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NEW QUESTION 344
Which of the following procedures is not applied when measuring the amount of the deferred tax asset or liability?
- A. The deferred tax asset or liability must be measured at its present value.
- B. The tax consequences of temporary differences must be measured by using enacted future tax rates, and the tax consequences of permanent differences are not recognized.
- C. The liability method must be used in measuring the deferred tax asset or deferred tax liability.
Answer: A
Explanation:
Present value is not used in determining the tax consequences.
NEW QUESTION 345
Relative to a capital lease, an operating lease will result in:
- A. Higher profits reported in the early years of the lease.
- B. Higher total assets and reported liabilities.
- C. Higher interest expenses early in the lease.
Answer: A
NEW QUESTION 346
Shortfall risk is:
- A. the risk that portfolio value will fall below some minimum acceptable level over some time horizon.
- B. maximum acceptable level of risk.
- C. the risk that minimizes the probability that portfolio return falls below a threshold level.
Answer: A
Explanation:
Shortfall risk is the risk that portfolio value will fall below some minimum acceptable level over some time horizon.
NEW QUESTION 347
If the spot Japanese yen were sold at $0.007960, whereas the 180-day forward yen were priced at
$ 0.008184, what would be the forward premium annualized?
- A. 5.47%
- B. 2.82%
- C. 5.63%
Answer: C
Explanation:
Forward premium annualized = [(0.008184 -0.007960)/0.007960] x 360/180 = 0.0563 =
5 .63%
NEW QUESTION 348
Default risk can be described as
- A. the risk that the issuer will fail to satisfy the terms of the obligation with respect to the timely payment of the amount borrowed.
- B. the risk that the issuer will fail to satisfy the terms of the obligation with respect to the timely payment of interest.
- C. the risk that the issuer will fail to satisfy the terms of the obligation with respect to the timely payment of interest and repayment of the amount borrowed.
Answer: C
NEW QUESTION 349
Which of the following items would not generally be addressed when constructing an investment policy?
- A. The required rate of return expected for the risk that's being taken.
- B. Allowable margins within which the manager may deviate away from the original asset mix.
- C. Credit rating above which securities may be considered.
Answer: A
Explanation:
While the investment policy will discuss the type or returns that are expected (i.e. Growth, income, or income and growth), it is not often that a specific expected return is incorporated into the policy statement.
NEW QUESTION 350
Suppose a t-test for the hypothesis that H(O): u = 0 vs. H(A): u<> 0 is carried out and we find t(obs.) =
1 .8. The descriptive significance level of the test is:
- A. the probability of getting a t-value >= 1.8 or = -1.8.
- B. the Type II error probability of the test.
- C. the Type I error probability of the test.
Answer: A
NEW QUESTION 351
A lease contains a guaranteed residual value (guaranteed by the lessee). How would this amount be treated in determining the amount the lessee capitalizes?
- A. The present value of the amount would be added.
- B. The present value of the amount would be deducted.
- C. The amount would be deducted.
Answer: A
Explanation:
The present value of guaranteed amounts should be included in the amount capitalized.
NEW QUESTION 352
Desert Corporation spent $320,000 on a significant amount of raw materials inventory for a new product that it was manufacturing. The raw material was the only material the new product needed. Later on it used all the raw materials and sold the new product for $800,000. It paid a total of $180,000 to its engineers, workers and sales agents as their salaries, wages and commissions. Then it paid $120,000 rent and $30,000 interest on borrowed funds for this project. The net profit was $100,000 after tax
($50,000). This was the only project the company took during the year. How much did Desert Corporation added to GDP?
- A. $800,000 since it was the final product's price.
- B. $700,000 since it was the company's total costs (including tax) before net profit of $100,000.
- C. $480,000 since it was the net price difference between the raw material and final products.
Answer: C
Explanation:
By purchasing the raw material for $320,000 and selling the final product for $800,000,
Desert Corporation added value of $480,000 (the income created at a stage of production). It is the difference between the firm's revenue and the value of its purchases of resources from other firms.
NEW QUESTION 353
Automatic stabilizers in the economy smooth business cycles by:
- A. decreasing transfer payments during recessions and increasing tax collections during inflationary periods.
- B. increasing transfer payments during recessions and increasing tax collections during inflationary periods.
- C. increasing transfer payments during recessions and decreasing tax collections during inflationary periods.
Answer: B
Explanation:
During recessions, unemployment insurance and other transfer payments increase, and thus consumption does not fall by as much. During period when income is high (and thus there are possibly inflation concerns), more taxes are collected because taxes are proportional to income. Thus consumption does not increase as much and does not put as much inflationary pressure on the economy.
