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A social network company announces its plan to introduce additional features that would increase its revenues. Matt H. estimated that the expected increase in annual earnings could be $5 billion. The estimate was based on logical assumptions and after a careful evaluation of historical performances. He issues a report stating ''Based on the fact that earnings will increase by $5 billion, I recommend a BUY for the stock''. Has Matt H. violated any Standard?
A) No, since the calculation is based on logical assumptions and a careful assessment of historical performances.
B) Yes, Matt has violated Standard V (B): Communication with Clients and Prospective Clients.
C) Yes, Matt has violated the Standard IV (A): Loyalty.
Bill Kesler works as an analyst in Minecraft Investment Advisors. He is attending a conference call with the CEO of another company in the cafeteria of his office but the phone is not on speaker mode. During the call, he took notes of the earnings projections on loose sheets but forgot to take them along with him. The loose sheets are found by the portfolio managers and they traded stocks on behalf of their clients on the basis of the earnings projections mentioned in the notes. Who has violated the Standards?
A) Bill Kesler
B) The portfolio managers
C) Bill Kesler and the portfolio managers
You are presented with 2 investment opportunities and must choose the one with the greater present value: A lump-sum of $2 million or an annuity with 25 payments of $250,000 a year with the first payment starting today. The interest rate is 9% per year compounded annually. Which one will you choose?
A) The annuity
B) The lump-sum
C) There's no difference between the two options
A technical analyst finds that ABC stock has a head and shoulders pattern with the peak being at $75, the neckline at $66 and shoulders around $70. On today's trading session, the stock breaches $66 to the downside. What is the most probable outcome the analyst predicts for the stock?
A) The stock will rebound to $70
B) The stock will rebound to $75
C) The stock will keep going down to $57
As the degrees of freedom increases and the t-statistic approaches towards the z-statistic, the tails of the distribution become?
C) No change
Repurchase agreements are included in which money supply measures?
B) Both M2 and M3
What will happen to the aggregate demand (AD) curve if the government cuts taxes?
A) The AD curve will shift leftward.
B) There will be an upward movement along the AD curve.
C) The AD curve will shift rightward.
A country has the following characteristics:
|Exports of goods and services||$6,000,000|
|Investment income received from foreigners||$1,000,000|
|Imports of goods and services||$3,000,000|
|Investment income payment made to foreigners||$2,000,000|
Which of the following are NOT part of other comprehensive income?
1. Exchange differences on translating foreign operations
2. Issuance of equity shares
3. Actuarial gains/losses
4. Loss from sale of machinery
A) 2 and 4
B) 2 and 3
C) 1 and 4
Mojo Contractors entered into a 3-year contract with Jojo LLC for constructing their office space. During the second year of the contract, Mojo Contractors estimated that the total revenue from the contract would be $500 million and the total costs (incurred plus expected) would be $580 million. Mojo Contractors follows the completed contract method. Which of the following would be the correct accounting treatment?
A) No accounting treatment.
B) Provision to be created for expected loss amounting to $80 million.
C) Loss incurred until the date of the completion of the contract should be recorded in the books.
Mylcos Company uses a perperual inventory system. Calculate the value of the inventory from the following data using the weighted
average cost method, given that the transactions took place in the order mentioned below.
|Opening inventory 7 units||@ $500 per unit|
|Purchase 5 units||@ $600 per unit|
|Purchase 3 units||@ $400 per unit|
|Sale 14 units||-|
|Purchase 2 units||@ $900 per unit|
|Sale 1 unit||-|
Calculate financial leverage ratio from the following data.
|Property, Plant and Equipment (PPE)||$342,999|
|Bonds issued at 7%||$100,000|
An accountant is analyzing the accounts of a Belgian chocolate firm. The information regarding the cost of its
ice cream plant is given in the following table. Calculate the amount of impairment loss if the Belgian firm reports under IFRS.
|Book value of Plant||$400,000|
|Value in Use||$360,000|
|Expected Future Cash Flow||$350,000|
Birmingham Corporation is launching a new product with a social media marketing campaign that will cost $2,000,000.
To finance the project, Birmingham's CEO gathered the following information:
|Required return on equity||15%|
|Before-tax required return on debt||7%|
|ABC Corp's tax bracket||20%|
A 91-day Treasury Bill has a holding period yield of 2.3%. What is its annual yield on a bond-equivalent basis?
Bruce Craig is in the business of trading steel in Chicago, which he inherited from his father one month ago.
His financial adviser notes the following aspects of his situation:
- He is 24 years old;
- His investment horizon is 10-20 years;
- His primary objective for investing is aggressive growth;
- His business returns are not stable as he is not being able to take prudent business decisions.
Given the aforementioned information, which of the following statements is correct?
A) Craig has a low ability to take risk, but a high willingness to take risk.
B) Craig has a high ability to take risk, but a low willingness to take risk.
C) Craig has a high ability to take risk, but a high willingness to take risk.
The expected P/E ratio of a stock is 10 and the actual P/E ratio is 10.8. What can we say about the stock?
A) The stock is overvalued.
B) The stock is undervalued.
C) We can not say anything about the stock.
A 3-year bond offers a 7% coupon rate with interests paid annually.
Assuming the following sequence of spot rates, the price of bond is closest to:
|Time to Maturity||Spot Rate (%)|
Which of the following is the riskiest single-option transaction?
A) Buying an at-the-money call
B) Writing an at-the-money call
C) Buying an at-the-money put
Which of the following is the appropriate name for the provision which requires managers to return periodic incentive fees if the investors received less than 80% of the profits generated by the fund?
A) Clawback provision
B) Loss reimbursement clause
C) Committed capital clause
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