CMFAS Module 4A Quiz 36

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Question 1 of 30

1. Question
How could the notion of passive investing strategy be defined?
- Passive investing strategy happens when someone invests without active management; investors buy assets they feel are fairly priced but will return a fair return over the next two years period.
- Passive investing strategy happens when someone invests without active management; investors buy assets they feel are fairly priced without returning a fair return over the life of the investment.
- Passive investing strategy happens when someone invests without active management; investors buy assets they feel are fairly priced but will return a fair return over the life of the investment.
- Passive investing strategy happens when someone invests only with the potential of active management; investors buy assets they feel are fairly priced but will return a fair return over the life of the investment.
Correct

Incorrect

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.
Question 2 of 30

2. Question
Why do households have to accumulate financial resources, what is the main reason behind this?
- The reason is that they need money for groceries.
- The reason is that everyone needs money.
- The reason is that they have enough money to live good.
- The reason is that they have enough money to live during their retirement.
Correct

Incorrect

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.
Question 3 of 30

3. Question
What does the process of financial forecasting do, what is the use of it?
- Provides some assumptions about the present progress of the firm to forecast future performance.
- Provides means to use fundamental assumptions about the future progress of the firm to forecast present performance.
- Provides means to use fundamental assumptions about the present progress of the firm to forecast the performance.
- Provides means to use fundamental assumptions about the future progress of the firm to forecast future performance.
Correct

Incorrect

The future progress of the firm to forecast future performance can be done through the process of financial forecasting.
Question 4 of 30

4. Question
Which of the following from below best describe what locational arbitrage refers to?
- The process of buying a currency at a location where it is priced cheap and then immediately selling it at some other location where it is priced higher.
- The process of buying a currency at another location where it is priced cheap and then immediately selling it at some other location where it is priced higher.
- The process of buying a currency at a location where it is priced cheap and then selling it at some other location where it is priced lower.
- The process of buying foreign currency at a location where it is priced expensive and then immediately selling it at some other location where it is priced higher.
Correct

Incorrect

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.
Question 5 of 30

5. Question
What happens to a household with no financial assets and no security often has what?
- Financial problems because real assets can be easily used to pay off or service debt. Real assets as not as liquid as most financial assets.
- Financial problems because real assets cannot be easily sold in order to pay off or service debt.
- Financial problems because real assets are sold for a cheaper price than their original value.
- Financial problems because real assets cannot be easily used to pay off or service debt. Real assets are not as liquid as most financial assets.
Correct

Incorrect

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.
Question 6 of 30

6. Question
When it comes to financing forecasting there are some statements required which are those?
- Analyzing each line of the income statement to predict how it will decrease with the change in sales.
- Analyzing each line of the income statement to predict how it will increase without changing the sales.
- Analyzing only some line of the income statement to predict how it will increase with the change in sales.
- Analyzing each line of the income statement to predict how it will increase with the change in sales.
Correct

Incorrect

Financing forecasting the statement requires will increase with the change in sales by analyzing each line of the income statement to predict.
Question 7 of 30

7. Question
Which of the following statements regarding the financial markets can be considered to be true?
- Financial markets are the markets for buying and selling financial instruments.
- Financial markets are the markets mainly the national markets.
- Financial markets are the markets for buying and selling goods in international markets.
- Financial markets are some sort of markets for selling financial instruments.
Correct

Incorrect

A financial market can be defined as any markets where the goods can be both sold and bought.
Question 8 of 30

8. Question
What is the main difference between the primary and secondary markets?
- Primary markets are those in which financial claims are initially sold by Deficit Spending Units. Secondary financial markets let people exchange ‘used’ or previously issued financial claims for assets only.
- Primary markets are those in which financial claims are initially sold by Deficit Spending Units. Secondary financial markets let people exchange ‘used’ or previously issued financial claims for cash at will.
- Primary markets are those in which financial claims are not sold by Deficit Spending Units. Secondary financial markets let people exchange ‘used’ or previously issued financial claims for cash at will.
- Primary markets are those in which financial claims are initially sold by Deficit Spending Units. Secondary financial markets let people exchange ‘unused’ or previously issued financial claims for cash at will.
Correct

