CAIIB - FINANCIAL MANAGEMENT – MODULE - A

MODEL QUESTIONS - (SET-I)

1)What is sampling for groups with considerable variation within but similar to
each other called ?
a) cluster
b) stratified
c) systematic
d) random

2)What are sampling groups which are very similar within but dissimilar without
are called ?
a) cluster
b) stratified
c) systematic
d) random

3)In which of the situations would σ¯x = σ not be the correct formula for
Sampling √n

a) infinite population
b) finite population with replacement
c) finite population without replacement
d) none of the above

4) What does the Central tendency theorem state ?

a) as the sample size increases the sampling distribution of the mean will
approach normality irrespective of the shape of the population distribution
b) the mean of the sampling distribution of the mean will equal the population
mean even if the population is not normal
c) uses of sample statistics to make inferences of the the population parameters
without knowledge of the of the frequency distribution
d) all of the above

5) What variation does moving average method eliminate.?

a) seasonal
b) Cyclical
c) Irregular
d) secular trend

6) What Stream of cash flows continue indefinitely ?

a) perpetuity,
b) annuity
c) futurity
d) none of the above
7) What is the difference between real & nominal cash flows due to ?
a) compounding
b) discounting
c) annuity
d) inflation

8) On what is the magnitude of discount rate dependent upon ?

a) inflation
b) preference or consumption
c) risk
d) all of them

9) While positive cash flows are good for an enterprise what do negative cash
flows indicate.
a) losses
b) a or c or d
c) investments
d) cash crunch

10) Of what is sinking fund an example of ?

a) perpetuity
b) annuity
c) gratuity
d) none of the above

11) What is a scatter diagram ?

a) diagram which scatters all elements of the variable.
b) A graphic representation of the relationship of the variables
c) Helps plot observed values
d) b& c

12) In what range does correlation coefficient lie ?

a. 0 to +1
b. -1 to 0
c. -1 to +1
d. > 1

13) Point estimate is often insufficient. Why ?

e. decision is inversely proportional to the number of estimates
f. difficult to pinpoint the correct single estimate
g. because it does not provide the extent of error
h. a & c
 14) If a standard error of a statistic is less than that of another then what is the
former is said to be.
a ) efficient
b) unbiased
c) consistent
d) sufficient

15) What is interest on a bond known as ?

i. return
j. yield
k. coupon
l. maturity value

16) Overstating the return on premium bonds and understating the return on
discount bonds is generally true when we use one of the following as an
indicator. Which one is it ?
a. yield to maturity
b. current yield
c. rate of return
d. discount rate

17) Yield to maturity is that rate which makes the Present Value of the bond
payments equal to its buying price. Which of the following is it.?
e. coupon rate
f. discount rate
g. compound rate
h. rate of return

18) What does the rate of return equal to if interest rates do not change during
the pendency of the bond ?
a. yield to maturity
b. coupon rate
c. compounded rate
d. current yield
19)) What is a survey of parliamentarians, seeking their opinion on revision
of perks, called?

a) biased sampling
b) stratified sampling
c) random sampling
d) systematic sampling
 20) How is stratified sampling carried out?
a)divide the population into homogenous groups
and select equally but randomly.
b) assigning numbers to the population & selecting the numbers
c) sample is made up of elements which are say 10th from the previous
selection
d)population divides itself into groups and we select equally but randomly
from each

21) Why do sampling errors occur ?

a) differences between sample and population
b) differences among samples themselves
c) choice of elements of sampling
d) all of the above

22) If σxˉ= standard error of mean, σ = standard deviation of the mean, n =

sample size, N = population size, µ = population mean, sample mean = xˉ
What is the standard error of the mean for finite populations ?
a) σxˉˉ = σ.
√n
b) σx¯ = σ √(N-n)
√n √(n-1)

c) z = x¯ µ
σx¯

d)σxˉ= σ√(N-n)
√n
23) Which variation does moving average method eliminate?
a. Seasonal
b. Cyclical
c. Irregular
d) secular trend
24) Why is a discount rate used to calculate net present value?
a) money has value
b) money has enhancing value
c) money has diminishing value
d) money has constant value

25) What does net present value give?

a) future values of present cash flows
b) present value of present cash flow
c) present value of future cash flows
d) future values of future cash flows
26) What is repayment of entire loan principal at the end of the loan period
called ?
a) balloon payment
b) compounded payment
c) annuity
d) term payment

27) What is the rule of 72 ?

a) 12 times table
b) rule for calculating future cash flows
c) rule for compounding present cash flows
d) rule for knowing how quickly money doubles

