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CMFAS Module 4A Free Trial
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How could the notion of passive investing strategy be defined?
When someone invests without active management this is called passive investing strategy. The return of the assets bought by investors is fairly returned over the life of the investment.
Why do households have to accumulate financial resources, what is the main reason behind this?
There are various reasons why a household, in general, would need money, however, one of the main reasons in accumulating financial resources is for them have enough money to live during their retirement.
What does the process of financial forecasting do, what is the use of it?
The future progress of the firm to forecast future performance can be done through the process of financial forecasting.
Which of the following from below best describe what locational arbitrage refers to?
When the price is placed as cheap and then immediately selling the currency at some other location where it is priced higher, the process is called location arbitrage.
What happens to a household with no financial assets and no security often has what?
When a household doesn’t have any financial security, the financial problems start. That is why because real assets cannot be easily used to pay off or service debt.
When it comes to financing forecasting there are some statements required which are those?
Financing forecasting the statement requires will increase with the change in sales by analyzing each line of the income statement to predict.
Which of the following statements regarding the financial markets can be considered to be true?
A financial market can be defined as any markets where the goods can be both sold and bought.
What is the main difference between the primary and secondary markets?
The difference between the primary and secondary markets stands in the financial claims that are initially sold by Deficit Spending Units. Previously issued financial claims for cash at will are happening in secondary markets.
What is the most likely a valid reason for a budget in general to fail?
I. Buying a pair of shoes you just couldn’t resist.
II. Not using a personal financial planning website or software.
III. Failing to establish an emergency fund to account for unforeseen expenses.
IV. Not making enough money.
Budgets can fail for various reasons, however when someone doesn’t have an emergency fund there is most likely a chance for it to fail in the case of unforeseen expenses.
Which of the following best describe what financial forecasting is useful for?
Financial forecasting, as the name implies refers to future progress of a company to forecast its future performance as well.
How do you define leveraged beta in financial terms?
Each capital structure presents a risk compared to the volatility of the market, and levered beta measures the risk of a firm with debt and equity in it.
Why is equity finance preferred over debt financing in terms of dividends?
I. Failure to pay interest on debt can lead to sometimes to legal consequences and can ultimately lead to a company being placed into liquidation.
II. Failure to pay interest on debt or delays in paying interest can lead to legal consequences having the company being placed into liquidation.
III. Failure to pay interest on debt can not lead to serious legal consequences and can ultimately lead to a company being placed into liquidation.
IV. Failure to pay interest on debt or delays in paying interest can lead people leaving the company.
When it comes to dividends equity finance is preferred over debt. This happens because failure to pay interest on debt an lead to legal consequences having the company being placed into liquidation.
How would valuation in finance be defined?
The estimation of an asset’s value based on variables related to future investment returns is called valuation.
According to the Modigliani–Miller approach, what is the cost of capital of a firm?
I. Remains constant throughout the project’s life irrespective of the capital structure.
II. It doesn’t stay constant throughout the project’s life irrespective of the capital structure.
III. It could stay constant throughout the project’s life irrespective of the bank loan.
IV. Remains constant throughout the project’s life irrespective of the debt of the firm.
The cost of capital of a firm based on the Modigliani–Miller approach stays constant throughout the project’s life irrespective of the capital structure.
Which of the following sentence is true?
When personal income tax rates are greater than company tax favours equity rather than debt are a source of company finance.
Considering the third implication from Miller’s analysis, which of the following is correct?
Based on Miller’s analysis, lenders charge a higher interest rate on borrowings. Also, companies need to compensate the lenders for any extra personal tax payable on interest income.
What is an operating lease?
Each short-term rental agreement can be defined as an operating lease.
How would you define the agency relationship?
Stockholders don’t usually run directly the company, they hire managers to run the company, and in finance, this is called agency relationship.
In the financial system who are the primary fund providers to the government and business?
The households funds are the primary funds providing to the government and businesses.
What is it called when the first payment occurs at the end of the period?
I. Coordination annuity.
II. Ordinary annuity.
III. Frequency annuity.
IV. Common annuity.
Annuity occurs when payment is due immediately at the beginning of each period.
Common equity can be found often through finance terms. Which of the following statement do you consider to be true?
Common stock occurs when paid-in capital and retained earnings are payable by a sum of companies.
Suppose you owe $1,000 on a loan and the interest rate you are charged is 20% per year compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?
You would owe $1,200 after the first year and $1,440 after the second because you are being charged interest already accumulated. This means after year three you’d owe $1,728 and would owe double your original debt, or $2,000, before reaching the four-year mark.
What is the definition of finance?
Finance can be defined as the management of money and includes activities like investing, borrowing, lending, budgeting, saving, and forecasting.
What is discretionary income?
After all the taxes are paid what we are left with is called discretionary income.
What are the advantages of having a corporation?
I. Limited liability.
II. Unlimited life.
III. Separation of ownership and management.
IV. Transfer of ownership is easy.
Some of the advantages of forming a corporation are limited liability, unlimited life, separation of ownership and management and transfer of ownership is easy.
Which one of the following indicates that a project is expected to create value for its owners?
If the average accounting rate of return is positive, then it means that a project should create value for its owners.
The payback period is the length of time it takes an investment to generate sufficient cash flows in order to enable the project. Which of the following is correct?
In order for a business to generate enough cash flow, it needs to recoup its initial cost.
Which of the following statement from below regarding the net present value is true?
In finance, the present value decreases as the required rate of return increases.
In the probability of bankruptcy with increasing financial leverage, the business presents some risks. What can be expected in this case?
I. The premium for a business risk to be higher than would be the case without bankruptcy costs.
II. The premium for a business risk to be lower than would be the case without bankruptcy costs.
III. The premium for financial risk should rise by less than would be the case without bankruptcy costs.
IV. The premium for financial risk should rise by more than would be the case without bankruptcy costs.
In the case of bankruptcy, a business can expect for the premium for a financial risk to rise by more than would be the case without bankruptcy costs.
Which of the following are true when you think about a stakeholder?
I. A stakeholder is any entity that has an interest in a business or project.
II. A stakeholder is any person that has an interest in a business or project.
III. A stakeholder is any person that has invested in a business or project.
IV. A stakeholder is any creditor that has an interest in a business or project.
Stakeholders can have a significant impact on decisions regarding the operations and finances of an organization. Examples of stakeholders are investors, creditors, employees, and even the local community.
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