QUESTION SET -10 (CBSE COMMERCE NET 2018)
QUESTION SET -10 (CBSE COMMERCE NET )
66..Who formulated the following model for estimating the markets price of equity share?
P=D+R/Ke (E-D) /Ke
where p =market price of equity share
D=DPS
E= EPS
E-D=Retained earning per share
R=internal rate of return
Ke=cost of capital
Options:-
A.Modigliani and Miller
B. Myron Gordon
C.James E Walter
D. Clarkson and Elliot
ANSWER:-C
EXPLANATION:-The above formula is propounded by James E. Walter .This formula expresses relationship between dividend policy and value of firm. Walter's model on dividend decision of the company affects its valuation. He states that a firm which pays higher dividend has relatively higher values as compared to those firm which that pay lower dividend. Walter's policy is based on following assumption:-
1.All the investment are financed by internal funds no external fund is raised in the form of equity and debt.
2. firms has infinite life.
3. The firm has constant rate of return (r) and cost of capital (Ke).the business risk of the firms will remain same for investment.
4.All the earning of the firm is either reinvested or distributed as dividend
67.Indicate the cost of equity capital ,based on capital asset pricing model, with the following information:
Beta coefficient-1.40
Risk free rate of return-9%
Expected rate of return on equity in the market-16%
A.9.8%
B.18%
C.18.8%
D.16%
ANSWER:-C
EXPLANATION:-(CAPM) is a model that describe the relationship between expected rate of return and risk of security. It states that the return on a securtiy is equal to the risk free return plus a risk premium, which is based on the beta of that security.
CAPITAL ASSET PRICING MODEL (CAPM)=Rf+b(Rm-Rf)
CAPM=0.09+1.40(.16-0.09)
CAPM=0.09+1.40(0.07)
CAPM=0.09+0.098
CAPM=0.188
CAPM=0.188*100
CAPM=18.8
68.Where does recognition of an Employee falls in Mas low's Hierarchy of needs theory?
A.self actualization
B.security needs
C.social needs
D.Esteems needs
ANSWER:-D
EXPLANATION:-Maslow's hierarchy of needs is a motivational theory.It is developed by Abraham Ma slow. This theory expresses that people are motivated to achieve certain needs and that some needs take precedence over others. This model comprises a five tier model of human needs.Our most basic need is for physical survival, and this will be the first thing that motivates our behavior. It consist of air , food , drink, shelter, warmth, sex, sleep. Once that level is achieved the next level is safety needs which comprises protection from elements , security, order , law , stability , freedom from fear..The third stage is belonging needs and it includes friendship, intimacy, trust, and acceptance, receiving and giving affection and love, affiliating and being part of a group.The fourth stage implies Esteem needs. Esteem for oneself and desire for reputation or respect from other. and the last stage is Self actualization need which can be described as realizing one's personal potential , self fulfillment , seeking personal growth and peak experience.
69. consider the following problem relating to a let-out house property .
Municipal value-₹60000
Fair rental value-₹68000
standard rent-₹62000
actual rent received-₹65000
Now calculate gross annual value of house property
A.₹ 68000
B.₹62000
C.₹65000
D₹60000
ANSWER:-C
EXPLANATION:- GROSS ANNUAL VALUE can be computed as follows:
step 1. Higher of the following two =municipal value and fair rental value
step 2.= lower amount among answer of step 1 and standard rate
step 3=higher among answer of step 2 and actual rent
step 1= ₹60,000<₹68,000=₹68,000(higher)
step 2=₹68,000<₹62,000=₹62,000(lower)
step 3=₹62,000<₹65,000=₹65,000 (higher)
hence gross annual value is rupees₹ 65,000
70.Call money rate is applicable for a very short period to:
A. Inter bank advances.
B. Bank to Reserve bank advances.
C.Reserve bank to bank advances.
D. commercial banks to industrial banks advances.
ANSWER-A
EXPLANATION:- call money is a method by which banks lend to each other to be able to maintain the cash reserve ration. The interest rate paid on call money is known as the call rate. It is a highly volatile rate that varies from day to day and sometime even from hour to hour.
71.Who propounded "Theory z"?
A.William Ouchi
B.Peter F Drucker
C.Joseph H. Jurau
D.Douglas Mc Gregor
ANSWER:-A
EXPLANATION:-Theory Z is an approach to management based upon a combination of American and Japanese management philosophies and characterized by, among other things, long term job security , consensual decision making, slow evaluation and promotion procedures, and individual responsibility within a group context. Proponents of Theory Z suggest that it leads to improvement in organizational performance. The following sections highlight the development of Theory Z .Theory Z as an approach to management including each of the characteristics noted above and an evaluation of theory Z.
