Question 1
Ria invested Rs 10,000 in a fund that tripled her investment 12 years later. What was the approximate annual rate of interest (compounded annually) of the fund?
6.12%
9.59%
11.60%
13.05%
Corporate Finance Quiz 1: 15 March 2026 (January 2026 term)
The IIT Madras BS Corporate Finance (Corporate Finance) Quiz 1 paper sat on 15 Mar 2026, in the January 2026 term: 25 questions for 100 marks in 120 minutes. Every question is below with its answer. Take it as a timed mock test to be marked, or read it through first.
- 25
- 100
- 120 min
- 25
Show answer
Correct answer
9.59%
Question 2
The GDP deflator in the economy of Arrakis is 120 in the year 2025. If the Nominal GDP is reported as 24,000 units, what is the Real GDP?
28,800 units
22,000 units
20,000 units
18,000 units
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Correct answer
20,000 units
Question 3
Consider a project with an initial investment of Rs 5,000 in Year 0. It generates cash flows of Rs 3,000 in Year 1 and Rs 3,000 in Year 2. If the discount rate is 10%, what is the Profitability Index (PI)?
1.04
0.96
1.21
1.15
Show answer
Correct answer
1.04
Question 4
A company’s stock is currently trading at Rs 500. It is expected to pay a dividend of Rs 25 next year. If the required rate of return is 12% and the dividend is expected to grow at a constant rate, what is the implied growth rate according to the Gordon Growth Model?
5%
6%
7%
8%
Show answer
Correct answer
7%
Question 5
An asset earns an annual interest rate of 6% compounded continuously. If you invest Rs 2,000 today, what will be the value of the investment after 5 years? (Rounded off to nearest integer)
Rs 2,600
Rs 2,700
Rs 2,550
Rs 2,880
Show answer
Correct answer
Rs 2,700
Question 6
In the country of Westeros, the nominal interest rate is 10% and the expected inflation rate is 4%. What is the real interest rate in Westeros?
6.23%
5.77%
14.00%
9.60%
Show answer
Correct answer
5.77%
Question 7
Which of the following statements regarding the Yield Curve is FALSE?
An inverted yield curve is often considered a predictor of recession.
A normal yield curve is upward sloping.
The yield curve plots the relationship between interest rates and default risk.
The yield curve plots the relationship between interest rates and time to maturity.
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Correct answer
The yield curve plots the relationship between interest rates and default risk.
Question 8
You take a loan of Rs 2,00,000 at a monthly interest rate of 1% to be repaid over 2 years (24 months). What is the Equated Monthly Instalment (EMI)?
(EMI is the promised equal monthly payment against a loan)
Rs 8,333
Rs 9,415
Rs 10,240
Rs 11,500
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Correct answer
Rs 9,415
Question 9
Project A pays Rs 500 forever starting next year. Project B pays Rs 1,000 forever, starting 10 years from today. If the interest rate is 10%, which project has a higher Present Value (PV) today?
Project A
Project B
Both have equal PV
Cannot be determined
Show answer
Correct answer
Project A
Question 10
Calculate the duration of a bond that pays Rs 500 in 2 years and Rs 1,500 in 4 years.
3.0 years
3.5 years
4.0 years
2.5 years
Show answer
Correct answer
3.5 years
Question 11
A consumer basket consists of 2 Apples and 4 Bananas. 2023 (base): Price of Apple = 10, Price of Banana = 5. 2024: Price of Apple = 12, Price of Banana = 6. What is the inflation rate in 2024?
10%
15%
20%
25%
Show answer
Correct answer
20%
Question 12
An investment offers Rs 7,000 in Year 1 and Rs 6,000 in Year 2. If the current cost of this investment is Rs 10,000, what is the Internal Rate of Return (IRR) approximately?
8%
10%
15%
20%
Show answer
Correct answer
20%
Question 13
How long will it take to double your money if the interest rate is 8% per annum (compounded annually)?
7 years
9 years
11 years
13 years
Show answer
Correct answer
9 years
Question 14
You save Rs 50 every day and deposit it into a bank account at the end of the day. The bank pays 7.3% annual interest compounded daily. (Assume 1 year = 365 days). Which formula represents your balance after 1 year?
