Free Access CIMA.CIMAPRA19-P03-1.v2022-01-31.q79 Practice Test (Page 16)

Question 71

Which of the following will increase the value of a call option?

A.A decrease in the market value of the share.

B.A decrease in the volatility of the share.

C.An increase in the strike price.

D.An increase in the time to expiry.

Question 72

The long-term prospects for inflation in the UK and the USA are 2% and 6% per annum respectively.
The GBP/USD spot rate is currently GBP/USD1.71.
Using purchasing power parity theory, what GBP/USD spot rate would you expect to see in three months' time?

A.GBP/USD1.69

B.GBP/USD1.77

C.GBP/USD1.73

D.GBP/USD1.65

Question 73

Which of the following best describes the conflict between maximising profit and maximising shareholder wealth?

A.Tax is paid on profit, but not on shareholder wealth.

B.Profits can be increased from one year to the next without increasing shareholder wealth.

C.Managers are generally more interested in maximising shareholder wealth than in maximising profits or sales.

D.Profit and shareholder wealth are unrelated.

Question 74

COM is a well established company in the construction industry The company was founded by the Mac family 30 years ago and several family members still serve on the Board The company obtained a listing five years ago The Board has an appropriate balance between executive and non-executive members It also has audit remuneration and nomination committees The average age of board members is 68 COM is profitable but profit margins have been falling steadily and this year's revenues are lower than it was achieved last year The Board recognis thai it does not have a long term strategy in place and has been losing business to newer, more aggressive competitors Which THREE of the following statements are correct?

A.The nomination committee should be operating for the benefit of the directors.

B.The remuneration committee should consider incentives such as share options to encourage the Board to focus on COM's long term strategy

C.The non-executive directors should have challenged the lack of long term strategic planning

D.The audit committee should have alerted the Board to the impact of falling profit margins

E.The nomination committee should have had a succession plan in place for directors.

Question 75

In-depth analysis showing the identification and quantification of exposure to financial risk has become more accessible in recent years. Several varieties of analysis are now available.
Which of the following statements are true?

A.Sensitivity analysis involves checking the performance of a financial risk model against the various interrelationships between the different input variables in the model.

B.Monte Carlo analysis is a modelling technique which can be applied to financial analysis, allowing thousands of variables to be integrated together to show standard behaviours and outlier abnormalities requiring detailed understanding in a 'what if?' environment.

C.Regression analysis is easy to understand and implement, and based on future expectations.

D.Simulation, which is becoming available through standard computing packages, is complex to implement but dynamic and adaptable to cater for different assumptions.

E.Value at risk analysis, which has become available through increased computing power, is now easier to implement and can cater for extreme market conditions.

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Question 71

Question 72

Question 73

Question 74

Question 75

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