CPA FIN - Finance Exam

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Total 80 questions

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?

  • 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

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?

  • A. 1, 2 and 3
  • B. 1 and 2 only
  • C. 1 and 3 only
  • D. 2 and 3 only


Answer : A

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?

  • 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

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?

  • A. 12·68%
  • B. 12·33%
  • C. 12·28%
  • D. 11·98%


Answer : D

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?

  • 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

Page:    1 / 16   
Total 80 questions