CIMA CIMAPRA19-F03-1 Exam Practice Test Instant Access

Question 1

Which of the following statements are true with regard to interest rate swaps?

Select ALL that apply.

ASome companies interest rate swap to deliberately increase their risks because they believe that they are better at predicting future interest rates than the market.

BRisk of default is high from the floating interest rate payer if interest rates rise.

CWhen interest rates are falling the risk of default by the fixed interest rate payer is low.

DAn nicest rate swap is an internal hedging technique.

EAn interest rate swap is an external hedging technique.

Answer : B, C, E

Question 2

RR has agreed to sell goods to XX for S20.000 XX will pay when the goods are delivered in 6 months time. RR's home currency is the - The current exchange rate is 4.3 /S. The projected inflation rate for the S is 2.8%, and for the E 4 6%.

When RR receives payment for its goods, what will the value be to the nearest pound?

A87.506

B85,243

C86 760

D84.520

Answer : A

Question 3

Company H is considering thevaluation of an unlistedcompany which it hopes to acquire.

It has obtained thetarget company's financial statements.

Company Hhas been advised that the book value of net assets asshown inthe financial statementsof the target companydoes not provide a reliable indicator of their truevalue.

Advise the Board of Directors which of the following THREE statements aredisadvantagesof the net asset basis of valuation?

AThe net book value of assetsis merely a record of past transactions which complies with accounting conventions.

BThe net book value of assets can be obtained from the financial statements.

CIntangible assets are often notshown in the company's financial statements.

DThe net realisable value is usually differentfrom the net book value shown in the financial statements.

EThe net book value of current assets is normally a reliable indicator of their realisable value.

Answer : A, C, D

Question 4

The value of a call option will increase because of:

AAn increase in the strike price.

BA decrease in the volatility of the share.

CAn increase in the time to expiry.

DA decrease in the market value of the share

Answer : C

Question 5

The ex div share price of Company A's shares is $.3.50

An investor in Company A currently holds 2,000 shares.

Company A plans to issue a script divided of 1 new shares for every 10 shares currently held.

After the scrip divided, what will be the total wealth of the shareholder?

Give your answer to the nearest whole $.

A7000

B8000

Answer : A

Question 6

A listed company has recently announced a profit warning.

The company's share price fell 20% on the day of the announcement but had been fairly static in the weeks leading up to the announcement.

Which form of efficient market is most likely to be indicated by this share price movement?

AWeak form

BSemi-strong form

CStrong form

DRandom walk

Answer : B

Question 7

Company A is planning to acquire Company B. Both companies are listed and are of similar size based on market capitalisation No approach has yet been made to Company B's shareholders as the directors of Company A are undecided about the most suitable method of financing the offer Two methods are under consideration a share exchange or a cash offer financed by debt.

Company A currently has a gearing ratio (debt to debt plus equity) of 30% based on market values. The average gearing ratio (debt to debt plus equity) for the industry is 50% Although no formal offer has been made there have been market rumours of the proposed bid. which is seen as favorable to Company

AAs a consequence. Company As share price has risen over the past few weeks while Company B's share price has fallen.
Which THREE of the following statements are most likely to be correct?

ABased on current share price movements, a share exchange would mean Company A has to issue fewer shares to acquire Company B than it would have done a few weeks ago

BCompany B's shareholders will be able to participate in the future growth of the combined business if it is a share exchange

CThe method of finance chosen will not affect the post-acquisition earning per share of the combined business

DCompany A's weighted average cost of capital will fall if financing is with debt

ECompany A's gearing will increase following a share exchange.

Answer : A, A, D

CIMAPRA19-F03-1 F3 Financial Strategy Exam Practice Test