72. Identify the one from the following, which is not a type of disequilibrium in the balance of payments of a country:
A. cyclical disequilibrium
B.secular disequilibrium
C.Structural disequilibrium
D. Sect oral disequilibrium
ANSWER:-D
EXPLANATION:- cyclic disequilibrium arises due to trade cycle. Due to different trade cycles like prosperity and depression, demand and other forces changes as a result trade grows and diminishes and accordingly surplus and deficit result in balance of payment. cyclic fluctuation arises due to changes in income ,employment ,output and price level.For example when a price rises during prosperity and falls during depression a country which has highly elastic demand for import experience a decline in value of import and if it continues its exports further it will show a surplus in balance of payment.
Structural disequilibrium occurs at the goods level , when a change in demand or supply of exports alters a previously existing equilibrium, or when a change occurs in the basic circumstances under which income is earned or spent abroad, in both cases without the requisite parallel changes elsewhere in the economy.
P=D+R/Ke (E-D) /Ke
where p =market price of equity share
D=DPS
E= EPS
E-D=Retained earning per share
R=internal rate of return
Ke=cost of capital
Options:-
A.Modigliani and Miller
B. Myron Gordon
C.James E Walter
D. Clarkson and Elliot
ANSWER:-C
EXPLANATION:-The above formula is propounded by James E. Walter .This formula expresses relationship between dividend policy and value of firm. Walter's model on dividend decision of the company affects its valuation. He states that a firm which pays higher dividend has relatively higher values as compared to those firm which that pay lower dividend. Walter's policy is based on following assumption:-
1.All the investment are financed by internal funds no external fund is raised in the form of equity and debt.
2. firms has infinite life.
3. The firm has constant rate of return (r) and cost of capital (Ke).the business risk of the firms will remain same for investment.
4.All the earning of the firm is either reinvested or distributed as dividend
67.Indicate the cost of equity capital ,based on capital asset pricing model, with the following information:
Beta coefficient-1.40
Risk free rate of return-9%
Expected rate of return on equity in the market-16%
A.9.8%
B.18%
C.18.8%
D.16%
ANSWER:-C
EXPLANATION:-(CAPM) is a model that describe the relationship between expected rate of return and risk of security. It states that the return on a securtiy is equal to the risk free return plus a risk premium, which is based on the beta of that security.
CAPITAL ASSET PRICING MODEL (CAPM)=Rf+b(Rm-Rf)
CAPM=0.09+1.40(.16-0.09)
CAPM=0.09+1.40(0.07)
CAPM=0.09+0.098
CAPM=0.188
CAPM=0.188*100
CAPM=18.8
68.Where does recognition of an Employee falls in Mas low's Hierarchy of needs theory?
A.self actualization
B.security needs
C.social needs
D.Esteems needs
ANSWER:-D
EXPLANATION:-Maslow's hierarchy of needs is a motivational theory.It is developed by Abraham Ma slow. This theory expresses that people are motivated to achieve certain needs and that some needs take precedence over others. This model comprises a five tier model of human needs.Our most basic need is for physical survival, and this will be the first thing that motivates our behavior. It consist of air , food , drink, shelter, warmth, sex, sleep. Once that level is achieved the next level is safety needs which comprises protection from elements , security, order , law , stability , freedom from fear..The third stage is belonging needs and it includes friendship, intimacy, trust, and acceptance, receiving and giving affection and love, affiliating and being part of a group.The fourth stage implies Esteem needs. Esteem for oneself and desire for reputation or respect from other. and the last stage is Self actualization need which can be described as realizing one's personal potential , self fulfillment , seeking personal growth and peak experience.
69. consider the following problem relating to a let-out house property .
Municipal value-₹60000
Fair rental value-₹68000
standard rent-₹62000
actual rent received-₹65000
Now calculate gross annual value of house property
A.₹ 68000
B.₹62000
C.₹65000
D₹60000
ANSWER:-C
EXPLANATION:- GROSS ANNUAL VALUE can be computed as follows:
step 1. Higher of the following two =municipal value and fair rental value
step 2.= lower amount among answer of step 1 and standard rate
step 3=higher among answer of step 2 and actual rent
step 1= ₹60,000<₹68,000=₹68,000(higher)
step 2=₹68,000<₹62,000=₹62,000(lower)
step 3=₹62,000<₹65,000=₹65,000 (higher)
hence gross annual value is rupees₹ 65,000
70.Call money rate is applicable for a very short period to:
A. Inter bank advances.
B. Bank to Reserve bank advances.
C.Reserve bank to bank advances.