28) If prices double, what happens to real value of rupee?.

a) remains same
b) doubles
c) halves
d) changes in unlike proportions

29) Which method which helps draw a line between the set of scattered points
e) regression method
f) correlation method
g) least square method
h) least fit method

30) Out of the following, which 3 measures are used in correlation analysis:
a)standard error, b)covariance, c)standard deviation, d)coefficient of
correlation, e) coefficient of determination.
1) a, b, c
2) a, c, e
3) b, d, e
4) b, c, e

31)The value of a statistic tends towards the value of the population as size
increases. What is it said to be ?
a) sufficient
b) consistent
c) efficient
d) unbiased
32) In a normal distribution 95.5% of all the sample statistics are within
_____standard errors of the population parameter
a) ± 5%
b) ± 2.25%
c) ± 3%
d) none of the above

33) ‘As the output increases, the productivity per worker increases.’ What
relationship does it lead to ?
a) direct linear relationship
b) curvilinear relationship
c) inverse relationship
d)none of the above

34) If the maturity of a bond is long into the future the interest rate is
higher. Why?
a)longer term maturity is more sensitive to price fluctuation than shorter
term
b) the attractiveness of longer term is related to interest only
c) longer term bonds are generally issued by institutions of lesser rating
d) longer term maturity is less sensitive to fluctuation than shorter term

35) What is a zero coupon bond?

a) there is gain only in price
b) gain in coupon
c) no gain at all
d) none of these

36) If coupon = C , face value = F , current price = P, discount rate = R ,

balance period = 3 ,then which of the following is yield to maturity
a) C + P-F
P(1+R)³

b) ∑C + F
∑(1+R)² (1 + R)³

c) C
P
d) F
P(1+R)³
 37) A company manufactures Radios(x) and Tape recorders(y). Cost of
making radio & tape recorder is Rs. 225 and Rs. 375 respectively. The
company works in 2 shift totaling 14 hrs. The production and assembly
time for a radio is 2hrs while that for tape recorder is 3 hrs. The radio sells
for Rs.250 while the tape recorder sells for Rs.410. The company spends an
amount of Rs. 75,000 per day on production. Maximize the production in
terms of optimum number of radios and tape recorders. Pick the correct
constraint equation from the choice given against each type.

i) capacity constraint a) 3x + 2y ≤ 14
(machine time) b) 2x + 3y ≤ 14
c) 2x + 3y ≥14
d) 3x + 2y ≥14

ii) financial constraint a) 250x + 410y ≤ 75000

(amount available) b) 3x + 5y ≤ 75000
c) 3x + 5y ≤ 1000
d) 3x + 5y ≥ 1000

iii) non – negativity a) x > 0 ; y > 0

(minimum number) b) x = 0 ; y = 0
c) x ≤ 0 ; y ≤ 0
d) a & b

iv) objective function a) P = 25x + 35y

(to maximize profit) b) P = 20x + 35y
c) P = 25x + 30y
d) P = 20x + 35y
38)A firm makes chairs (x) and tables(y). Each table costs Rs.400 in material
and Rs.150 in labor . each chair costs Rs.175 in material and Rs.75 in labor.
The price of table and chair is Rs.625 and Rs. 300 respectively. The firm has
12 hours of time per day. The production time for each table and chair is 4
hrs, 1.5 hrs respectively. The firm has liquidity of Rs.7000 per day to pay for
the material and labor. The objective is to maximize the production for the
firm by optimizing the production of tables and chairs.
Pick out the correct option for each of the constraint equation.

a) capacity constraint : a) 4x + 1.5y ≤ 12

(machine time) b) 1.5x + 4y ≤ 12
c) 4x + 1.5y ≥ 12
d) 1.5x + 4y ≥ 12

b) financial constraint : a) 5x + 11y ≤ 7000

(amount available) b) 5x + 11y ≥ 700
c) 12x + 25y ≤ 7000
d) 12x + 25y ≥ 7000

c) non – negativity : a) x ≥ 0 ; y ≥ 0
(minimum number) b) x = 0 ; y = 0
c) x < 0 ; y < 0
d) b & c

d) objective function :a) P = 75x + 50y

(To maximize profit) b) P = 50x + 75y
c) P = 55x + 75y
d) P = 75x + 50y

39) An amount of Rs.1,15,000 is expected to be received one year from today at an

interest rate (discount rate) of 10% per year. What is its present value ?
a. Rs.121,000

b. RS. 100,500

c. Rs.110,000

d. Rs.104,545
40) What is the two-year discount factor at a discount rate of 10% per year ?
a. 0.826
b. 1.000
 c. 0.909
d. 0.814

