MBA Finance 2

Question 1

What is 'beta' in the Capital Asset Pricing Model (CAPM)?

Accepted Answer

A measure of a stock's volatility relative to the market

Answer

Beta measures the sensitivity of a security's returns to market movements, indicating its systematic (non-diversifiable) risk.

Question 2

Which type of analysis compares a company's financial ratios to industry averages?

Accepted Answer

Benchmarking Analysis

Answer

Benchmarking (or cross-sectional) analysis compares a firm's ratios against industry peers or competitors to assess relative performance.

Question 3

What is 'free cash flow' primarily used to measure?

Accepted Answer

Cash available after capital expenditures for distribution to stakeholders

Answer

Free Cash Flow (FCF) measures the cash a company generates after spending on capital expenditures needed to maintain or expand its asset base.

Question 4

What does a high Price-to-Earnings (P/E) ratio typically indicate?

Accepted Answer

Investors expect high future growth from the company

Answer

A high P/E ratio generally signals that investors are willing to pay a premium because they expect strong future earnings growth.

Question 5

In bond valuation, what happens to bond prices when market interest rates rise?

Accepted Answer

Bond prices fall

Answer

Bond prices and interest rates have an inverse relationship — when rates rise, existing bonds with lower fixed coupons become less attractive, so their prices fall.

MBA - Degree Master of Business Administration Practice Test

MBA - Degree Master of Business Administration Practice Test

MBA Finance 2