D. commercial banks to industrial banks advances.
ANSWER-A
EXPLANATION:- call money is a method by which banks lend to each other to be able to maintain the cash reserve ration. The interest rate paid on call money is known as the call rate. It is a highly volatile rate that varies from day to day and sometime even from hour to hour.
71.Who propounded "Theory z"?
A.William Ouchi
B.Peter F Drucker
C.Joseph H. Jurau
D.Douglas Mc Gregor
ANSWER:-A
EXPLANATION:-Theory Z is an approach to management based upon a combination of American and Japanese management philosophies and characterized by, among other things, long term job security , consensual decision making, slow evaluation and promotion procedures, and individual responsibility within a group context. Proponents of Theory Z suggest that it leads to improvement in organizational performance. The following sections highlight the development of Theory Z .Theory Z as an approach to management including each of the characteristics noted above and an evaluation of theory Z.
72. Identify the one from the following, which is not a type of disequilibrium in the balance of payments of a country:
A. cyclical disequilibrium
B.secular disequilibrium
C.Structural disequilibrium
D. Sect oral disequilibrium
ANSWER:-D
EXPLANATION:- cyclic disequilibrium arises due to trade cycle. Due to different trade cycles like prosperity and depression, demand and other forces changes as a result trade grows and diminishes and accordingly surplus and deficit result in balance of payment. cyclic fluctuation arises due to changes in income ,employment ,output and price level.For example when a price rises during prosperity and falls during depression a country which has highly elastic demand for import experience a decline in value of import and if it continues its exports further it will show a surplus in balance of payment.
Structural disequilibrium occurs at the goods level , when a change in demand or supply of exports alters a previously existing equilibrium, or when a change occurs in the basic circumstances under which income is earned or spent abroad, in both cases without the requisite parallel changes elsewhere in the economy.
secular disequilibrium is also called as long run disequilibrium in balance of payments. It occurs because of long-run and deep-seated changes in an economy as it develops from one stage of growth to another. The current account in the balance of payments follows a varying pattern from one stage to another. In the initial stages of development, domestic investment exceeds domestic savings and imports exceed exports. Disequilibrium arises due to lack of sufficient funds available to finance the import surplus, or the import surplus is not covered by available capital from abroad.
73.Who is the fiscal agent and adviser to government in monetary and financial matters in India?
A. SBI
B.IDBI
C.ICICI
D.RBI
ANSWER;-D
EXPLANATION:-The Reserve Bank of India is known as "banker of last resort". It is India's central banking institution, which controls the monetary policy of the Indian rupee. It commenced its operations on 1 April 1935 in accordance with the Reserve Bank of India Act, 1934. The Reserve Bank of India is the central bank of the country entrusted with monetary stability, the management of currency and the supervision of the financial as well as the payments system. Established in 1935, its functions and focus have evolved in response to the changing economic environment.
74.The portion of total deposits of a commercial bank which it has to keep with RBI in the form o f cash reserves is termed as:
A. CRR
B. SLR
C. BANK RATE
D .REPO RATE
ANSWER:-A
EXPLANATION:- Cash Reserve Ratio refers to the fraction of the total Net Demand and Time Liabilities (NDTL) of a Scheduled Commercial Bank held in India, that it has to maintain as cash deposit with the Reserve Bank of India (RBI). The requirement applies uniformly to all banks in the country irrespective of an individual .
SLR-. 'Statutory liquidity ratio (SLR) is the Indian government term for the reserve requirement that the commercial banks in India are required to maintain in the form of cash, gold reserves, government approved securities before providing credit to the customers.
BANK RATE-The rate of interest charged by the central bank on the loans they have extended to commercial banks and other financial institutions is called “Bank Rate”. In this case, there is no repurchasing agreement signed, no securities sold or collateral involved. Banks borrow funds from the central bank and lend the money to their customers at a higher interest rate, thus, making profits. Bank Rate is usually higher than Repo Rate as it is an important tool to control liquidity. Also known as “Discount Rate”, Bank Rate is often confused with Overnight Rate. While the bank rate refers to the interest rate charged by the central bank on loans granted to commercial banks, overnight rate is the interest charged when banks borrow funds among themselves. When Bank Rate is increased by RBI, the borrowing costs of the banks increase which, in return, reduce the supply of money in the market.
