All Free Management Sciences MCQs with Answers

• A. bullish
• B. bearish
• C. hawkish
• D. none of this

Explanation: A rising stock market is described as bullish, while bearish refers to falling prices and pessimistic market expectations.

• A. Booming
• B. Bullish
• C. Upward tendency
• D. Hawkish

Explanation: Bullish is the standard financial term for expectations or conditions associated with rising stock prices.

• A. Dividends
• B. No dividends
• C. Current price
• D. Past price

Explanation: The original Black-Scholes model assumes that the underlying stock pays no dividends during the option period.

• A. Interest rate-tax savings
• B. Marginal tax-required return
• C. Interest rate + tax savings
• D. Borrowing cost + embedded cost

Explanation: After-tax cost of debt equals the interest rate less the tax saving on interest, commonly written as kd(1 − tax rate).

• A. Industry Beta
• B. Market Beta
• C. Subtracted Beta
• D. Fundamental Beta

Explanation: Fundamental beta reflects company-specific fundamentals, including changes in capital structure, operating risk and financial risk.

• A. Valuation manager
• B. Common stockholders
• C. Asset seller
• D. Equity dealer

Explanation: If the firm's investors consist only of common stockholders, the firm's required overall return is the required return on common equity.

• A. Sunk cost
• B. Occurred cost
• C. Weighted cost
• D. Mean cost

Explanation: A sunk cost has already been incurred and cannot be changed by a current decision, so it should be excluded from relevant decision…

• A. New expansion project
• B. Old expanded project
• C. Firm borrowing project
• D. Product line selection

Explanation: An expansion project involves increasing the firm’s existing sales or operating capacity, making “new expansion project” the best option.

• A. Relevant cash flows
• B. Irrelevant cash flows
• C. Marginal cash flows
• D. Transaction cash flows

Explanation: Relevant cash flows are future cash flows that differ between decision alternatives, so they can affect the choice.

• A. Present value bond
• B. Original issue discount bond
• C. Coupon issued bond
• D. Discounted bond

Explanation: An original issue discount bond is issued below its face value, with the investor’s return including the difference between the purchase…

• A. One
• B. Multiple
• C. Accepted
• D. Non-accepted

Explanation: Non-normal cash flows change sign more than once, which can cause the NPV profile to cross the zero line multiple times.

• A. External rate of return
• B. Internal rate of return
• C. Positive rate of return
• D. Negative rate of return

Explanation: The internal rate of return is the discount rate that makes a project’s net present value equal to zero, so it is itself called the…

• A. Original period
• B. Investment period
• C. Payback period
• D. Forecasted period

Explanation: The payback period adds the complete years before recovery to the unrecovered investment at the start of the recovery year divided by that…

• A. 16.75%
• B. 2.68%
• C. 0.37%
• D. 9.20%

Explanation: The DuPont relationship is return on equity = return on assets × equity multiplier.

• A. Short-term options
• B. Long-term options
• C. Short money options
• D. Yearly call

Explanation: LEAPS stands for Long-Term Equity Anticipation Securities and refers to options with substantially longer maturities than standard…

• A. Put option
• B. Call option
• C. Money back options
• D. Out of money options

Explanation: A put option gives its holder the right to sell the underlying stock at a specified price, called the exercise or strike price.

• A. Low volatility
• B. Interest rates are high
• C. Interest rates are low
• D. High volatility

Explanation: Higher interest rates reduce the present value of the exercise price, making a call option more valuable because the payment is…

• A. Longer option period
• B. Smaller option period
• C. Lesser price
• D. Higher price

Explanation: A longer time until expiration generally raises an option's price because it gives more opportunity for the underlying asset to move…

• A. Due option
• B. Covered option
• C. Undue option
• D. Uncovered option

Explanation: Writing a call while owning the underlying stock is a covered call, because the shares are available to deliver if the option is…

• A. Put investor
• B. Call investor
• C. Hedger
• D. Volatile hedge

Explanation: Buying shares and writing a call on those shares is a covered-call strategy, commonly used as a hedging or income strategy.