Chartered Financial Analyst (CFA)

CFA Institute

5 contributor - 1 Folowers




Muhammad Tayyab Ikhlas MANAGEMENT SCIENCES   -   Corporate Finance

Short-term loan can be described as having maximum period

Fani Warraich MANAGEMENT SCIENCES   -   Corporate Finance

A company is evaluating a project with a positive NPV (Net Present Value) but significant upfront investment. The project also has the flexibility to be abandoned after year 2 if market conditions worsen. How can this flexibility be best incorporated into the capital budgeting decision?

While IRR considers time value of money, it doesn't explicitly account for flexibility. Ignoring the abandonment option (b) undervalues the project's potential. Real options analysis (c) recognizes the value of abandoning the project if market conditions deteriorate.
Fani Warraich MANAGEMENT SCIENCES   -   Corporate Finance

Company A has a debt-to-equity ratio of 0.5, while Company B has a ratio of 2.0. Which company is likely to have a higher weighted average cost of capital (WACC)?

Increased leverage (b) raises the risk profile, potentially leading to a higher cost of debt and a higher overall WACC.
Fani Warraich MANAGEMENT SCIENCES   -   Corporate Finance

A company with strong future growth prospects unexpectedly announces a significant increase in its dividend payout. According to signaling theory, what might this decision signal to investors?

Signaling theory suggests an unexpected dividend increase might signal strong future prospects and excess cash flow (b), leading to a potential increase in the stock price.
Fani Warraich MANAGEMENT SCIENCES   -   Corporate Finance

Company X is considering acquiring Company Y. Synergies from the M&A are expected to arise from combining their sales forces. However, significant integration costs are also anticipated. How should these factors be best considered when evaluating the M&A?

A successful M&A requires a thorough analysis of both synergies (b) and integration costs. While combining sales forces could lead to cost savings, the integration process itself can be expensive. Ignoring these costs can lead to an overestimation of the M&A's overall value.
Fani Warraich MANAGEMENT SCIENCES   -   Corporate Finance

A company has a debt-to-equity ratio of 2:1 and a cost of debt of 6%. If the tax rate is 30% and the cost of equity is 12%, what is the company's weighted average cost of capital (WACC)?

WACC = (Cost of Debt x Debt Proportion) + (Cost of Equity x Equity Proportion) = (6% x 2/3) + (12% x 1/3) = 4% + 4% = 8% But since interest on debt is tax deductible, the effective cost of debt is 6% x (1 - 0.30) = 4.2% So, WACC = (4.2% x 2/3) + (12% x 1/3) = 10.1%
Fani Warraich MANAGEMENT SCIENCES   -   Corporate Finance

A project has an initial investment of Rs. 100,000 and is expected to generate cash flows of Rs. 30,000 per year for 5 years. What is the project's payback period?

Payback Period = Initial Investment / Annual Cash Flow = 100,000 / 30,000 = 3.33 years (but this option is not available, so the closest answer is c) 4.17 years)
Fani Warraich MANAGEMENT SCIENCES   -   Corporate Finance

Which of the following capital budgeting techniques takes into account the time value of money?

Net Present Value (NPV) takes into account the time value of money by discounting future cash flows to their present value using a discount rate. The other options do not consider the time value of money.
Fani Warraich MANAGEMENT SCIENCES   -   Corporate Finance

A company has a beta of 1.2 and the market return is 10%. What is the company's cost of equity using the Capital Asset Pricing Model (CAPM)?

CAPM = Risk-Free Rate + Beta x (Market Return - Risk-Free Rate) Assuming a risk-free rate of 5%, the company's cost of equity is: = 5% + 1.2 x (10% - 5%) = 5% + 1.2 x 5% = 5% + 6% = 12.4%
Fani Warraich MANAGEMENT SCIENCES   -   Corporate Finance

What is the main advantage of using debt financing over equity financing?

Debt financing provides financial leverage, which means that a company can generate higher returns on equity by using debt to finance its operations. This is because debt is a cheaper source of financing compared to equity, and interest on debt is tax deductible.
Muhammad Tayyab Ikhlas MANAGEMENT SCIENCES   -   Financial Management

Sources of funds can be increased by

Bashir Farooqi MANAGEMENT SCIENCES   -   Financial Management

Economic resources of a business that are expected to be of benefit in the future are referred to as

Bashir Farooqi MANAGEMENT SCIENCES   -   Financial Management

An owner investment of land into the business would

Muhammad Tayyab Ikhlas MANAGEMENT SCIENCES   -   Financial Management

Quick Asset includes which of the fallowing

Fani Warraich MANAGEMENT SCIENCES   -   Investments & Portfolio Management

Which of the following measures assesses the risk-adjusted performance of an investment portfolio?

