Some examples from this set of practice questions
1.
Suppose you buy an asset for Rs.1,000,000. If it costs Rs.100,000 for shipping and installation, how much is your investment outlay?
Answer: Investment= equipment purchase price + shipment and installation = Rs 1,000,000 + Rs100,000 = Rs 1,100,000
2.
Consider two projects, QQ and RR, that have identical, positive net present values, but Project RR is riskier than QQ. If these projects are mutually exclusive, what is your investment decision?
Answer: If the projects are mutually exclusive, it means the company can select any one of the projects. It can’t invest simultaneously in both projects. In such situation, the company should opt for projects generating the maximum net present value .Since the both projects have identical NPV then risk factor have to be considered. Therefore Project QQ can be considered.
3.
What are the four layers of the TCP/IP reference model?
Answer: Application, Transport, Internet, and Network interface
4.
The internal rate of return is often referred to as the yield on an investment. Explain the analogy between the internal rate of return on an investment and the yield to maturity on a bond.
Answer: Yield to maturity (YTM) is the rate of return expected on a bond which is held till maturity. Internal rate of return (IRR) is the discount rate at which the net present value of an investment becomes zero. Yield to maturity and IRR carries the same drawback as it’s assume that the coupon payments are reinvested at the yield to maturity which is not normally the case. If coupons are to be reinvested at lower rates yield to maturity will be an overstated figure.
5.
What are the main risks associated with Exchange Rates?
Answer: 1) Transaction risk 2) Translation risk 3) Economic risk
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