MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO CAPITAL AND INTEREST: TYPES OF CAPITAL, GROSS INTEREST, NET INTEREST
Which of the following is NOT a type of capital?
A) Fixed capital
B) Working capital
C) Nominal capital
D) Human capital
E) Intellectual capital
Answer: C) Nominal capital
Gross interest refers to:
A) Interest before any deductions or taxes
B) Interest after taxes
C) Interest after expenses
D) Interest after deductions
E) Interest before expenses
Answer: A) Interest before any deductions or taxes
Net interest is calculated by:
A) Subtracting taxes from gross interest
B) Adding expenses to gross interest
C) Subtracting expenses from gross interest
D) Adding taxes to gross interest
E) Subtracting deductions from gross interest
Answer: C) Subtracting expenses from gross interest
Which type of capital represents the money invested in machinery, equipment, and buildings?
A) Fixed capital
B) Working capital
C) Nominal capital
D) Human capital
E) Intellectual capital
Answer: A) Fixed capital
Working capital is primarily used for:
A) Long-term investments
B) Day-to-day operational expenses
C) Acquiring fixed assets
D) Research and development
E) Human resource management
Answer: B) Day-to-day operational expenses
Human capital refers to:
A) Physical infrastructure
B) Financial assets
C) Skills and knowledge of individuals
D) Investments in technology
E) Intellectual property
Answer: C) Skills and knowledge of individuals
Intellectual capital encompasses:
A) Tangible assets
B) Financial resources
C) Brand reputation
D) Physical infrastructure
E) Short-term investments
Answer: C) Brand reputation
When calculating gross interest, which of the following is NOT typically deducted?
A) Taxes
B) Expenses
C) Deductions
D) Principal amount
E) None of the above
Answer: D) Principal amount
Net interest is the amount of interest earned:
A) After deducting taxes and expenses
B) Before any deductions or taxes
C) After adding expenses
D) Before expenses are accounted for
E) None of the above
Answer: A) After deducting taxes and expenses
In financial terminology, ROI stands for:
A) Rate of Interest
B) Return on Investment
C) Revenue on Investment
D) Rate of Income
E) None of the above
Answer: B) Return on Investment
Which factor does NOT influence the net interest rate?
A) Tax rates
B) Inflation
C) Economic growth
D) Capital depreciation
E) Government policies
Answer: D) Capital depreciation
Gross interest is the interest earned:
A) Before any expenses or deductions
B) After deducting taxes only
C) After adding taxes and expenses
D) Before taxes and after expenses
E) None of the above
Answer: A) Before any expenses or deductions
Which of the following is NOT a source of intellectual capital?
A) Patents
B) Trademarks
C) Copyrights
D) Machinery
E) Trade secrets
Answer: D) Machinery
An increase in working capital typically signifies:
A) Increased liquidity
B) Reduced profitability
C) Decreased efficiency
D) Increased leverage
E) None of the above
Answer: A) Increased liquidity
The term “Amortization” typically refers to:
A) Reduction of debt through regular payments
B) Increase in asset value over time
C) Allocation of expenses over a period
D) Appreciation of currency
E) None of the above
Answer: A) Reduction of debt through regular payments
What does NPV stand for in financial analysis?
A) Net Present Value
B) New Profit Variation
C) Normal Profit Volume
D) National Production Variable
E) None of the above
Answer: A) Net Present Value
Which of the following statements about interest rates is NOT true?
A) Nominal interest rate is the actual rate charged on a loan.
B) Real interest rate accounts for inflation.
C) Effective interest rate includes compounding.
D) Prime interest rate is the rate offered by banks to their most creditworthy customers.
E) None of the above
Answer: A) Nominal interest rate is the actual rate charged on a loan.
Compound interest is calculated based on:
A) Principal only
B) Principal and simple interest
C) Principal and previous interest
D) Principal and time
E) None of the above
Answer: C) Principal and previous interest
In India, the Reserve Bank of India (RBI) regulates:
A) Monetary policy
B) Fiscal policy
C) Foreign exchange rates
D) Government spending
E) None of the above
Answer: A) Monetary policy
The repo rate in India is the rate at which:
A) Commercial banks lend to the RBI
B) RBI lends to commercial banks
C) Government borrows from RBI
D) Commercial banks lend to each other
E) None of the above
Answer: B) RBI lends to commercial banks
In the context of financial markets, the term “liquidity” refers to:
A) Ability to convert assets into cash quickly
B) Ability to borrow at low rates
C) Stability of prices
D) Rate of return on investments
E) None of the above
Answer: A) Ability to convert assets into cash quickly
Which of the following is NOT a characteristic of capital market?
A) Long-term investments
B) High liquidity
C) Buying and selling of securities
D) Funding for businesses and government
E) None of the above
Answer: B) High liquidity
What does the term “Blue Chip Stocks” refer to?
A) Stocks of small companies with high growth potential
B) Stocks of companies with stable earnings and reputation
C) Stocks of technology companies
D) Stocks of companies with high debt
E) None of the above
Answer: B) Stocks of companies with stable earnings and reputation
Which of the following factors does NOT affect the interest rate in India?
A) Inflation
B) Economic growth
C) Political stability
D) Foreign exchange rates
E) None of the above
Answer: D) Foreign exchange rates
Which of the following institutions regulates the securities market in India?
A) Securities and Exchange Board of India (SEBI)
B) Reserve Bank of India (RBI)
C) National Stock Exchange (NSE)
D) Ministry of Finance
E) None of the above
Answer: A) Securities and Exchange Board of India (SEBI)
What does the term “Dividend” refer to?
A) Interest payment on bonds
B) Profit distributed to shareholders
C) Government subsidy to companies
D) Price of a stock
E) None of the above
Answer: B) Profit distributed to shareholders
In the context of loans, what does “collateral” refer to?