A) Tracking error measures the deviation of portfolio returns from the benchmark. B) Sharpe ratio evaluates the excess return of a portfolio per unit of risk (usually standard deviation). C) Treynor ratio measures the excess return per unit of systematic risk. D) Sortino ratio measures downside risk-adjusted return.
Fani Warraich MANAGEMENT SCIENCES   -   Investments & Portfolio Management

In the context of Modern Portfolio Theory, the efficient frontier represents:

A) The efficient frontier includes portfolios that maximize return for a given level of risk. B) It's not solely about lowest volatility but about achieving the maximum return for a given level of risk. C) The efficient frontier considers risk-adjusted returns, not just Sharpe ratio.
Fani Warraich MANAGEMENT SCIENCES   -   Investments & Portfolio Management

Which of the following is NOT considered a primary characteristic of an efficient market?

A) Low transaction costs are a characteristic of an efficient market. B) Rapid dissemination of information ensures that prices reflect all available information. C) No arbitrage opportunities indicate that prices quickly adjust to new information.
Fani Warraich MANAGEMENT SCIENCES   -   Investments & Portfolio Management

Which of the following investment styles involves selecting stocks based on their price-to-earnings ratio and other fundamental indicators?

Growth investing focuses on companies with high growth potential. B) Value investing seeks stocks that are undervalued based on fundamental analysis like price-to-earnings ratio. C) Momentum investing capitalizes on the continuation of existing trends. D) Contrarian investing involves going against prevailing market trends.
Fani Warraich MANAGEMENT SCIENCES   -   Investments & Portfolio Management

The Capital Asset Pricing Model (CAPM) suggests that the expected return of an asset is primarily influenced by

A) Past returns are not a component of CAPM's expected return calculation. B) Standard deviation represents total risk, but CAPM focuses on systematic risk. C) CAPM states that the expected return of an asset is proportional to its systematic risk, often measured by beta. D) CAPM assumes away unsystematic risk through diversification.
Fani Warraich MANAGEMENT SCIENCES   -   Investments & Portfolio Management

Which of the following measures the sensitivity of an asset's returns to changes in market returns?

A) Alpha measures the excess return of an asset compared to its expected return. B) Beta measures the systematic risk of an asset, reflecting its sensitivity to market movements. C) R-squared indicates the proportion of variability in one asset's returns explained by another asset. D) Standard deviation measures the total risk of an asset's returns.
Fani Warraich MANAGEMENT SCIENCES   -   Investments & Portfolio Management

The efficient market hypothesis (EMH) suggests that

A) EMH acknowledges that markets are not always perfectly efficient but are efficient in reflecting available information. B) EMH argues that it's difficult for investors to consistently outperform the market due to market efficiency. C) EMH states that market prices reflect all available information, making it difficult to gain an edge through analysis. D) Market prices can deviate from rationality in the short term, but EMH focuses on information efficiency.
Fani Warraich MANAGEMENT SCIENCES   -   Investments & Portfolio Management

Which of the following represents the risk that can be eliminated through diversification?

A) Systematic risk, also known as market risk, cannot be diversified away. B) Unsystematic risk, also known as specific risk, can be diversified away by holding a well-diversified portfolio. C) Market risk is systematic and cannot be eliminated through diversification. D) Interest rate risk is a component of systematic risk and cannot be fully diversified away.
Fani Warraich MANAGEMENT SCIENCES   -   Investments & Portfolio Management

Which of the following investment strategies involves holding a mix of assets in a fixed proportion?

Active management involves frequent trading and attempts to outperform the market. Tactical asset allocation involves adjusting the portfolio's asset allocation based on short-term market outlook. Strategic asset allocation sets long-term target allocations and maintains them through periodic rebalancing. Market timing involves making investment decisions based on predictions of future market movements.
Fani Warraich MANAGEMENT SCIENCES   -   Investments & Portfolio Management

Which of the following measures the dispersion of returns around the mean return of an investment?

Alpha measures the excess return of an investment relative to its expected return. Standard deviation measures the dispersion of returns around the mean return, indicating the investment's volatility. Beta measures the systematic risk of an investment relative to the market. R-squared indicates the proportion of variability in one investment's returns explained by another investment.
Fani Warraich ECONOMICS   -   Microeconomics

Who is the father of economics?

Fani Warraich

GOOD

Fani Warraich

xcxcb

Janib Khan

Right

Janib Khan ECONOMICS   -   Microeconomics

The branch of economics that deals with the allocation of resources is called ______.

Fani Warraich

macroeconomics

Sumera Nawaz ECONOMICS   -   Microeconomics

Which of the following factors does NOT influence the demand for a good?

The cost of production is a determinant of supply, not demand. Demand is influenced by factors such as price of related goods, income, and future expectations.
Sumera Nawaz ECONOMICS   -   Microeconomics

If the demand for a product increases while its supply remains constant, what will happen to the equilibrium price and quantity?

An increase in demand with constant supply will lead to an increase in both equilibrium price and quantity traded.
Sumera Nawaz ECONOMICS   -   Microeconomics

Which of the following statements about elasticity of demand is true?