NEW QUESTION 354
An analyst has gathered the following information about a firm: Quick ratio of .25, Cash ratio of .20, $2 million in marketable securities, $10 million in cash. What is their receivables balance?
- A. $5 million.
- B. $3 million.
- C. $1 million.
Answer: B
Explanation:
Cash ratio = (cash + marketable securities)/current liabilities .20 = ($10,000,000 +
$ 2,000,000)/current liabilities current liabilities = $12,000,000/.2 = $60,000,000 Quick ratio = [cash + marketable securities receivables]/$60,000,000 .25 [$10,000,000 $2,000,000 + + = + receivables]/$60,000,000 ($60,000,000)(.25) = $12,000,000 + receivables $15,000,000 = $12,000,000 + receivables $15,000,000 - $12,000,000 = receivables $3,000,000 = receivables
NEW QUESTION 355
Creditors and investors use financial performance evaluation to judge a company's
I). past performance.
II). current position.
III). future potential and its related risk.
- A. I, II and III.
- B. II and III.
- C. I and III.
Answer: A
Explanation:
Creditors and investors use financial performance evaluation to judge a company's past performance, current position, and future potential and its related risk.
NEW QUESTION 356
Jorgensen Products has just issued 25,000,000 in 4.50% annual coupon bonds at a market yield of
4 .80%. The bonds have a maturity of 8 years. What adjustments would an analyst make to the CFF at the end of the first year?
- A. Decrease by 488,681
- B. Increase by 51,543
- C. Decrease by 51,543
Answer: B
Explanation:
Proceeds of bond issue: PMT = 1,125,000; I/Y = 4.80; FV = 25,000,000; N = 8; CPT PV =
2 4,511,316 Jorgensen will recognize this as a liability. Its annual interest will be, interest = 0.048 x
2 4,511,316 = 1,176,543 Jorgensen records a CFO of -1,125,000 based on the coupon payment. The analyst would reduce the CFO by 51,543 to reflect the higher interest cost (= 1,176,543 - 1,125,000).The
CFF would have to be increased by the same amount, 51,543, to reflect the fact that this differential interest is owed and will be paid at maturity. Thus, CFF will have to be increased by 51,543.
NEW QUESTION 357
Two bonds issued by the same corporation have identical coupon rate, payment frequency, par value and time to maturity. The indenture of the first bond contains a call option, and the indenture of the second bond specifies a conversion privilege.
- A. There is not enough information to determine the correct response
- B. The value of the first bond is greater than or equal to the value of the second bond
- C. The value of the first bond is less than the value of the second bond
Answer: C
Explanation:
Because the promised cash flows are identical, the value of the bonds would be the same except for the impact of the embedded options. The call option, because it is an option the bond issuer can exercise, reduces the value of the bond. The conversion option, because it is an option the bond owner can exercise, increases the value of the bond.
NEW QUESTION 358
Which of the following statements is least accurate with respect to the various measures of duration?
- A. For low levels of yield, the effective duration of a callable bond will the highest among all the measures of duration.
- B. Modified duration and Macaulay duration do not take into account the call risk associated with the bond.
- C. Effective duration may be used for all sorts of bonds.
Answer: A
Explanation:
For low levels of yield, the effective duration of a callable bond will the lowest among all the measures of duration. Effective duration takes into account that the bond may be called anytime soon, thus producing a shorter measure, whereas the other duration measures assume that the bond will be held to maturity.
NEW QUESTION 359
When the Federal Reserve lowers the federal funds rate, the quantity of money ____ and the supply of loanable funds ____.
- A. increases; increases
- B. increases; decreases
- C. decreases; increases
Answer: A
NEW QUESTION 360
Callable common shares ______ at a pre-specified price.
- A. give investors the option to buy shares from the issuing company.
- B. give investors the option to buy shares from other investors.
- C. give the issuing company the option to back its shares from its shareholders.
Answer: C
Explanation:
A callable stock can be recalled or redeemed by the issuer of the stock. Generally, callable stock is issued with a specific redemption price appearing in the terms and conditions of the sale.
NEW QUESTION 361
Toulon has an expected inflation rate of 5.35% and its neighbor Brozania has an expected inflation rate of 2.5%. Currency of Toulon
- A. will sell at a forward premium of 2.85%.
- B. will sell at forward premium of 5.35%.
- C. will sell at a forward discount of 2.85%.
Answer: C
Explanation:
As a result of relative purchasing power parity, currency of a country with higher inflation sells at a discount in the forward market. The discount equals the difference between the inflation rates of the two countries. In this case, currency of Toulon will sell at a discount of 2.85% (=5.35 - 2.5).