41) What is the opportunity cost of capital for a risky project ?

a. The expected rate of return on a government security having the same maturity as
the project
b. The expected rate of return on a well diversified portfolio of common stocks
c. The expected rate of return on a portfolio of securities of similar risks as the
project
d. a or b or c

42) If the one year discount factor is 0.8333, what is the discount rate (interest rate) per
year?
a . 10%
b. 20%
c. 30%
d. None of the above

43) If the present value of a cash flow generated by an initial investment of Rs.100,000 is
Rs.120,000, what is the NPV of the project?
a. Rs.120,000
b. Rs.20,000
c. Rs.100,000
d. None of the above

44) The following statements regarding the NPV rule and the rate of return rule are true
with one exception. Which one is it :
a. Accept a project if its NPV > 0
b. Reject a project if its NPV < 0
c. Accept a project if its rate of return > 0
d. Accept a project if its rate of return > opportunity cost of capital
45) What is the concept of compound interest:?
a. Earning interest on the principal
b. Earning interest on previously earned interest
c. Investing for a number of years
d. None of the above

46) If there is a indirect relationship between rainfall & yield of crops

then
a) yield is higher if rainfall is less
b) yield is lower if rainfall is less
c) yield is higher if rainfall is higher
d) none of the above

47) If a = 2 , b = 1 , independent variable = 4 then dependent variable

for an estimating line is
a) 2
b) 4
c) 6
d) none of the above

48) If the estimating equation is Y = a – b X

which of the following is true
a) the y intercept is b
b) slope of line is negative
c) there is inverse relationship
d) all of these
e) b & c

49) The value of r2 is 0.49 then coefficient of correlation is

a) 0.49
b) 0.7
c) 0.07
d) cannot be determined

50) If the dependent variable increases with the independent

variable then the coeff. of correlation is
a) 0 to -1
b) 0 to – 0.5
 c) 0 to -2
d) none of these

51) The method of least squares finds the best

fit line that _______ the error between
observed & estimated points on the line
a) maximises
b) minimizes
c) reduces to zero
d) b & c

52) If sign of r is negative then it indicates

a) direct relationship between X & Y
b) indirect relationship between X & Y
c) inverse relationship between X & Y
d) b or c

53) For Y = a - b X we say that relationship between

Y and X is
a) direct & linear
b) indirect & linear
c) indirect & curvilinear
d) direct & curvilinear

54) In the relationship between height and educational qualification

a) the height is independent and education is dependent variable
b) the height is dependent and education is independent variable
c) there is inverse relationship between the two
d) none of the above

55) In given Qrtly. data the first step in computing seasonal index is
calculating
a) 4 qtr moving average
b) discard highest and lowest values
c) 4 qtr. Moving total
d) none of the above

56)For a data of 8 half year periods

the code for the 7th half is
a) 2
 b) 3
c) 6
d) 5

57)When coding for odd number of periods

The following is done
a) subtract each value from the smallest value
b) subtract each value from the highest value
c) subtract each value from the middlemost term
d) none of the above

58)A time series of annual data will contain which

of the following components
e) secular trend
f) cyclical fluctuation
g) seasonal variation
h) a & c
i) a & b

59)Removing the highest & lowest actual-to-moving average

values when computing seasonal index for annual data reduces
j) extreme cyclical variations
k) secular trend
l) seasonal variations
m) all of these

60) the repetitive movement around a trend line

in a 4- month period is best described by
n) seasonal variation
o) secular trend
p) cyclical fluctuation
q) irregular variation

61) the result of discarding extreme values before averaging

is called ________ .
r) residual mean
s) modified mean
t) extreme mean
u) none of the above

62) For a given year if an adjusted seasonal index is > 100 then
for some other period it is
 v) < 100
w) > 100
x) = 100
y) none of the above

63) Present Value is defined as:

A. Future cash flows discounted to the present at an appropriate discount rate
B. Inverse of future cash flows
C. Present cash flow compounded into the future
D. None of the above

64) If the interest rate is 15%, what is the 2 year discount factor?
A. 0.7561
B. 0.8697
C. 1.3225
D. 0.658

65) An annuity is defined as

A. Equal cash flows at equal intervals of time forever
B. Equal cash flows at equal intervals of time for a specific period
C. Unequal cash flows at equal intervals of time forever
D. None of the above

