Free Access AAFM.CWM_LEVEL_2.v2022-02-14.q164 Practice Test (Page 8)

Question 31

Section C (4 Mark)
Read the senario and answer to the question.
By calculating HLV of Mahesh indicate the shortfall in his life insurance coverage using the given data:
Mr. Mahesh age 52, retirement age 60, paying professional tax of Rs. 5800 and income tax subject to allowable deductions as Rs. 230000, reasonable self maintenance expenditure estimated Rs. 140000 p.a., life insurance premium for self Rs. 25000 with total sum assured Rs. 1200000. He also pays insurance premium of Rs. 15500 and Rs. 7000 for life insurance policy of his wife and son respectively. Rate of interest assured for capitalization of future income is at 7%

A.Rs. 36.12 lakh

B.Rs. 24.84 lakh

C.Rs. 28.20 lakh

D.Rs. 30.23 lakh

Question 32

Section C (4 Mark)
Company A is financed with 90 percent debt, whereas Company B, which has the same amount of total assets, is financed entirely with equity. Both companies have a marginal tax rate of 35 percent. Which of the following statements is most correct?

A.If the two companies have the same return on assets, Company B will have a higher return on equity.

B.If the two companies have the same level of sales and basic earning power (BEP), Company B will have a lower profit margin.

C.If the two companies have the same basic earning power (BEP), Company B will have a higher return on assets.

D.All of the answers above are correct.

Question 33

Section B (2 Mark)
Which of the following is an assumption of two stage dividend discount model?

A.This model assumes two stages of growth, the first phase in which the growth rate is high and the second phase which represents steady state in which the growth rate is assumed to be stable and is expected to continue for next two years.

B.This model assumes two stages of growth, the first phase in which the growth rate is high and the second phase which represents steady state in which the growth rate is assumed to be stable and is expected to continue for a long-term.

C.None of the above.

D.This model assumes two stages of growth, the first phase in which the growth rate is low and the second phase which represents steady state in which the growth rate is assumed to be stable and is expected to continue for a long-term.

Question 34

Section A (1 Mark)
The slope of the CML is the:

A.Standard deviation for efficient portfolios.

B.Market price of risk for efficient portfolios.

C.Risk-free rate.

D.Risk premium for the market portfolio.

Question 35

Section A (1 Mark)
The potential loss for a writer of a naked call option on a stock is

A.Unlimited

B.Limited

C.Larger the lower the stock price.

D.Equal to the call premium.

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