0810 FM (CFA540) - Question Paper Financial Management...

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1 Question Paper Financial Management (CFA540): October 2008 Answer all 74 questions. Marks are indicated against each question. Total Marks : 100 1. Sinking fund factor is the reciprocal of (a) Future value interest factor (b) Present value interest factor (c) Future value interest factor of annuity (d) Present value interest factor of annuity (e) Capital recovery factor. (1mark) <Answer > 2. In the APV method, if there is a strong probability of positive cashflows being generated, the discount rate used to calculate the benefit due to increased borrowing capacity is (a) Cost of capital for the parent company (b) Nominal risk-free rate of interest in host country (c) Nominal risk-free rate of interest in home country (d) Market rate of interest in home country (e) Market rate of interest in host country. (1mark) <Answer > 3. Which of the following is not among the daily activities of finance manager? (a) Sale of shares and bonds (b) Cash management (c) Inventory control (d) The receipt and disbursement of funds (e) Receivable management. (1mark) <Answer > 4. Which of the following statements fall under the Proposition III of Modigliani and Miller approach of capital structure? I. The investment and financing decisions of a firm are independent of each other. II. The expected yield on common stock (cost of equity) is equal to the sum of the capitalization rate for a pure equity stream of a specific class and the premium based on the financial risk. III. The market value of a firm is independent of its capital structure and is determined by capitalizing its expected return at the rate appropriate to its class. (a) Only (I) above (b) Only (II) above (c) Only (III) above (d) Both (I) and (III) above (e) All (I), (II) and (III) above. (1mark) <Answer > 5. If a firm with credit terms of 1/10 net 30 were to change its terms to 3/10 net 30, the most likely result would be (a) An increase in bank loans (b) A decrease in the average level of accounts receivable (c) A decrease in accounts payable (d) A decrease in accounts receivable turnover (e) A decrease in sales volume. (1mark) <Answer > 6. Which of the following is not a part of the economic appraisal of projects? (a) Impact of the project on income distribution (b) Impact of the project on the extent of savings and investment (c) Impact of the project on the wealth of the shareholders (d) Impact of the project on employment generation (e) Impact of the project on the self-sufficiency of economy. (1mark) <Answer >
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2 7. The intervention of the government in the financial system to influence macro economic variables like interest rates or inflation is an example of which function of the financial system? (a)
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This note was uploaded on 07/20/2010 for the course ICFAI CFA taught by Professor Cfa during the Fall '09 term at Indian School of Business.

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0810 FM (CFA540) - Question Paper Financial Management...

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