66) If the present value of the cash flow X is Rs.200, and the present value cash of the
flow Y is Rs.150, than the present value of the combined cash flow is:
A. 200
B. 150
C. 50
 D. 350
E. None of the above

67) What is the present value annuity due factor of Re.1at a discount rate of 15% for 15
years?
A. 5.8474
B. 8.514
C. 8.13
D. 7.002

68) An investment at 12% nominal rate compounded monthly is equal to an annual rate
of:
A. 12.68%
B. 12.36%
C. 12%
D. None of the above

69) A 5-year Govt. bond with a compound rate of 8% has a face value of 1000. What is
the annual interest payment?
A. 80
B. 40
C. 100
D. None of the above

70) If the present value of Rs.444 to be paid at the end of one year isRs. 400, what is
the one year discount factor?
A. 0.909
B. 1.11
 C. 0.11
D. None of the above

If you invest Rs.100,000 today at 12% interest rate for one year, what
71) is the amount you will have at the end of the year?
A. Rs.90,909
B. Rs.112,000
C. Rs.100,000
D. None of the above

CAIIB - FINANCIAL MANAGEMENT – MODULE - A

MODEL QUESTIONS - (SET-II)

1. Current Price of a share is Rs. 100. The economic state is as follows

Economy Probability Price
Growth 0.6 130
Recession 0.4 90
Calculate the expected return for the stock
a) 10%
b) 15%
c) 14%
d) 16%

2. What is the N P V of the following at 15%

C A S H F L O W S
t=0 t=1 t=2
-120,000 -100,000 300,000
a) 19,887
b) 80,000
 c) 26,300
d) 40,000

3. An investment at 12% compound monthly is equal to annual rate

a) 12.68%
b) 12.26%
c) 12%
d) 12.36%

4. In theory of Sampling “ the larger the size of the sample the greater the
accuracy” is based on
a) law of Statistical regularity
b) law of Inertia of large numbers
c) law of Statistical imperfection
d) law of large numbers

5. If P = 0.5
Q = 0.5
σ = 0.05
Find the sample size
a) 1000
b) 100,000
c) 100
d) 10,000

6. In finding a sample of good & bad students asking students themselves whether
they are good or bad is a case of bias. Which of the following does the bias fall
into
a) faulty process of selection
b) faulty work during collection of data
c) faulty method of analysis
d) wrong choice of subject
7. When we want to study some unknown traits of a population , we use
a) cluster sampling
b) stratified sampling
c) judgment sampling
d) systematic sampling

8. Which of the following is not a restricted random sample

a) judgment sampling
b) stratified sampling
c) systematic sampling
d) cluster sampling

9. Which one of the following is not true

 a) probability sampling depends upon existence of detailed information
about the universe for its existence
b) probability sampling provides estimates which are essentially unbiased
& have reasonable precision
c) probability sampling requires a high level of skill and experience for its
use
d) it is possible to evaluate the relative efficiency of various sample
designs of various sample is used

10. In Correlation analysis which of the following is true

a) the correlation may be due to pure chance in a small sample
b) correlation analysis tell us about cause & effect of relationship
c) correlation analysis does not tell us about degree of relationship
d) correlated variables cannot be influenced other variables

11. From the following data identify the correct alternative

X 10 20 30 40 50
Y 20 35 50 75 90

a) positive & linear

b) positive & curvilinear
c) negative & linear
d) negative & curvilinear

12. In the following X and Y are independent & dependent variables.

Read the figures and answer.

X 1 2 3 4
Y 5 13 12 25
a) there is no correlation between X & Y
b) there is +ve correlation between X & Y
c) there is –ve correlation between X & Y
d) there partial correlation between X & Y

13. In a study it was noticed that average height of sons of tall fathers is less
than that of the fathers and vice versa . This is due to
a) extension
b) progression
c) regression
d) hypertension

14. Co-efficient of determination = r2 = explained variation

Total variation
 Co-efficient of correlation = r
while r explains completely the relationship between the variables, r2 does
not , because
a) r2 is less than 1
b) r2 is always +ve
c) r2 is always -ve
d) r2 as per formula cannot explain direction

15. For a normal distribution which of the following is true

a) mode < mean < median
b) mode > mean > median
c) mean < median < mode
d) mean = median = mode

16. Under a normal curve mean + 1.96σ is an area. Choose the correct one
from the following
a) 95.45% area
b) 68.27% area
c) 95.00% area
d) 99.73% area

17. In a normal curve the area between z = -0.4 & z = 0.6 is

a) 0.1554
b) 0.2257
c) 0.3811
d) 0.4267
18. In a normal distribution 7% of items are under 35 then what % are
between mean and 35
a) 93%
b) 65%
c) 43%
d) 86%