Incorrect

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.
Question 9 of 30

9. Question
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.
- I & II
- II & III
- III Only
- III & IV
Correct

Incorrect

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.
Question 10 of 30

10. Question
Which of the following best describe what financial forecasting is useful for?
- It provides a means to use fundamental assumptions about the future progress of the firm to forecast future performance.
- It provides a means to use fundamental assumptions about the present progress of the firm to forecast future performance.
- It provides a means to use fundamental assumptions about the future progress of the firm to forecast the present performance.
- It provides a means to use fundamental assumptions about the present progress of the firm to forecast the present performance.
Correct

Incorrect

Financial forecasting, as the name implies refers to future progress of a company to forecast its future performance as well.
Question 11 of 30

11. Question
How do you define leveraged beta in financial terms?
- Levered beta measures part of the risk of a firm with debt and equity in its capital structure to the volatility of the market.
- Levered beta measures the effort of a firm with debt and equity in its capital structure to the volatility of the market.
- Levered beta measures the risk of a firm with debt and equity in its capital structure to the volatility of the market.
- Levered beta measures the risk of a firm credit and its capital structure to the volatility of the market.
Correct

Incorrect

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.
Question 12 of 30

12. Question
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.
- I Only
- II Only
- III & IV
- IV Only
Correct

Incorrect

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.
Question 13 of 30

13. Question
How would valuation in finance be defined?
- Valuation is the estimation of an asset's value based on variables perceived to be related to present investment returns, or based on comparisons with closely similar assets.
- Valuation is the estimation of an asset's value based on variables received to be related to future investment returns or based on comparisons with closely similar assets.
- Valuation is the estimation of an asset's value based on variables perceived to be related to future investment returns, or based on comparisons with closely similar assets.
- A valuation is a tool used for assessing asset's value based on variables perceived to be related to future investment returns, or based on comparisons with closely similar assets.
Correct

Incorrect

The estimation of an asset’s value based on variables related to future investment returns is called valuation.
Question 14 of 30

14. Question
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.
- I Only
- II & IIII
- IV Only
- None of the above
Correct

Incorrect

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.
Question 15 of 30

15. Question
Which of the following sentence is true?
- Favours equity rather than credit as a source of company finance when personal income tax rates are greater than company tax.
- Favours equity rather than debt as a source of company finance when personal income tax rates are smaller than company tax.
- Favours equity rather than debt as a source of company finance when financial income tax rates are greater than company tax.
- Favours equity rather than debt as a source of company finance when personal income tax rates are greater than company tax.
Correct

Incorrect

When personal income tax rates are greater than company tax favours equity rather than debt are a source of company finance.
Question 16 of 30

16. Question
Considering the third implication from Miller’s analysis, which of the following is correct?
- Companies are effectively required to compensate the lenders for the additional personal tax payable on interest income and lenders charge a lower interest rate on borrowings.
- Companies are effectively required to compensate the lenders for the additional personal tax payable on interest income --> lenders charge a higher interest rate on borrowings.
- Companies are not required to compensate the lenders for the additional personal tax payable on interest income --> lenders charge a higher interest rate on borrowings.
- Companies are not required to compensate the lenders for the additional personal tax payable on interest income and lenders charge a smaller interest rate on borrowings.
Correct

Incorrect

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.
Question 17 of 30

17. Question
What is an operating lease?
- Is when lessors take all the risks and benefits of ownership of the asset for personal venture.
- It is a short-term rental agreement.
- It is a long-term rental agreement.
- It is partially short and long term rental agreement.
Correct

Incorrect

Each short-term rental agreement can be defined as an operating lease.
Question 18 of 30