Elasticity of demand measures how much quantity demanded responds to a change in price. Elastic demand means consumers are sensitive to price changes.
Sumera Nawaz ECONOMICS   -   Microeconomics

Which of the following events would lead to a decrease in the equilibrium price of oranges?

A decrease in the price of a complement to oranges (orange juice) would increase the demand for oranges, leading to a decrease in equilibrium price.
Sumera Nawaz ECONOMICS   -   Microeconomics

If demand is perfectly elastic, what is the value of price elasticity of demand?

Perfectly elastic demand means any change in price results in an infinite change in quantity demanded.
Sumera Nawaz ECONOMICS   -   Microeconomics

When is the price elasticity of supply perfectly inelastic?

Perfectly inelastic supply means the quantity supplied does not change at all in response to changes in price.
Sumera Nawaz ECONOMICS   -   Microeconomics

If both supply and demand increase but the increase in supply is larger, what will happen to equilibrium price and quantity?

When both supply and demand increase, but the increase in supply is larger, the increase in quantity supplied will outweigh the increase in quantity demanded, leading to a decrease in price and an increase in quantity.
Sumera Nawaz ECONOMICS   -   Microeconomics

Which of the following is an example of a substitute good?

Substitute goods are those that can be used in place of each other, such as tea and coffee.
Sumera Nawaz ECONOMICS   -   Microeconomics

Which of the following would lead to a rightward shift of the supply curve?

An improvement in technology increases efficiency and lowers production costs, leading to an increase in supply.
Sumera Nawaz ECONOMICS   -   Microeconomics

If the price elasticity of demand for a good is less than 1, the demand is considered

If the price elasticity of demand is less than 1, it indicates that quantity demanded is not very responsive to changes in price, hence the demand is considered inelastic.
Fani Warraich ECONOMICS   -   Macroeconomics

Macroeconomics distinguishes between the real economy and the

Spending is influenced by both the amounts of products and services purchased and their dollar-denominated pricing.
Fani Warraich ECONOMICS   -   Macroeconomics

Until the First World War, the prices

The price-level was balanced over long periods of 20-50 years.
Sumera Nawaz ECONOMICS   -   Macroeconomics

Which of the following is NOT included in the calculation of Gross Domestic Product (GDP)?

Transfer payments are not counted in GDP as they do not represent production of goods and services.
Sumera Nawaz ECONOMICS   -   Macroeconomics

Which of the following measures is used to adjust Gross Domestic Product (GDP) for inflation?

Real GDP adjusts for inflation by removing the effects of price changes, providing a measure of GDP in constant prices.
Sumera Nawaz ECONOMICS   -   Macroeconomics

If Gross Domestic Product (GDP) is $10 trillion and Gross National Product (GNP) is $11 trillion, what is the value of net factor income from abroad (NFIA)?

GNP - GDP = NFIA, so $11 trillion - $10 trillion = $1 trillion.
Sumera Nawaz ECONOMICS   -   Macroeconomics

Which of the following transactions would be included in the calculation of Gross Domestic Product (GDP)?

Only final goods and services produced within the country's borders are included in GDP. The purchase of a used car (A), military equipment from a foreign country (C), and tuition fees (D) are not counted in GDP.
Sumera Nawaz ECONOMICS   -   Macroeconomics

Which of the following is NOT a component of the expenditure approach to calculating Gross Domestic Product (GDP)?

All of the listed options are components of the expenditure approach to GDP calculation.
Sumera Nawaz ECONOMICS   -   Macroeconomics

If a country's Gross Domestic Product (GDP) is $500 billion and its population is 100 million, what is the country's GDP per capita?

GDP per capita is calculated by dividing GDP by the population, so $500 billion / 100 million = $5,000.
Sumera Nawaz ECONOMICS   -   Macroeconomics

Which of the following is an example of a transfer payment?

Transfer payments are payments made by the government to individuals or households without the expectation of goods or services in return.
Sumera Nawaz ECONOMICS   -   Macroeconomics

Which of the following is NOT a limitation of Gross Domestic Product (GDP) as a measure of economic welfare?

GDP can be adjusted for inflation to calculate real GDP, addressing this limitation.
Sumera Nawaz ECONOMICS   -   Macroeconomics

In the circular flow of income, which sector consists of households?

The household sector represents individuals or households who consume goods and services and provide factors of production to firms.
Sumera Nawaz ECONOMICS   -   Macroeconomics

If a country's Gross Domestic Product (GDP) is $800 billion and its Gross National Product (GNP) is $750 billion, what is the value of net factor income from abroad (NFIA)?

GNP - GDP = NFIA, so $750 billion - $800 billion = -$50 billion. Since NFIA is negative, it means the country has a net outflow of income to the rest of the world, so the absolute value of NFIA is $50 billion.

Contributor(5)

Fani Warraich
Janib Khan
Bashir Farooqi
Muhammad Tayyab Ikhlas
Sumera Nawaz