Mgt201 VU Solved Online Quiz No. 2 Spring 2012

Identify the option that best describes the simple rule of a journal entry.

Sum of Debits = Sum of Credits

Sum of Debits > Sum of Credits

Sum of Debits < Sum of Credits

None of the given options


When bonds are issued, under which of the following category the value of the bond appears?


Fixed assets

Short term loan

Long term loan

What is the present value of Rs. 3,500,000 to be paid at the end of 50 years if the correct risk adjusted interest rate is 18%?





Rs. 350,000


Who or what is a person or institution designated by a bond issuer as the official representative of the bondholders?




Bond trustee


The value of the bond is NOT directly tied to the value of which of the following assets?

Real assets of the business

Liquid assets of the business

Fixed assets of the business

Long term assets of the business


The current yield on a bond is equal to ________.

Annual interest divided by the current market price

The yield to maturity

Annual interest divided by the par value

The internal rate of return

With continuous compounding at 8 percent for 20 years, what is the approximate future value of a Rs. 20,000 initial investment?






Independent projects refer to:

One can invest in one of the projects and not in both

Cash flows of the two projects are not linked to each other

Cash flows of the two projects are linked to each other

None of the given options


Which of the following refers to a highly competitive market where good business ideas are taken up immediately?

Capital market

Efficient market

Money market

Real asset market

Which of the following refers to the cost of taking up one option while sacrificing the other?

Opportunity cost

Operating cost

Sunk cost

Floatation cost

Company ABC is analyzing some projects amongst which one project will be selected. In your opinion which project is best for the company?

Project W with pay back period of 6.55 years

Project X with pay back period of 3.75 years

Project Y with pay back period of 4.08 years

Project Z with pay back period of 5 years

Why we need Capital rationing?

Because, there are not enough positive NPV projects

Because, companies do not always have access to all of the funds they could make use of 

Because, managers find it difficult to decide how to fund projects

Because, banks require very high returns on projects

All are the advantages of sole proprietorship, except:

Easiest and least expensive to form

Limited liability ownership

Single person receives all incomes/ profits

Easy to dissolve business; if required


What additional risk exists if investor invests in foreign bonds?

Additional cost involve due to cross boundaries arrangements

Bonds are dominated in currency other then investor’s home currency

Foreign governments are not much reliable due to different laws

Market risk of foreign government is fluctuating drastically


Identify the component(s) of working capital management.

Fixed assets

Current assets and current liabilities

Fixed assets and long-term liabilities

Shareholder’s equity


The formula to calculate future value of an amount using simple interest is:

F V = PV (1+ i * n)

F V = PV (1 + i) n

F V = PV x (e) i x n

F V = PV /(1 + i) n


How can a company improve (lower) its debt-to-total asset ratio?

By borrowing more

By shifting short-term to long-term debt

By shifting long-term to short-term debt

By selling common stock



Nominal Interest Rate is also known as:

Effective interest Rate

Annual percentage rate

Periodic interest rate

Required interest rate


When the bond approaches its maturity, the market value of the bond approaches to which of the following?

Intrinsic value

Book value

Par value

Historic cost


While calculating the YTM, bond that sells at price other then par, YTM is equal to interest yield plus

Negative or positive capital margin

Negative or Positive capital gain

Negative or Positive capital premium

Negative or Positive capital  discount