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CMFASExam Practice Questions Free Preview
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Question 1 of 20
What happens when a bond’s market rate is less than the stated rate?Correct
Every time a bond market rate comes below the stated rate, the bond will need to sell at a premium in order for buyers to be interested. So, the core difference between the two of them is the buyer purchasing the bond for more than the par value.
Question 2 of 20
What type of security is determined by YTM or yield to maturity?Correct
The security that is determined by the Yield to maturity (YTM) are bonds because of the total return anticipated on a bond and the bond is held until it matures.
Question 3 of 20
Which of the following is both an advantage and disadvantage of a corporation?Correct
Limited liability is both an advantage and disadvantage for a corporation because the condition by which shareholders are legally responsible for the debts of a company only to the extent of the nominal value of their shares.
Question 4 of 20
How are capital contributions with a mortgage attached recorded in a partnership for financial statement purposes?Correct
When a mortgage attached recorded in a partnership for financial statement purposes, calculates the capital balance when property contributed has a mortgage result in the FV of the Asset being netted against the Liability.
Question 5 of 20
Why are bond markets so important in finance, what is the main reason behind this?
I. The bond market is one of the most important sources of financing in the nation.
II. In the bond market, firms raise debt financing directly from investors.
III. There are billions of dollars in the bond market that we need to understand so that we may comprehend its role in corporate finance.
IV. For large corporations, the bond market is one of the primary sources of external financing.Correct
Bond markets are very important in finance and the reasons behind these are various, however, one of the most important ones might be that these markets are an important source of financing in the nations.
Question 6 of 20
How do you think you could define the term correlation in finance?Correct
Correlation involves only two investments and not more than this. In finance, is called correlation when two investments move in relation to one another.
Question 7 of 20
Which of the following sentences from below is true when you think about debenture bond?Correct
The debenture bonds by definition in finance is the bond that is not secured by any collateral.
Question 8 of 20
What is the gain or loss when a non-monetary asset is distributed to a shareholder?Correct
The main difference is between the assets which are shared at its distributed date and its carry amount on the company’s books.
Question 9 of 20
Which of the following statements is true regarding dividend imputation?Correct
Dividend imputation is a corporate tax system in which some of the tax paid by a company may be attributed, or imputed, to the shareholders by way of a tax credit to reduce the income tax payable on a distribution.
Question 10 of 20
How would you define financial distress?Correct
Each time a company cannot meet its financial obligations is called that financial distress.
Question 11 of 20
Which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities?
II. Profitability index.
III. Accounting rate of return.
IV. Net present value.Correct
Analyzing a variety of investment opportunities is best done by analysing the net present value.
Question 12 of 20
If a levered company is overvalued, what can happen to the investor in that company’s shares?Correct
When a company is overvalued, the investors need to adjust the debt-equity ratio by borrowing personally by investing instead in the shares of an unlevered company.
Question 13 of 20
What does private equity include?Correct
In other words, private equity typically refers to investment funds only for new companies.
Question 14 of 20
What are the primary areas of main-line finance disciplines?Correct
There are several areas of main-line finance disciplines. However, the correct one from below is corporate finance.
Question 15 of 20
Which are the advantages of having a sole proprietorship?
I. Having control of your business.
II. A simplified and less expensive business organization.
III. Minimal reporting requirements.
IV. Simplified tax reporting.Correct
There are numerous advantages of having a sole proprietorship but some of the main ones are easy control over the business, a less expensive business organization, simple tax reporting and minimal reporting requirements.
Question 16 of 20
What happens when the market value of the two companies are different?Correct
One of the main advantages of having the market share difference between the two companies is that investors will enter the market to take advantage of the arbitrage opportunity. This way will force the values of the two companies to be the same.
Question 17 of 20
Which of the following do you consider to be true when it comes about major corporate finance decisions?
I. Debt decisions: the sum of money that is due.
II. Financing decisions: how assets are to be funded (debt or equity) also includes dividend decisions.
III. Investment decisions: determine the asset profile of business (amount and composition of investments).
IV. Dividend decisions: pay shareholder or retain funds for internal growth.Correct
Corporate financial decisions depend on how assets are to be funded, includes dividend decisions such as paying shareholder or retain funds for internal growth. The investment decision is another important aspect in determining the asset profile of the business.
Question 18 of 20
Which statement about trusts is true?
I. Compared with corporations, trusts provide greater tax advantages.
II. Compared with corporations, trusts provide fewer tax advantages.
III. Income usually passes through trusts, with corporate tax paid by the unitholders.
IV. Unitholders do not pay tax on the income received.Correct
There are some differences between corporations and trusts and one of the main ones is that the last one provides greater tax advantages.
Question 19 of 20
What does the concept budgeting mean in finance?Correct
A budget is a financial plan for a defined period, often one year which is established based on the available income of each individual.
Question 20 of 20
Which of the following best describe what the interbank market concept refers to?Correct
Sometimes banks get shortage regarding particular foreign currencies. When this happens, the banks purchase that currency from other banks. This process is called the interbank market.