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AS 03 – Finance & Economics for Actuarial Science

Mock Test 1

Total Questions: 20 | Marks: 1 each | Type: Multiple Choice (single correct answer)

Q1. P/V Ratio (Profit Volume Ratio) formula is:
A. Net Profit / Revenue × 100
B. Gross Profit / Fixed Costs × 100
C. Both C and D are essentially the same and correct
D. (Sales – Variable cost) / Sales × 100
E. Contribution / Revenue × 100

Q2. What is the minimum number of persons required to form a PUBLIC company under Companies Act 2013?
A. One person
B. Two persons
C. Three persons
D. Five persons
E. Seven or more persons

Q3. Finance is described as the cornerstone of a company because ___.
A. It determines employee salaries
B. Management is always looking forward to various sources of finance like debentures, shares, warrants, and options to survive and grow
C. It regulates government policies
D. It determines the company's product pricing
E. It controls the supply chain of the company

Q4. What is Macroeconomics?
A. The study of individual consumer behaviour
B. The branch of economics that studies the overall workings of an economy such as total income, output and aspects viewed in aggregate
C. The study of a single firm's decision making
D. The study of price determination in a single market
E. The analysis of profit maximisation by firms

Q5. What does 'non-rivalry' mean as a key feature of public goods?
A. One person's consumption of the good does not prevent consumption by another person
B. The good can only be produced by a single firm in the market
C. The good has no available substitute products in the market
D. The good can only be used or consumed once by any person
E. The good cannot be exported to foreign countries under any circumstances

Q6. What are Irredeemable Preference Shares?
A. Shares that must be redeemed within one year
B. Shares redeemed at the company's discretion annually
C. Shares that automatically convert to equity
D. Shares that must be listed on a stock exchange
E. Shares which cannot be redeemed unless the company is liquidated

Q7. What does the Combined Leverage Factor influence?
A. Only the EBIT of the company
B. Only the interest payments
C. Only the variable costs
D. Only the fixed operating costs
E. The extent to which net profits and EPS will fluctuate for a given fluctuation in sales

Q8. In 2016, the Indian government demonetised which currency notes?
A. The 100 and 500 rupee notes
B. The 500 and 1000 rupee notes
C. The 200 and 2000 rupee notes
D. The 50 and 100 rupee notes
E. The 1000 and 2000 rupee notes

Q9. Trading globally gives consumers the opportunity to:
A. Buy only goods produced domestically at lower prices
B. Avoid price increases caused by international competition
C. Access only luxury goods from developed countries
D. Be exposed to goods and services not available in their own countries — almost every kind of product can be found on the international market
E. Benefit from lower quality but cheaper foreign goods

Q10. What does the term 'working capital' refer to?
A. Capital raised from equity shares
B. Current assets less current liabilities
C. Long-term debt minus equity
D. Total assets minus total liabilities
E. Fixed assets financed by equity

Q11. Why does profit maximisation fail to consider the time pattern of returns?
A. Because accounting rules ignore time value
B. Because SEBI regulations prohibit time-based calculations
C. Because it only considers overall profit, not the time period or flow of profit — e.g. a 10-year project vs a 7-year project
D. Because companies cannot predict future profits
E. Because time is only relevant for debt instruments

Q12. Which of the following best summarizes the relationship between cost of equity and financial risk according to MM Proposition II?
A. Cost of equity decreases as financial risk increases
B. Cost of equity is unaffected by financial risk
C. Cost of equity equals the cost of debt plus financial risk premium
D. Cost of equity equals the risk-free rate regardless of leverage
E. Cost of equity increases as a premium for financial risk with more debt in capital structure

Q13. Debt Equity Ratio is an indicator of:
A. Leverage showing proportion of debt fund in relation to equity
B. Liquidity of the firm
C. Profitability of the firm
D. Efficiency of the firm
E. Revenue generation capacity

Q14. What does the Substitution Effect show?
A. The effect of a change in income on quantity demanded
B. The effect of the relatively lower price of Product B compared to Product A following a price fall
C. The effect of government subsidies on consumer choice
D. The change in demand due to advertising
E. The effect of quality differences between goods

Q15. Why does the free market lead to an expansion in supply when demand rises?
A. Because the government instructs businesses to increase production
B. Because consumers form cooperative groups to pool their purchasing power
C. Because the central bank lowers interest rates to stimulate business lending
D. Because the potential profit from supplying to a market rises, leading businesses to expand supply (output) to meet rising demand
E. Because labour unions negotiate wages that attract more workers to the sector

Q16. What is the 'clientele effect' in the context of dividend policy?
A. The effect of customer loyalty on dividend payments
B. The effect of large institutional investors on the stock price
C. Some investors want dividends while others prefer capital gains, creating different investor clienteles
D. The requirement to pay dividends to preference shareholders before ordinary shareholders
E. The regulatory effect on dividend payout ratios

Q17. In the Cover-up Ltd example, the income cover on the mortgage debenture (highest ranking) was approximately:
A. 4.5x
B. 1.9x
C. 28.40%
D. 22.4x
E. 9.4x

Q18. Inter-firm comparison using ratios helps in:
A. Preparing a single company's accounts
B. Assessing the long-term solvency of one firm
C. Comparing various aspects of one firm with the other
D. Computing tax liabilities of both firms
E. Determining the appropriate dividend level

Q19. Durable goods are relatively more elastic in supply than perishable goods because:
A. They can be stored and sold later
B. They cost more to produce
C. They have more substitutes
D. They are more expensive
E. They have fewer buyers

Q20. Which type of financial statement analysis provides comprehensive idea about movement of finance in a business unit during a period?
A. Funds flow statement
B. Break-even analysis
C. Ratio analysis
D. Horizontal analysis
E. Vertical analysis

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