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 43 of 49
- A. Zero risk bonds
- B. Zero bonds
- C. Foreign bonds
- D. Government bonds
Explanation: A foreign bond is issued in one country by a government or corporation from another country.
Correct answer: Foreign bonds- A. Capital gain yield interest yield
- B. Return yield + stable yield
- C. Return yield + unstable yield
- D. Par value + market value
Explanation: A bond’s percentage return combines the interest or coupon yield with the capital gain or loss yield.
Correct answer: Capital gain yield interest yield- A. Below its par value
- B. Above its par value
- C. Equal to return rate
- D. Seasoned price
Explanation: When the market rate falls below the coupon rate, the bond’s fixed payments are more attractive than newly issued alternatives, so…
Correct answer: Above its par value844. An effect of interest rate risk and investment risk on a bond's yield is classified as_________?
- A. Reinvestment premium
- B. Investment risk premium
- C. Maturity risk premium
- D. Defaulter's premium
Explanation: The maturity risk premium compensates investors for risks that increase with the time to maturity, including interest-rate and…
Correct answer: Maturity risk premium- A. Payment interest
- B. Par interest
- C. Coupon interest
- D. Yearly interest rate
Explanation: The rate used to compute a bond’s periodic coupon payment is its coupon interest rate, applied to the bond’s par value.
Correct answer: Coupon interest- A. Remains same
- B. Becomes stable
- C. Becomes change
- D. Becomes low
Explanation: A fixed-rate bond promises the same coupon payment at each scheduled payment date until maturity, regardless of later market-rate changes.
Correct answer: Remains same- A. Organized markets
- B. Trade markets
- C. Counter markets
- D. Bond markets
Explanation: The bond market is commonly an over-the-counter dealer market rather than a single centralized exchange.
Correct answer: Bond markets- A. Income bonds
- B. Callable bonds
- C. Premium bonds
- D. Default free bonds
Explanation: Callable bonds create greater reinvestment risk because the issuer may redeem them when interest rates fall, forcing investors to reinvest…
Correct answer: Callable bonds- A. Convertible bonds
- B. Stock bonds
- C. Shared bonds
- D. Common bonds
Explanation: A convertible bond gives its holder the contractual right to convert the bond into shares of the issuing company’s common stock under…
Correct answer: Convertible bonds- A. Rising bet rate
- B. Floating rate debt
- C. Market rate debt
- D. Stable debt rate
Explanation: A floating-rate debt instrument has an interest rate that resets with a reference market rate, so its rate can rise when market rates…
Correct answer: Floating rate debt- A. classified bond
- B. Discount bond
- C. Compound bond
- D. Consideration earning
Explanation: A bond selling below its par or face value is sold at a discount, so it is called a discount bond.
Correct answer: Discount bond- A. Provision protection
- B. Provision protection
- C. Deferred protection
- D. Call protection
Explanation: A deferred call prevents the issuer from redeeming the bond during an initial period, providing call protection to investors.
Correct answer: Call protection- A. Required interest rate
- B. Quoted risk-free interest rate
- C. Liquidity risk-free interest rate
- D. Premium risk-free interest rate
Explanation: Adding the real risk-free rate to the expected inflation premium gives the quoted or nominal risk-free rate.
Correct answer: Quoted risk-free interest rate- A. State value
- B. Par value
- C. Bond value
- D. Per value
Explanation: The stated or face value printed on a bond is its par value, commonly the amount repaid at maturity.
Correct answer: Par value- A. Premium face value
- B. Premium bond
- C. Premium stock
- D. Premium warrants
Explanation: When a bond’s market price rises above its face value, it trades at a premium and is called a premium bond.
Correct answer: Premium bond- A. Never changes
- B. Increases
- C. Decreases
- D. Earned
Explanation: Bond prices and market interest rates move in opposite directions because existing coupon payments become more attractive when new market…
Correct answer: Decreases- A. Income bond
- B. Interest bond
- C. Payment bond
- D. Earning bond
Explanation: An income bond promises interest only when the issuing company has sufficient earnings to make the payment.
Correct answer: Income bond- A. Inflation premium
- B. Off season premium
- C. Nominal premium
- D. Required premium
Explanation: The inflation premium compensates investors for the average inflation expected during the security’s life, since inflation reduces the…
Correct answer: Inflation premium- A. At bond issuance
- B. Expected in future
- C. Expected at time of maturity
- D. Expected at deferred call
Explanation: The inflation component included in a bond’s interest rate reflects inflation expected in the future over the investment period.
Correct answer: Expected in future- A. Required rate of return
- B. Required option
- C. Required rate of redemption
- D. Required rate of earning
Explanation: The required rate of return is the market return investors demand for a bond’s risk, maturity, liquidity and other characteristics.
Correct answer: Required rate of return