AS 03 Finance & Economics for Actuarial Mock Test 08
These questions cover fundamental concepts of financial management, corporate finance, accounting, and economics. Topics include EBITDA, perfect competition, monopoly, shareholder wealth maximisation, Net Present Value (NPV), Internal Rate of Return (IRR), demonetisation, share premium account, diminishing marginal utility, and the cost of equity versus debt. The set evaluates understanding of investment appraisal techniques, capital structure, market structures, accounting terminology, and economic theories. Candidates are expected to apply financial and economic principles to business decisions, making these questions highly relevant for AS 03 – Finance & Economics for Actuarial and strengthening conceptual and analytical skills for actuarial examinations.
1. EBITDA stands for:
A. Earnings Before Interest, Tax, Dividends and Amortisation
B. Equity Before Interest, Tax, Depreciation and Advances
C. Earnings Before Interest, Taxation, Depreciation and Amortisation
D. Expected Benefits Including Tax, Depreciation and Amortisation
E. Earnings Base Including Total Debt and Amortisation
2. Which market structure is characterised by a Large Number of Buyers and Sellers?
A. Monopoly
B. Oligopoly
C. Monopolistic Competition
D. Perfect Competition
E. Duopoly
3. The long-run objective of financial management is to:
A. Maximize earnings per share (EPS) alone
B. Maximize return on investment (which ultimately maximizes shareholder wealth)
C. Maximize the number of shares outstanding
D. Maximize market share of the company
E. Maximize total assets of the company
4. Projects that display a positive NPV should be undertaken because they:
A. Reduce the company's tax burden
B. Increase the number of employees
C. Add to the current value of shareholders' wealth by yielding returns in excess of the cost of capital
D. Guarantee no losses in the future
E. Are approved by government regulators
5. What is Demonetisation?
A. The printing of new currency notes by the central bank
B. The act of stripping a currency unit of its status as legal tender – a change of national currency
C. The exchange of foreign currency for domestic currency
D. The reduction of the face value of currency notes
E. The digitisation of financial transactions
6. The 'Share Premium Account' represents:
A. The nominal value of shares issued
B. The total dividends declared but not yet paid
C. The premium paid to acquire shares in another company
D. The surplus from revaluation of fixed assets
E. The amount raised above the nominal value of the shares issued
7. Economists have used the idea of diminishing marginal utility to explain why demand curves slope:
A. Upward
B. Vertically
C. Are perfectly inelastic
D. Downward
E. Horizontally
8. Why is the cost of equity always higher than debt?
A. Because equity holders have lower risk
B. Because equity dividends are tax deductible
C. Because investors demand higher returns to compensate for higher risk as dividend payments are not tax deductible
D. Because the government mandates higher equity returns
E. Because equity holders have no claim in winding up
9. In a monopoly structure, who determines the prices?
A. Market forces of demand and supply
B. The government regulator
C. Consumer preferences
D. The supplier
E. International trade agreements
10. Which of the following is an Advantage of the IRR method?
A. IRR is easier to use as instantaneous understanding of desirability can be determined by comparing it with the cost of capital; IRR technique helps in achieving the objective of maximisation of shareholders' wealth
B. It ignores the time value of money
C. It is easier to calculate than NPV
D. It provides an absolute measure of value
E. It always gives the same ranking as NPV
