Font size
WorksheetsACCA AFM Practice Quiz 1
Total questions: 36
Worksheet time: 24mins
The primary goal of a publicly owned corporation is to ________.
maximize dividends per share
maximize shareholder wealth
maximize earnings per share after taxes
minimize shareholder risk
The principle of risk-return trade-off means that
higher risk investments must earn higher returns.
an investor who takes more risk will earn a higher return.
a rational investor will only take on higher risk if he expects a higher return.
an investor who bought stock in a small corporation five years ago has more money than an investor who bought U.S. Treasury bonds five years ago.
Which of the following statements best represents the "Agency Problem"?
Managers might attempt to benefit themselves in terms of salary and perquisites at the expense of shareholders.
The agency problem results from the separation of management and the ownership of the firm.
The agency problem may interfere with the implementation of maximizing shareholder wealth.
all of the above
The value of an option NOT depends on
volatility of the stock
the expected return of the stock
the excercise price
the interest rate
The contract in Islamic banking that is related to the agricultural goods is:
Istisna'
Musharakah
Salam
Ijarah
Musharakah is...
a benevolent loan, a form of financial assistance to the needy to be repaid free of charge
Joint partnership where two or more partners provide capital to finance a project
An increase in wealth that is not related to engaging in a productive activity
Generally used to finance consumer and corporate credit
What happened in the Enron scandal?
Culture of deception, self-interest, & lack integrity leading to bankruptcy of Enron and dissolution of Arthur Andersen
Auditor deficiency of Arthur Andersen leading to its bankruptcy
Money-laundering of Enron officials leading to their arrest
None of the above are correct answers
Which is BEST definition for Corporate Governance?
A system of law and sound approaches by which corporations are directed and controlled focusing on the internal and external corporate structures with the intention of monitoring the actions of management and directors and thereby mitigating agency risks which may stem from the misdeeds of corporate officers
A part of regulatory and market mechanisms, the roles and relationships between a company’s management, its board directors, its shareholders and other stakeholders, and the goals for which the corporation is governed
Essentially involves balancing the interests of a company's many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community.
Refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders' desires
The purpose of a Corporate Governance Committee is to monitor the ___________________ of the corporation and oversee ____________ with the company's internal code of ethics.
financial statements / rules
ethical performance / compliance
office rules / interviews
external communication / misconduct
Using the data in Table 3 calculate the NPV
£60m
£65m
£61.8m
£61.4m
You are analyzing two mutually exclusive projects of similar size and have determined the following data. Both projects have 5-year lives.
Based on the above details, which of the two projects would you accept?
Project A because it has the shortest payback period.
Both as they both have positive NPV.
Project B and reject Project A based on their NPV.
The following cash flows describe an investment.
Yr 0: (30,000)
Yr 1: 8,000
Yr 2: 6,000
Yr 3: 7,500
Yr 4: 10,500
Yr 5: 13,000
Select the answer which has the correct NPV, based on a discount rate of 11%.
The formula for Present Value is :
PV = FV/(1+r)
FV = PV/(1+r)
PV = FV/(1+r)n
FV = (1+r)/PV
The "time value of money" means that
money paid out today less value than if the money is paid out in the future
money received today is worth more than the same amount of money received in the future
the more time a person has to save, the lower the return on the money
the longer money is held, the less likely it will be spent
Which of the following is the motivation for merger or acquisition?
Improving target management
Combining complementary resources
Creating value through restructuring and breakups
All of the above
What are some financial problems with rapid external growth?
expansion can be expensive
takeover can be expensive
additional fixed capital and working capital will be required
all 3 are correct
When a business grants a licence to use its brand and reproduce its product.
Joint Ventures
Mergers
Acquisitions
Franchising
Which of the following term of international strategy types that define a firm runs for efficiency to adjust to local preferences within various countries? Select the correct one.
Multi-domestic
Transnational
Regional
Global
A reason for acquisitions is synergy. Synergy includes:
Revenue enhancements
Cost reductions
Lower taxes
All of the above
Which among the following is/are correct regarding Money Market?
Money Market is a market for short-term funds
Maturity in this market ranging from overnight to one year
The basic function of money market is to provide efficient liquidity position for commercial banks, financial institution, Mutual funds, insurance companies, corporate etc
Maturity in this market is above one year
Where exercising an option results in loss to the buyer, it is called
At the money
In the money
Out of money
above the money
An option that provides to the option holder, a right to sell, without an obligation to sell, is called:
Put Option
Call Option
American Option
European Option
Central bank regulators require banks to hold capital for the risks they are bearing.
maybe
true
false
An efficient market is defined as one in which:
all participants have the same opportunity to make the make the same returns.
all participants have the same legal rights and transactions costs.
securities’ prices quickly and fully reflect all available information.
securities’ prices are completely in line with the intrinsic value.
If a market is inefficient, as new information is received about a security:
nothing will happen.
the stock price will fall at first and then later rise.
there will be a lag in the adjustment of the stock price
there will be negative demand for the stock.
Features of efficient market are EXCEPT
There are many knowledgeable investors actively analysing, valuing and trading particularly security
Information is widely available to all investors at approximately the same time.
investors react quicly and accurately to new information, causing prices to adjust quickly and average
information such a GDP and taxes effects the market
Prices reflect all the security - market information contained in past prices refers to
Strong Form EMH
Weak form EMH
Semi strong form EMH
None of the above
In order to make market efficient____________.
information must be equally accessible to all investors.
information must be kept by the companies privately.
information must be release only when it is necessary.
All of the above.
From the following information calculate expected return from XYZ Ltd.- Risk free rate is 5 % , Market return is 10% and Beta value is 0.5 of XYZ Ltd.
5%
7.5%
10%
15%
From the following information you have to calculate Risk Premium.
Risk free rate is 10%, market return is 15% and beta is 1.5.
5%
17.5%
15%
10%
which one is helpful in expecting return from individual security?
Capital Market Line
Security market Line
Capital Allocation Line
Securities Characteristic Line
According to the capital-asset pricing model (CAPM), a security's expected return is equal to the risk-free rate plus a premium
equal to the security's beta.
based on the unsystematic risk of the security.
based on the total risk of the security.
based on the systematic risk of the security.
A company issued 10,000, 10% Debentures of Rs. 100 each on 1.4.2020 to be matured on 1.4.2025. The company wants to know the current cost of its existing debt and the market price of the debenture is Rs. 80. Compute the cost of existing debenture assuming 35 % tax rate using NPV Method or IRR Method
Around 12.21 %
Around 14.21 %
Around 9.21 %
None of these
Which of the following is not an assumption of the Capital Asset Pricing Model (CAPM)
The Capital Market is efficient
Investors lend or borrow at a risk free rate of return
Investors do not have the same expectations about the risk and return
Investor’s decisions are based on a single time period
Which of the following factors is least likely to explain why the capital asset pricing model
may not accurately predict the return expected by investors?
No adjustment is made for the extra risk faced when investing a small company
Share prices are significantly influenced by behavioural factors such as herding
Some investors do not have diversified portfolios
Some events (eg an earthquake) cannot be predicted
Estimates for inflation for the next three years are given below:
UK Europe
20X7 3% 2%
20X8 2% 2.5%
20X9 2% 3.5%
The current spot rate is 1.5 € to the £. Using purchasing power parity theory, what is the
forecast €/£ exchange rate for 20X9?
1.507 €/£
1.514 €/£
1.485 €/£
1.450 €/£
