Financial Management - Study Mode
[#986] 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.
[#987] ________________ 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.
[#988] Which of the following is / are assumption behind the realized yield approach?
Correct Answer
(D) Both a and b
Explanation
Solution: The yield earned by investors has been, on average, in conformity with their expectations. The dividends will continue growing at a constant rate forever are assumption behind the realized yield approach.
[#989] In the weekly efficient market, the stock price reflects.
Correct Answer
(D) the past price and traded volumes
Explanation
Solution: In the weekly efficient market, the stock price reflects the past price and traded volumes. Weak form efficiency claims that past price movements, volume and earnings data do not affect a stock’s price and can’t be used to predict its future direction. Weak form efficiency is one of the three different degrees of efficient market hypothesis (EMH).
[#990] An attitude of investor towards dealing with risk determines the
Correct Answer
(A) rate of return
Explanation
Solution: An attitude of investor towards dealing with risk determines the rate of return. A rate of return (RoR) is the net gain or loss on an investment over a specified time period, expressed as a percentage of the investment's initial cost. Gains on investments are defined as income received plus any capital gains realized on the sale of the investment.