Financial Management - Study Mode

[#221] Cost which has occurred already and not affected by decisions is classified as
Correct Answer

(A) sunk cost

Explanation

Solution: Cost which has occurred already and not affected by decisions is classified as sunk cost. A sunk cost is a cost that has already been incurred and cannot be recovered. A sunk cost differs from future costs that a business may face, such as decisions about inventory purchase costs or product pricing.

[#222] An analysis and estimation of cash flows include
Correct Answer

(D) all of above

Explanation

Solution: An analysis and estimation of cash flows include input data and key output, depreciation schedule and net salvage values.

[#223] Second mortgages pledged against bond's security are referred as
Correct Answer

(D) junior mortgages

Explanation

Solution: Second mortgages pledged against bond's security are referred as junior mortgages. A junior mortgage is a mortgage that is subordinate to a first or prior (senior) mortgage. A junior mortgage often refers to a second mortgage, but it could also be a third or fourth mortgage. In the case of foreclosure, the senior mortgage will be paid down first.

[#224] Long period of bond maturity leads to
Correct Answer

(A) more price change

Explanation

Solution: Long period of bond maturity leads to more price change. With bonds, term to maturity is the time between when the bond is issued and when it matures, known as its maturity date, at which time the issuer must redeem the bond by paying the principal or face value.

[#225] If coupon rate is equal to going rate of interest then bond will be sold
Correct Answer

(A) at par value

Explanation

Solution: If coupon rate is equal to going rate of interest then bond will be sold at par value. A coupon payment on a bond is the annual interest payment that the bondholder receives from the bond's issue date until it matures. Coupons are normally described in terms of the coupon rate, which is calculated by adding the sum of coupons paid per year and dividing it by the bond's face value.