AS 03 Finance & Economics for Actuarial Mock Test 05
These questions focus on financial management, accounting, corporate finance, and economics. Major topics include consumer demand, normal goods, cost of goods sold, preference share valuation, earnings per share (EPS), capital budgeting, financing cash flows, accounting information quality, shareholder wealth maximisation, frictional unemployment, and secured debentures. Candidates are expected to understand financial statement analysis, investment decisions, business finance principles, cash flow classification, labour economics, and sources of corporate finance. The questions strengthen conceptual understanding of AS 03 – Finance & Economics for Actuarial, helping students develop analytical and decision-making skills essential for actuarial and finance examinations.
1. When product B is a normal good and income increases, what happens to quantity demanded of B?
A. Quantity demanded of B decreases
B. Quantity demanded of B remains unchanged
C. Quantity demanded of B increases
D. The indifference map shifts inward
E. The budget line becomes steeper
2. The formula for calculating Cost of Goods Sold (Cost of Stock Sold) is:
A. Closing Stock + Purchases − Opening Stock
B. Opening Stock − Purchases + Closing Stock
C. Opening Stock + Purchases − Closing Stock
D. Purchases − Opening Stock + Closing Stock
E. Sales Revenue − Gross Profit
3. A firm has 10,000 outstanding 12% preference shares of ₹100 each, redeemable after 7 years at par, currently trading at ₹75. What is the cost of preference shares?
A. 0.178
B. 0.12
C. 0.16
D. 0.085
E. 0.14
4. Earnings Per Share (EPS) formula is:
A. Net profit available to equity holders / Number of ordinary shares outstanding
B. Total Profits / Number of preference shares
C. Gross Profit / Shares outstanding
D. Operating Profit / Weighted average shares
E. Revenue / Total shares issued
5. Capital budgeting decisions are of paramount importance in financial decision because they determine:
A. The dividend policy of the company
B. The tax liability of the company
C. The working capital needs of the company
D. The future destiny of the company (long-term implications affecting cost structure and growth)
E. The current year's profitability only
6. Which of the following is an example of a cash flow from 'Financing Activities'?
A. Purchase of property and equipment
B. Payment of dividends to company's shareholders AND cash flows from repayment of loans and from fresh borrowing and issue of shares
C. Collection of trade receivables
D. Payment of interest on loans (this is sometimes shown under operating activities)
E. Proceeds from sale of investments in securities
7. The 'Objectivity' characteristic of accounting information means that it is:
A. Prepared from an objective (external) auditor's perspective
B. Prepared and reported in a neutral way, not biased towards a particular user group or vested interest
C. Based on objective market data rather than subjective estimates
D. Prepared using objective accounting standards only
E. Free from any personal interpretation by management
8. What is the primary basis of the theory of business finance?
A. The company should seek to maximize the wealth of its shareholders
B. The company should maximize its revenues
C. The company should maximize its profits
D. The company should minimize its costs
E. The company should maximize its market share
9. What is Frictional Unemployment?
A. Unemployment caused by a decline in certain industries
B. Unemployment that is a product of the business cycle
C. Unemployment that occurs because it takes workers some time to move from one job to another
D. Unemployment caused by workers lacking required skills
E. Unemployment caused by seasonal changes in demand
10. What are Secured Debentures?
A. Debentures backed by government guarantee
B. Debentures guaranteed by a third-party bank
C. Debentures secured against the assets of the company — the charge may be fixed or floating; in case of default, the assets can be utilized for payment
D. Debentures secured by the personal assets of directors
E. Debentures that have been approved by SEBI