(A figure from the original paper is missing from the source site.)
(A figure from the original paper is missing from the source site.)
(A figure from the original paper is missing from the source site.)
Show answer
Correct answer
(A figure from the original paper is missing from the source site.)
Question 15
Sahil earns Rs 50,000 in period 1 and Rs 60,000 in period 2. The interest rate is 20%. What is the Maximum Consumption Sahil can have in Period 1 (if he consumes nothing in Period 2)?
Rs 1,10,000
Rs 1,00,000
Rs 95,000
Rs 50,000
Show answer
Correct answer
Rs 1,00,000
Question 16
A project has the following cash flows: Year 0: -10000, Year 1: 500, Year 2: 1000, Year 3: 1500, Year 4: 2000, Year 5: 2500, Year 6: 2500, Year 7: 2500. What is the Payback Period?
2 years
4 years
6 years
7 years
Show answer
Correct answer
6 years
Question 17
In 2024, the Nominal GDP of a country increased by 10%, while the Real GDP remained constant. This implies:
Production increased by 10%.
Prices increased by 10%.
Both prices and production increased by 5%.
The GDP deflator decreased.
Show answer
Correct answer
Prices increased by 10%.
Question 18
Consider a 10-year zero-coupon bond that promises to pay 1000 units after 10 years. The annualized interest rate is 5%. Suppose due to rising uncertainty, the prevailing interest rate increases by 20 basis points to 5.2%. What would be the impact on the value of the bond?
Increases by 2.88%
Decreases by 2.88%
Increases by 1.88%
Decreases by 1.88%
Show answer
Correct answer
Decreases by 1.88%
Question 19
Your portfolio consists of two "Red" bonds, each with a face value of 100 and a probability of default p =10%. The bonds are perfectly correlated. Through securitization, you create a Senior Bond (paid first) and a Junior Bond (paid last). What is the probability that the Junior Bond defaults?
1%
10%
15%
20%
Show answer
Correct answer
10%
Question 20
You go to an art exhibition in 2026 and see a painting is priced at Rs 2,00,000. You search online and find out that the painting was purchased for Rs 200 by a prince in 1926. What is the annualized rate of return that the painting has accrued?
4.52%
7.15%
9.01%
10.00%
Show answer
Correct answer
7.15%
Question 21
Which of the following yields the highest return on Rs 100 invested for 1 year?
10% compounded annually
10% compounded semi-annually
10% compounded quarterly
10% compounded monthly
Show answer
Correct answer
10% compounded monthly
Question 22
A project earns a total return of 34% over two years. If the return in the first year was 16%, what was the annual return in the second year?
18.0%
16.5%
15.5%
14.0%
Show answer
Correct answer
15.5%
Question 23
Systematic Investment Plan (SIP) is a popular method of investing by contributing a fixed amount of money at regular intervals. You start an SIP of Rs 24,000 per year (beginning next year) towards a fund that earns 7.5% annual interest. What will be the value of your investment after 20 years?
Rs 4,80,000
Rs 10,39,312
Rs 15,24,854
Rs 20,38,968
Show answer
Correct answer
Rs 10,39,312
Question 24
You are looking to invest in one new project, and you have three options: Project-A is expected to generate Rs 10 lakh after two years and Rs 20 lakh after 5 years; Project-B is expected to generate Rs 6 lakh each year for 6 years (beginning next year); Project-C is expected to generate Rs 40 lakh after 6 years. Each one of the projects costs Rs 25 lakh today. The required rate of return on these projects is 10%. Which one of the projects should you choose according to NPV criterion?
Project-A
Project-B
Project-C
All three projects have the same NPV
Show answer
Correct answer
Project-B
Question 25
Consider a bond that pays Rs 200 in 3 years, Rs 400 in 6 years, Rs 600 in 9 years, Rs 800 in 12 years and Rs 1000 in 15 years. What is the maturity of the bond?
3 years
9 years
11 years
15 years
Show answer
Correct answer
15 years