Financial Management - Study Mode

[#1091] International investing is________________.
Correct Answer

(C) always leads to higher returns than a domestic portfolio

Explanation

Solution: International investing is always leads to higher returns than a domestic portfolio. International investing is an investing strategy that involves selecting global investment instruments as part of an investment portfolio.

[#1092] Which of the following is not an assumption in the Miller & Modigliani approach?
Correct Answer

(D) All the firms pay tax on their income at the same rate

Explanation

Solution: All the firms pay tax on their income at the same rate is not an assumption in the Miller & Modigliani approach. The Modigliani and Miller Approach further states that the market value of a firm is affected by its operating income, apart from the risk involved in the investment. The theory stated that the value of the firm is not dependent on the choice of capital structure or financing decisions of the firm.

[#1093] Mr. A is a daring portfolio manager. He wants to increase the return in his portfolio. He should choose stocks from_______________.
Correct Answer

(B) industry at a growth stage

Explanation

Solution: Mr. A is a daring portfolio manager. He wants to increase the return in his portfolio. He should choose stocks from industry at a growth stage.

[#1094] Which of the following is not an assumption in Miller and Modigliani approach?
Correct Answer

(C) There is no corporate tax though there are personal income tax

Explanation

Solution: The Miller and Modigliani (M&M) approach is a foundational theory in financial management related to capital structure and firm valuation. According to the original M&M proposition (without taxes), several assumptions are made to simplify the model and focus purely on capital structure. Key assumptions include: 1. There are no corporate or personal income taxes. 2. Investors are rational and aim to maximize their wealth. 3. Capital markets are perfect — meaning there are no transaction costs, information is freely available, and securities are infinitely divisible. 4. The firm’s investment policy is fixed and known to all investors. Option C states: "There is no corporate tax though there are personal income tax" — this violates the original M&M assumption where both corporate and personal income taxes are assumed to be absent. Therefore, Option C is not an assumption of the Miller and Modigliani approach and is the correct answer.

[#1095] ________________ factors lead to activity of stock market.
Correct Answer

(A) Money supply

Explanation

Solution: Money supply factors lead to activity of stock market. The money supply is the entire stock of currency and other liquid instruments circulating in a country's economy as of a particular time. The money supply can include cash, coins, and balances held in checking and savings accounts, and other near money substitutes.