Financial Management - Study Mode

[#841] In arbitrage pricing theory, required returns are functioned of two factors which have
Correct Answer

(D) Both A and B

Explanation

Solution: In arbitrage pricing theory, required returns are functioned of two factors which have dividend policy and market risk. Arbitrage pricing theory (APT) is a multi-factor asset pricing model based on the idea that an asset's returns can be predicted using the linear relationship between the asset’s expected return and a number of macroeconomic variables that capture systematic risk.

[#842] If NAV > market price of a fund, then the fund ________
Correct Answer

(A) is selling at a discount

Explanation

Solution: If the fund is traded at a price lower than the NAV, it is called “discount”. Similarly if the fund is traded at a price higher than the NAV it is called “premium”.

[#843] The objective of financial management is to ______________.
Correct Answer

(C) generate the maximum wealth for its shareholders

Explanation

Solution: The objective of financial management is to generate the maximum wealth for its shareholders. Financial Management is the application of general principles of management to the financial possessions of an enterprise. Proper management of an organization's finance provides quality fuel and regular service to ensure efficient functioning.

[#844] Mutual funds may be affiliated with an underwriter. This means____________.
Correct Answer

(A) the underwriter has an exclusive right to distribute shares

Explanation

Solution: Mutual funds may be affiliated with an underwriter. This means the underwriter has an exclusive right to distribute shares. A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.

[#845] Operating leverage = ______.
Correct Answer

(A) contribution / EBIT

Explanation

Solution: Operating leverage = contribution / EBIT. A firm's operating leverage is defined as the percentage change in the firm's operating earnings (EBIT less any non-operating income), that accompanies a percentage change in the contribution margin. That is, the operating income elasticity with respect to the contribution margin.