0710 FM (CFA540) - Question Paper Financial Management...

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1 Question Paper Financial Management (CFA540): October 2007 Answer all questions. Marks are indicated against each question. 1. The rate of return on common stock of FTC Ltd. over the coming year is normally distributed with an expected value of 20% and a standard deviation of 25%. What is the probability of earning a negative rate of return? (a) 3.59% (b) 21.19% (c) 16.49% (d) 22.13% (e) 40.13%. (1 mark) < Answer > 2. Which of the following implies the significant advantage of a public limited company over a proprietorship firm? (a) Fewer government regulations (b) Limited life (c) Inability to mobilize a lot of funds (d) Limited liability (e) Difficulty of transfer of ownership interest. (1 mark) < Answer > 3. The term divestiture involves which of the following activities? I. Distribution of shares to the existing shareholders of the parent company. II. Sale of a portion of the firm through an equity offering. III. Sale of a portion of the firm’s shares to an outside third party in consideration of cash or equivalent thereof. (a) Only (I) above (b) Only (II) above (c) Only (III) above (d) Both (I) and (III) above (e) All (I), (II) and (III) above. (1 mark) < Answer > 4. A dealer has taken long position in Euro against dollar when the market rates for $/Euro are 1.3545/47. Later the rates moved to 1.3542/44. If the dealer liquidates his long position, it results into a (a) Profit of $ 0.0001 per Euro (b) Profit of $ 0.0002 per Euro (c) Loss of $ 0.0003 per Euro (d) Profit of $ 0.0003 per Euro (e) Loss of $ 0.0005 per Euro. (1 mark) < Answer > 5. A quote is called as American quote, if the exchange rate is expressed (a) In terms of number of units of any other currency per unit of US dollar (b) In terms of US dollars per unit of any other currency (c) In terms of number of units of any other currency per unit of British pound (d) In terms of number of units of any other currency per unit of any other currency excluding British (e) In terms of number of units of any other currency per unit of euro. (1 mark) < Answer >
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2 6. Which of the following is/are true regarding a company following a conservative working capital policy? I. The technical insolvency of the company will be high. II. The company will finance it’s current assets more from long-term source. III. The company will have a higher current ratio than one following an aggressive working capital policy. IV. The company will have a lower current assets turnover ratio than the one following an aggressive working capital policy. (a) Only (I) above (b) Both (II) and (III) above (c) Both (III) and (IV) above (d) (I), (II) and (III) above (e) (II), (III) and (IV) above. (1 mark) < Answer > 7. Leontief paradox is associated with which of the following theories of international trade?
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0710 FM (CFA540) - Question Paper Financial Management...

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