19. In a normal distribution for incomes mean = 750

Std deviation = 50 Population = 10,000
What is z value for income exceeding 650
a) -2.00
b) -1.50
c) -1.25
d) - 1.75

A) In an aptitude test administered to 1000 students the average scores was 42 &
Std. Dev. = 24. Answer the following questions( 24 to 27)

20) The number of students exceeding 50 marks

a) 370
 b) 670
c) 500
d) 250
21) Students lying between 30 & 54 marks
a) 383
b) 463
c) 373
d) 293
22) Value of scores exceeded by top 100 students
a) 70%
b) 60%
c) 73%
d) 75%

23) No. of students getting scores < 50

a) 600
b) 540
c) 630
d) 660

24) Seasonal variations do not appear in annual figures since

e) they occur infrequently
f) they are cycles which occur repeatedly over relatively short
duration
g) figures may not be of requisite accuracy
h) it is difficult to index the figures

25) The fall in demand for automobiles causing closure of factory is case of
i) seasonal variation
j) cyclical variation
k) irregular variation
l) secular trend

26) In the analysis of time series which of the following adjustments

is not done while drawing up an index for de-seasonalising
m) calendar variation
n) population changes
o) price changes
p) coding

27) Read the following data and fill in the blank

Year production moving average for 3 years
1990 10
1991 20 20
1992 30 30
1993 40 40
 1994 50 __
1995 75

a) 50
b) 55
c) 60
d) 65

28) A sampling ratio of 0.10 was used in a sample survey when population
Size was 50. What is the finite population multiplier .
a) 0.968
b) 0.10
c) 1.10
d) cannot be calculated from the given data.

29) As the confidence level increases for a confidence interval the width
of the interval
a) Increases
b) decreases
c) remains unchanged
d) a) or b)

30) Trend equation is Y = 25 + 0.4X, where Y is production figures,

X is 1 year unit. Origin is 1960; shift origin to 1st Jan. 1961.
The trend eqn. will now read as
a) Y = 12.5 + 0.4X
b) Y = 25 + 0.2X
c) Y = 25 + 0.8X
d) Y = 12.5 + 0.2X

31) A bond holder of a company has one of the following relationship with
It .Identify
a) shareholder
b) depositor
c) creditor
d) employee

32) The relationship between the bond prices and interest rates is one of the
Following
a) direct & linear
b) inverse & linear
 c) direct and curvilinear
d) no relationship

A) A toy manufacturer produces bicycles(x) & scooters(y).

Read the following data and answer:
Max. availability of machines is 12 hrs and x takes 2 hrs. and y takes 4 hrs
to make. The total cost of x & y is Rs. 400 & 12000 respectively.
The sale prices of x & y are Rs. 700 & 16000 respectively.
The amount available for daily production is Rs. 28000.
Labour available is for 16 hrs. labour requirement for x & y is 4 & 12 hrs
respectively
Choose the correct option from each of the following ( 38 to 41 )

33) production constraint

a) x + 2y ≤ 6
b) 4x + 2y ≤ 12
c) 2x + y ≤ 6
d) 9x = 6y ≤ 12

34) Financial constraint

a) 4x + 120y ≤ 280
b) 4x + 12y ≤ 28
c) 12y + 4x ≤ 28
d) 120x + 4y ≤ 280

35) Labour constraint

a) 12x + 4y ≤ 16
b) x + 3y ≤ 4
c) 3y + x ≤ 4
d) 4x + 12y ≤ 16

36) Profit equation

a) 7x + 160y
b) 160x + 7y
c) 700x + 1600y
d) 70x + 160y

B) The trend equation is Y = a + b X

If N = 7, ∑Y = 619, ∑X = 0, ∑XY = 141, ∑X2 = 28
Answer the following( 42 to 45)

37) Value of a is
a) 66.27
b) 85.55
c) 88.43
 d) 74.27

38) Value of b is
a) 2.67
b) 5.04
c) 3.45
d) 5.75

39) Equation Y = a + bX is
a) Y = 66.27 + 2.67X
b) Y = 85.55 + 3.45X
c) Y = 88.43 + 5.04X
d) Y = 85.55 + 5.75X

40) The monthly trend eqn. is

a) Y = 5.52 + 0.2225X
b) Y = 7.37 + 0.2875X
c) Y = 7.37 + 0.035X
d) Y = 7.13 + 0.40X

@@@@@@@@@