
C. Attitude of Governments
D. All of the given options


18. Which of the following refers to the difference between the sale price and cost of inventory?
A. Net loss
B. Net worth
C. Markup
D. Markdown

Mark up/margin is the extra amount charged by business to it customer to earn profit. It’s the difference between sales price and cost.

19. Who of the following make a broader use of accounting information?
A. Accountants
B. Financial Analysts
C. Auditors
D. Marketers
B.
Financial analysts make extensive use of accounting information; they are some of the most important end users. Understanding finance helps accountants recognize what types of information are particularly valuable and, more generally, how accounting information is actually used (and abused) in practice.

20. Rule of 72 for finding the number of periods is fairly applicable
to which of the following range of discount rates?
A. 2% to 8%
B. 4% to 25%
C. 5% to 20%
D. 10% to 50%
This rule is fairly applicable to discount rates in 5% to 20% range. Finding the Number of Periods:.

21. A portion of profits, which a company distributes among its shareholders, is known as:
A. Dividends
B. Retained Earnings
C. Capital Gain
D. None of the given options