CPA FIN - Finance Exam
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Total 80 questions
Question #1 (Topic: )
Consider the following statements concerning financial options:
1. The time value of an option is the value assigned to the possibility that the price of the
underlying item will move infavorof the option writer.
2. The time value of an option less its intrinsic value is equal to the option premium.
Which ONE of the following combinations (true/false) concerning the above statements is
correct?
1. The time value of an option is the value assigned to the possibility that the price of the
underlying item will move infavorof the option writer.
2. The time value of an option less its intrinsic value is equal to the option premium.
Which ONE of the following combinations (true/false) concerning the above statements is
correct?
A. Statement 1 = True, Statement 2 = True
B. Statement 1 = True, Statement 2 = False
C. Statement 1 = False, Statement 2 = True
D. Statement 1 = False, Statement 2 = False
Answer: D
Question #2 (Topic: )
The following statements about dividends and dividend policy were made at a recent
meeting:
1) According to the residual theory of dividend policy, once a company has invested in or
retained sufficient profits for future positive net present value opportunities, it should pay
out the remaining profit as dividends.
2) Companies generally try to smooth out dividend payments by adjusting gradually to
changes in earnings, so as to avoid sending out confusing signals to investors.
3) Scrip dividends enable a company to declare dividends but avoid paying out cash.
Instead existing shareholders are given new shares in the business at no extra cost to the
shareholders.
Which combination of the above statements is true?
meeting:
1) According to the residual theory of dividend policy, once a company has invested in or
retained sufficient profits for future positive net present value opportunities, it should pay
out the remaining profit as dividends.
2) Companies generally try to smooth out dividend payments by adjusting gradually to
changes in earnings, so as to avoid sending out confusing signals to investors.
3) Scrip dividends enable a company to declare dividends but avoid paying out cash.
Instead existing shareholders are given new shares in the business at no extra cost to the
shareholders.
Which combination of the above statements is true?
A. 1, 2 and 3
B. 1 and 2 only
C. 1 and 3 only
D. 2 and 3 only
Answer: A
Question #3 (Topic: )
Consider the following statements:
1. A beta factor measures the relationship between market returns and the returns of an
individual security.
2. A share that has a beta of 10 will have an expected return equal to the risk-free rate.
Which ONE of the following combinations (true/false) is correct?
1. A beta factor measures the relationship between market returns and the returns of an
individual security.
2. A share that has a beta of 10 will have an expected return equal to the risk-free rate.
Which ONE of the following combinations (true/false) is correct?
A. Statement 1 = True, Statement 2 = True
B. Statement 1 = True, Statement 2 = False
C. Statement 1 = False, Statement 2 = True
D. Statement 1 = False, Statement 2 = False
Answer: B
Question #4 (Topic: )
Lydia Co is financed by one million $1 ordinary shares trading at $3 each and has
$2,000,000 425% irredeemable loan notes which have a market value of $85 per $100.
Lydia Co pays tax at 30%. An equivalent all-equity financed company would have a cost of
capital of 10%.
What is Lydia Cos cost of equity, according to Modigliani and Miller Proposition 2?
$2,000,000 425% irredeemable loan notes which have a market value of $85 per $100.
Lydia Co pays tax at 30%. An equivalent all-equity financed company would have a cost of
capital of 10%.
What is Lydia Cos cost of equity, according to Modigliani and Miller Proposition 2?
A. 12·68%
B. 12·33%
C. 12·28%
D. 11·98%
Answer: D
Question #5 (Topic: )
A large multinational business wishes to manage its currency risk. It has been suggested
that
1.Matching receipts and payments can be used to manage translation risk.
2.Matching assets and liabilities can be used to manage economic risk.
Which ONE of the following combinations (true/false) concerning the above statements is
correct?
that
1.Matching receipts and payments can be used to manage translation risk.
2.Matching assets and liabilities can be used to manage economic risk.
Which ONE of the following combinations (true/false) concerning the above statements is
correct?
A. Statement 1 = True, Statement 2 = True
B. Statement 1 = True, Statement 2 = False
C. Statement 1 = False, Statement 2 = True
D. Statement 1 = False, Statement 2 = False
Answer: C