18. Question
How would you define the agency relationship?
- Stockholders don't run the company themselves.
- Stockholders are also managers that run the company.
- Stockholders hire stakeholders to run the company.
- Stockholders hire managers to run the company.
Correct

Incorrect

Stockholders don’t usually run directly the company, they hire managers to run the company, and in finance, this is called agency relationship.
Question 19 of 30

19. Question
In the financial system who are the primary fund providers to the government and business?
- Households funds.
- Thresholds funds.
- Credit funds.
- Investment funds.
Correct

Incorrect

The households funds are the primary funds providing to the government and businesses.
Question 20 of 30

20. Question
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.
- I Only
- II Only
- III Only
- IV Only
Correct

Incorrect

Annuity occurs when payment is due immediately at the beginning of each period.
Question 21 of 30

21. Question
Common equity can be found often through finance terms. Which of the following statement do you consider to be true?
- The sum of the firms common stock paid-in debt without earnings.
- The sum of the firms common stock paid-in capital and retained earnings.
- The difference between the firms common stock paid-in capital and retained earnings.
- The sum of the firms common stock paid-in capital without retained earnings.
Correct

Incorrect

Common stock occurs when paid-in capital and retained earnings are payable by a sum of companies.
Question 22 of 30

22. Question
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?
- One to two years.
- Two to four years.
- Four to six years.
- Eight to ten years.
Correct

Incorrect

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.
Question 23 of 30

23. Question
What is the definition of finance?
- Finance is the study of how and under what terms savings(money) are allocated between lenders and borrowers.
- Finance is not the study of how and under what terms savings(money) are allocated between lenders and borrowers.
- Finance is defined as the management of money and includes only these activities investing, borrowing and budgeting.
- Finance is each individuals budget.
Correct

Incorrect

Finance can be defined as the management of money and includes activities like investing, borrowing, lending, budgeting, saving, and forecasting.
Question 24 of 30

24. Question
What is discretionary income?
- It is the income that remains after taxes and fixed expenses (such as rent or mortgage, utilities, insurance) are paid.
- Commissions or bonuses paid by your employer or tips received for services provided.
- The money used to make your rent or mortgage payment, or other such expenses.
- The amount of money you have remaining to put in a savings account at the end of the month.
Correct

Incorrect

After all the taxes are paid what we are left with is called discretionary income.
Question 25 of 30

25. Question
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.
- I Only
- II & III
- III & IV
- All from the above
Correct

Incorrect

Some of the advantages of forming a corporation are limited liability, unlimited life, separation of ownership and management and transfer of ownership is easy.
Question 26 of 30

26. Question
Which one of the following indicates that a project is expected to create value for its owners?
- Payback period greater than the requirement.
- Positive average accounting rate of return.
- Profitability index of less than 1.0.
- Internal rate of return that is less than the requirement.
Correct

Incorrect

If the average accounting rate of return is positive, then it means that a project should create value for its owners.
Question 27 of 30

27. Question
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?
- Produce a positive annual cash flow.
- Offset its total expenses.
- Recoup its initial cost.
- Offset its fixed expenses.
Correct

Incorrect

In order for a business to generate enough cash flow, it needs to recoup its initial cost.
Question 28 of 30

28. Question
Which of the following statement from below regarding the net present value is true?
- Is unaffected by the timing of an investment's cash flows.
- Method of analysis cannot be applied to mutually exclusive projects.
- Is equal to the initial investment when the internal rate of return is equal to the required return.
- Decreases as the required rate of return increases.
Correct

Incorrect

In finance, the present value decreases as the required rate of return increases.
Question 29 of 30

29. Question
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.
- Only I
- II & III
- Only IV
- All from the above
Correct

Incorrect

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.
Question 30 of 30

30. Question
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.
- I Only
- II Only
- III & IV
- All from the above
Correct

Incorrect

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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