A) Interest charged on loans
B) Security pledged against the loan
C) Loan application fee
D) Loan repayment period
E) None of the above
Answer: B) Security pledged against the loan
Which of the following represents a secured loan?
A) Personal loan
B) Credit card debt
C) Mortgage loan
D) Student loan
E) None of the above
Answer: C) Mortgage loan
What is the purpose of credit rating agencies?
A) To provide loans to individuals
B) To assess the creditworthiness of borrowers
C) To regulate interest rates
D) To facilitate stock trading
E) None of the above
Answer: B) To assess the creditworthiness of borrowers
Which of the following is NOT a factor considered by credit rating agencies?
A) Financial stability
B) Credit history
C) Employment status
D) Debt-to-income ratio
E) None of the above
Answer: C) Employment status
Which of the following statements about mutual funds is true?
A) Mutual funds are risk-free investments.
B) Mutual funds pool money from multiple investors to invest in securities.
C) Mutual funds are only suitable for short-term investments.
D) Mutual funds are regulated by the Ministry of Finance.
E) None of the above
Answer: B) Mutual funds pool money from multiple investors to invest in securities.
What is the primary objective of a debt mutual fund?
A) Capital appreciation
B) Regular income generation
C) Speculative trading
D) Long-term growth
E) None of the above
Answer: B) Regular income generation
Which of the following is NOT a characteristic of equity mutual funds?
A) Diversification
B) High-risk investment
C) Fixed returns
D) Volatility
E) None of the above
Answer: C) Fixed returns
A SIP (Systematic Investment Plan) allows investors to:
A) Withdraw money anytime without penalty
B) Invest a fixed amount at regular intervals
C) Invest only in debt instruments
D) Invest in real estate
E) None of the above
Answer: B) Invest a fixed amount at regular intervals
What is the primary function of a stock exchange?
A) To regulate mutual funds
B) To provide loans to businesses
C) To facilitate buying and selling of securities
D) To issue government bonds
E) None of the above
Answer: C) To facilitate buying and selling of securities
Which of the following statements about stocks is true?
A) Stocks represent ownership in a company.
B) Stocks guarantee fixed returns.
C) Stocks have no risk associated with them.
D) Stocks are issued by the government.
E) None of the above
Answer: A) Stocks represent ownership in a company.
What does the term “Bull Market” refer to?
A) Market conditions favoring buyers
B) Market conditions favoring sellers
C) Rising stock prices and investor optimism
D) Falling stock prices and investor pessimism
E) None of the above
Answer: C) Rising stock prices and investor optimism
A “Bear Market” is characterized by:
A) Rising stock prices
B) Falling stock prices
C) Stable stock prices
D) Increased investor confidence
E) None of the above
Answer: B) Falling stock prices
Which of the following is NOT a measure of risk associated with an investment?
A) Volatility
B) Standard deviation
C) Sharpe ratio
D) Beta coefficient
E) None of the above
Answer: C) Sharpe ratio
What is the purpose of diversification in investment?
A) To concentrate investments in a single asset class
B) To minimize risk by spreading investments across different assets
C) To maximize returns by investing in high-risk assets
D) To eliminate the need for portfolio management
E) None of the above
Answer: B) To minimize risk by spreading investments across different assets
Which of the following is a measure of a company’s profitability?
A) Return on Equity (ROE)
B) Debt-to-Equity ratio
C) Price-to-Earnings (P/E) ratio
D) Dividend yield
E) None of the above
Answer: A) Return on Equity (ROE)
The Debt-to-Equity (D/E) ratio indicates:
A) The amount of debt relative to equity in a company
B) The company’s profitability
C) The market value of a company’s stock
D) The liquidity of a company
E) None of the above
Answer: A) The amount of debt relative to equity in a company
What does the Price-to-Earnings (P/E) ratio measure?
A) Company’s debt level
B) Company’s liquidity
C) Company’s profitability relative to its stock price
D) Company’s dividend yield
E) None of the above
Answer: C) Company’s profitability relative to its stock price
Which of the following statements about bonds is true?
A) Bonds represent ownership in a company.
B) Bonds have fixed returns.
C) Bonds are always risk-free investments.
D) Bonds are only suitable for short-term investments.
E) None of the above
Answer: B) Bonds have fixed returns.
The maturity period of a bond refers to:
A) The period until the bond is issued
B) The period until the bond is redeemed
C) The period until the bond’s interest rate is adjusted
D) The period until the bond’s credit rating is reviewed
E) None of the above
Answer: B) The period until the bond is redeemed
What does the term “Coupon Rate” refer to in bond parlance?
A) The interest rate paid on a bond
B) The redemption value of a bond
C) The market price of a bond
D) The face value of a bond
E) None of the above
Answer: A) The interest rate paid on a bond
In the context of bonds, what is the “Yield to Maturity” (YTM)?
A) The total interest earned over the bond’s life
B) The rate of return if the bond is held until maturity
C) The bond’s current market price
D) The bond’s face value
E) None of the above
Answer: B) The rate of return if the bond is held until maturity
Which of the following is NOT a type of bond?
A) Treasury Bond
B) Municipal Bond
C) Corporate Bond
D) Equity Bond
E) None of the above
Answer: D) Equity Bond
What is the primary source of revenue for municipal bonds?
A) Federal government grants
B) Property taxes
C) Corporate donations
D) Sales taxes
E) None of the above
Answer: B) Property taxes
Which of the following statements about debentures is true?
A) Debentures are secured by collateral.
B) Debentures have no fixed maturity date.
C) Debentures typically offer higher interest rates compared to bonds.
D) Debentureholders have ownership rights in the issuing company.
E) None of the above
Answer: C) Debentures typically offer higher interest rates compared to bonds.
