Question - 5:
............................is associated with diffusion of economic crisis throughout a market, asset class or
geographic region.
A) Systematic Risk B) Unsystematic Risk
C) Contagion Risk D) Credit Risk

Question - 6:
One year Var [Value at risk] of a portfolio is Rs.10 crores with a confidence level of 95%. This
means............
A) There is a 5% probability that the loss will be Rs. 10 crores at the end of the year
B) The loss will not exceed Rs. 9.5 crores during valuation anytime during the year
C) The worst expected portfolio loss over one year will not exceed Rs. 10 crores with 95%
confidence
D) The investor can presume that there is a 95% chance of loss over one trading year will exceed
Rs. 10 crores

CHAPTER 3: ADVANCED CAPITAL BUDGETING DECISIONS

Question 1:
Variance measures....
A) How far each number in the set is from the mean B) The mean of a given data set.
C) Return on Investment D) Level of risk borne for every percent of
expected return.

Question - 2:
Which of the following critical factor is generally over looked by capital budgeting decision makers
A) Quantitative factors B) Qualitative factors
C) Time factor D) Discounting factor

Question - 3:
Expected cash flows are calculated as:
A) Sum of likely cash flow of the project.
B) Sum of likely cash flow of project multiplied by probability of respective cash flows.
C) Sum of likely cash flow of project divided by probability of cash flow.
D) None of these

Question - 4:
When the risk is high, the cash flow under certainty equivalent coefficient is:
A) Higher B) Lower
C) No impact D) None of the above

Question - 5:
Certainty Equivalent approach is:
A) Guaranteed return from an investment after adjusting for certainty equivalent coefficient.
B) Return that is expected over the lifetime of a project.
C) Equivalent to Net Present Value.
D) Important component in Decision Tree Analysis.

Question - 6:
Scenario Analysis is considered under scenarios such as:
A) Worst Case Scenario B) Base Case Scenario
C) Best Case Scenario D) All of the above

Question – 7:
Sensitivity analysis is useful in decision making because:
A) It shows the probabilities associated with each outcome.
B) It tells the user how much critical each input is for the Output value.
C) It allows to calculate the probable results under different scenarios.
D) The results of Sensitivity Analysis are reliable.

Question - 8:
The firm expects an NPV of Rs. 10,000 if the economy is exceptionally strong (30% probability), an
NPV ofRs. 4,000 if the economy is normal (40% probability), and an NPV of Rs. 2,000 if the economy
is exceptionally weak (30%probability). Expected Net present value is .

A)Rs. 5,200 B)Rs. 6,000
C)Rs. 5,000 D)Rs. 6,200