Free Business Finance MCQs with Answers
975 Business Finance MCQs from Management Sciences, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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975 questions · page 36 of 49
- A. Alpha coefficient
- B. Beta coefficient
- C. Stand-alone coefficient
- D. Relevant coefficient
Explanation: Beta measures a stock's sensitivity to market movements and therefore captures its systematic, or relevant, risk.
Correct answer: Beta coefficient- A. Average rate of return
- B. Expected rate of return
- C. Past rate of return
- D. Weighted rate of return
Explanation: Expected rate of return is the probability-weighted average of possible returns.
Correct answer: Expected rate of return703. According to market risk premium, an amount of risk premium depends upon investor______________?
- A. Risk taking
- B. Risk aversion
- C. Market aversion
- D. Portfolio aversion
Explanation: Risk premium compensates investors for bearing risk, so the amount demanded generally rises with their degree of risk aversion.
Correct answer: Risk aversion704. Portfolio which consists of perfectly positive correlated assets having no effect of___________?
- A. Negativity
- B. Positivity
- C. Correlation
- D. Diversification
Explanation: With perfectly positively correlated assets, both assets move in the same direction and diversification cannot reduce portfolio risk.
Correct answer: Diversification- A. Mean
- B. Weighted average
- C. Mean correlation
- D. Negative correlation
Explanation: Portfolio risk is often lower than the weighted average of individual asset risks because imperfect correlations allow diversification to…
Correct answer: Weighted average- A. Coefficient of market
- B. Relative to market
- C. Ir-relative to market
- D. Same with market
Explanation: Beta measures a stock's systematic volatility relative to market movements, with the market beta equal to 1.
Correct answer: Relative to market- A. Security market line
- B. Required return line
- C. Market risk line
- D. Riskier return line
Explanation: The Security Market Line shows the relationship between a security's required return and its systematic risk, measured by beta.
Correct answer: Security market line- A. Correlation
- B. Move tendency
- C. Variables tendency
- D. Double tendency
Explanation: Correlation describes the tendency of two variables to move together, including both the direction and strength of their relationship.
Correct answer: Correlation- A. Probability
- B. Risk
- C. Chance
- D. Event happening
Explanation: Probability is the numerical measure of the chance that an event will occur, ranging from 0 for impossibility to 1 for certainty.
Correct answer: Probability- A. Risk factors
- B. Premium factors
- C. Bond buying factors
- D. Multi model
Explanation: Term-structure, inflation, and bond-default premiums are risk-related components used in determining required returns on bonds.
Correct answer: Risk factors- A. Tendency coefficient
- B. Variable coefficient
- C. Correlation coefficient
- D. Double coefficient
Explanation: The correlation coefficient is the statistical measure of how strongly and in what direction two variables move together.
Correct answer: Correlation coefficient- A. Chance
- B. Event happening
- C. Probability
- D. Risk
Explanation: Risk is the possibility that an unfavorable event or loss may occur, whereas probability measures the likelihood of an event.
Correct answer: Risk- A. Risk
- B. Return
- C. Deviation
- D. Both A and B
Explanation: The coefficient of variation compares risk, measured by standard deviation, with return, usually as standard deviation divided by expected…
Correct answer: Both A and B- A. Higher risk
- B. Lower risk
- C. Expected risk
- D. Peaked risk
Explanation: A tighter probability distribution means possible returns are clustered more closely around the expected return, indicating less…
Correct answer: Lower risk- A. Coefficient of variation
- B. Coefficient of deviation
- C. Coefficient of standard
- D. Coefficient of return
Explanation: The coefficient of variation is calculated as standard deviation divided by expected rate of return.
Correct answer: Coefficient of variation- A. Stock risk
- B. Portfolio risk
- C. Diversifiable risk
- D. Market risk
Explanation: Strikes, failed marketing efforts, and lawsuits are largely company-specific events that can be reduced through diversification.
Correct answer: Diversifiable risk- A. Market portfolio
- B. Return portfolio
- C. Correlated portfolio
- D. Diversified portfolio
Explanation: A market portfolio contains all available stocks in the market, weighted according to their market values.
Correct answer: Market portfolio- A. Coefficient risk volatility
- B. Market risk volatility
- C. Stock market volatility
- D. Portfolio market portfolio
Explanation: Beta measures a stock's sensitivity to movements in the overall stock market, so it indicates the stock's market-risk volatility relative…
Correct answer: Stock market volatility719. External factors such as expiration of basic patents and industry competition effect____________?
- A. Patents premium
- B. Competition premium
- C. Company's beta
- D. Expiry premium
Explanation: Patent expiry and increased industry competition can change a firm's systematic risk by affecting its sensitivity to economic and…
Correct answer: Company's beta- A. Multiple risk stock
- B. Varied risk stock
- C. Total risk stock
- D. Average risk stock
Explanation: A beta of one means the stock's systematic risk and expected market movement are average relative to the market portfolio.
Correct answer: Average risk stock