REPO RATE-Repo Rate is the rate at which the country’s central bank, which is RBI in India, lends money to commercial banks during a financial crisis. In other words, commercial banks borrow money from Reserve Bank of India by selling securities or bonds with an agreement to repurchase the securities on a certain date at a predetermined price. The rate of interest charged by the central bank on the cash borrowed by commercial banks is called the “Repo Rate”. For example: if the Repo Rate is 10% and the loan amount borrowed by a commercial bank from RBI is Rs.10,000, the interest paid to the RBI will be Rs.1,000.
75. Grapevine is a term used in relation to:-
A. formal communication
B. informal communication
C. both of these
D. none of these
ANSWER:-B
EXPLANATION:-Grapevine is an informal communication, unorganized and unofficial channel of communication in an organization. When the formal channels fail or do not work properly and some over-smart people spread rumors, false and irresponsible statement or half-truths in all the directions. It is called the communication on the grapevine channel.Grapevine communication, information spreads very fast in all directions as this vine of grapes spreads. Grapevine means a source of secret information. It is kind of horizontal communication, which takes place within a group, between persons of equal status. Grapevine is an integral part of the communication system in an organization. This is the highly sensitive channel as it is a great boon as well as a curse.The grapevine consists a complex network of informal contacts between the workers at all levels, wherever there are human beings, there is grapevine. It is the natural activity of workers and denotes a basic human weakness.
A. SBI
B.IDBI
C.ICICI
D.RBI
ANSWER;-D
EXPLANATION:-The Reserve Bank of India is known as "banker of last resort". It is India's central banking institution, which controls the monetary policy of the Indian rupee. It commenced its operations on 1 April 1935 in accordance with the Reserve Bank of India Act, 1934. The Reserve Bank of India is the central bank of the country entrusted with monetary stability, the management of currency and the supervision of the financial as well as the payments system. Established in 1935, its functions and focus have evolved in response to the changing economic environment.
74.The portion of total deposits of a commercial bank which it has to keep with RBI in the form o f cash reserves is termed as:
A. CRR
B. SLR
C. BANK RATE
D .REPO RATE
ANSWER:-A
EXPLANATION:- Cash Reserve Ratio refers to the fraction of the total Net Demand and Time Liabilities (NDTL) of a Scheduled Commercial Bank held in India, that it has to maintain as cash deposit with the Reserve Bank of India (RBI). The requirement applies uniformly to all banks in the country irrespective of an individual .
SLR-. 'Statutory liquidity ratio (SLR) is the Indian government term for the reserve requirement that the commercial banks in India are required to maintain in the form of cash, gold reserves, government approved securities before providing credit to the customers.
BANK RATE-The rate of interest charged by the central bank on the loans they have extended to commercial banks and other financial institutions is called “Bank Rate”. In this case, there is no repurchasing agreement signed, no securities sold or collateral involved. Banks borrow funds from the central bank and lend the money to their customers at a higher interest rate, thus, making profits. Bank Rate is usually higher than Repo Rate as it is an important tool to control liquidity. Also known as “Discount Rate”, Bank Rate is often confused with Overnight Rate. While the bank rate refers to the interest rate charged by the central bank on loans granted to commercial banks, overnight rate is the interest charged when banks borrow funds among themselves. When Bank Rate is increased by RBI, the borrowing costs of the banks increase which, in return, reduce the supply of money in the market.
REPO RATE-Repo Rate is the rate at which the country’s central bank, which is RBI in India, lends money to commercial banks during a financial crisis. In other words, commercial banks borrow money from Reserve Bank of India by selling securities or bonds with an agreement to repurchase the securities on a certain date at a predetermined price. The rate of interest charged by the central bank on the cash borrowed by commercial banks is called the “Repo Rate”. For example: if the Repo Rate is 10% and the loan amount borrowed by a commercial bank from RBI is Rs.10,000, the interest paid to the RBI will be Rs.1,000.
75. Grapevine is a term used in relation to:-
A. formal communication
B. informal communication
C. both of these
D. none of these
ANSWER:-B
EXPLANATION:-Grapevine is an informal communication, unorganized and unofficial channel of communication in an organization. When the formal channels fail or do not work properly and some over-smart people spread rumors, false and irresponsible statement or half-truths in all the directions. It is called the communication on the grapevine channel.Grapevine communication, information spreads very fast in all directions as this vine of grapes spreads. Grapevine means a source of secret information. It is kind of horizontal communication, which takes place within a group, between persons of equal status. Grapevine is an integral part of the communication system in an organization. This is the highly sensitive channel as it is a great boon as well as a curse.The grapevine consists a complex network of informal contacts between the workers at all levels, wherever there are human beings, there is grapevine. It is the natural activity of workers and denotes a basic human weakness.
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