NEW QUESTION 362
In reference to the Discount on Bonds Payable and Premium on Bonds Payable accounts, which statement is true?
- A. The Discount on Bonds Payable account is a contra asset.
- B. The Discount on Bonds Payable account is amortized by a credit entry each period.
- C. As the Premium on Bonds Payable account is amortized each period, the Interest Expense account is increased to the amount it would have been, had the bonds been sold at par.
Answer: B
NEW QUESTION 363
Sixty percent of the customers of a fast food chain order the Whopper, fries and a drink. If a random sample of 15 cash register receipts is selected, what is the probability that 10 or more will show that the above three food items were ordered?
- A. None of these answers
- B. 0.186
- C. 0.403
Answer: C
Explanation:
This is a binomial probability. The probability of getting r successes out of n trials where the probability of success each trial is p and probability of failure each trial is q (where q = 1-p) is given by:
r (n-r)
n!(p )[q ]/r!(n-r)! Therefore, we need to find out the probability of getting 10, 11,12,13,14,15 successes and add them up. Here n=15, p=0.6 and q=0.4. r changes from 10 to 15.
10 5
p(10 successes) = 15!(0.6 )(0.4 )/10!(15-10)! = 0.1859
11 4
p(11 successes) = 15!(0.6 )(0.4 )/11!(15-11)! = 0.1268
p(12 successes) = 0.0634
p(13 successes) = 0.0219
p(14 successes) = 0.0047
p(15 successes) = 0.00047
The sum of all the probabilities is 0.403.
NEW QUESTION 364
Which one of the following is true?
- A. The inventory period of the operating cycle ends when the receivable it creates is actually paid by the customer.
- B. The inventory period plus the accounts receivable period is equal in length to the operating cycle plus the cash cycle.
- C. The length of the operating cycle is always greater than or equal to the length of the cash cycle.
Answer: C
Explanation:
A). The inventory period ends when the receivable is created.
C). The operating cycle is equal in length to the inventory period plus the accounts receivable period.
NEW QUESTION 365
Assume the risk-free rate is 5%. The expected return on the market portfolio is 12%, and its standard deviation is 20%. A company has an expected return of 18%, a standard deviation of 90% and a correlation of 0.5 with the market. What is the company's Treynor ratio?
- A. 0.087.
- B. 0.058.
- C. 0.047.
Answer: B
Explanation:
B = poi / oM = 0.5 x 0.9 / 0.2 = 2.25.
(18% 5%)/225 0058 (18% -5%) / 2.25 = 0.058.
NEW QUESTION 366
Average income increases from $20,000 p.a. to $22,000 p.a. Quantity demanded per year increases from 5000 to 6000 units. Which of the following is correct?
- A. The product is normal.
- B. Income elasticity is -2.
- C. Demand is price inelastic.
Answer: A
Explanation:
The percentage change in demand is +20%; the percentage change in income is +10%. This means the product is normal because demand rises with more income and has an income elasticity of +2.
NEW QUESTION 367
Comparative advantage means
- A. countries that produce goods for which they have a large domestic market, will gain from international trade.
- B. countries that produce goods in which they have the lowest absolute cost, will gain from international trade.
- C. countries that produce goods in which they have the lower opportunity cost relative to their trading partner, will gain from international trade.
Answer: C
Explanation:
In order to gain from mutual trade, countries should produce goods in which they have relative advantage in terms of opportunity cost. They need not be the lowest absolute cost producers. It is all about the best or most efficient use of a country's resources.
NEW QUESTION 368
Diane Corporation had 400 units of inventory on hand at July 1, 2002, costing $20 each. Purchases and sales of goods during the month of July were as follows:
July 12, 2002 Sales 200 units @ $40 July 15, 2002 Purchases 100 units @ $26 July 25, 2002 Purchases
3 00 units @ $28 July 30, 2002 Sales 200 units @ $40
Assume Diane Corporation does not maintain perpetual inventory records. According to a physical count,
4 00 units were on hand on July 31, 2002.
The cost of inventory at July 31, 2002, using the LIFO cost method, is:
- A. $8,000
- B. $11,000
- C. $9,500
Answer: A
Explanation:
Using LIFO, the costs allocated to ending inventory will be the oldest costs. Therefore, if 400 units are remaining, the ending inventory value will be 400 @ $20 = $8,000.
NEW QUESTION 369
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CFA CFA-Level-I: CFA Institute CFA Level I Chartered Financial Analyst Certified Professional Salary
Salaries for CFA level 1 Certified Professionals may vary by country. The estimated salaries of a CFA level 1 exam test given below:
England: 78,000 Pounds
India: 7,15,437 INR
Europe: 92,000 Euro
United States: 15,000 USD
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