RIZAL TECHNOLOGICAL UNIVERSITY

Boni Avenue, Mandaluyong City

Junior Philippine Institute of Accountants

SET A
NAME: 1ST SEM._SCHOOL YEAR 2017-2018
MOCK COMPREHENSIVE EXAMINATION FINANCIAL MANAGEMENT 1

Subject in the Actual CPA Board Examination:

Management Advisory Services

Pray before taking the examination. God bless us.

MULTIPLE CHOICE THEORIES: Indicate your answers by writing the letter of your answer choice on
the provided answer sheet.

1. This is a market where short-term debts with maturities of one year or less are used as a source of
financing.
a. Money Market c. Bond Market
b. Stock Market d. Capital Market

2. It is an additional interest provided for debt securities that are fairly more difficult to convert to cash.
a. Risk Premium c. Inflation Premium
b. Liquidity Premium d. Maturity Risk Premium

3. The value of this bond is equal to the present values of cash flows from interest or coupon payments
and cash flow from the terminal or face value which is the maturity value of the bond.
a. Zero Coupon Bonds c. Yield to Maturity
b. Nonzero Coupon Bonds d. Yield to Call

4. This measures the capacity of the company to meet its long term debt obligations when they fall due.
a. Profitability Ratio c. Activity Ratio
b. Liquidity Ratio d. Leverage Ratio

5. It measures the number of times the company replaces its average inventories during an accounting
period due to sales.
a. Asset Turnover Ratio c. Inventory Turnover Ratio
b. Accounts Receivable Turnover Ratio d. Accounts Payable Turnover Ratio

6. It shows the proportion of earnings that is paid out to shareholders as dividends.

a. Pay-out Ratio c. Earnings Per Share
b. Price Earnings Ratio d. Plow Back Ratio

7. This is a market where a security or contracts with tailor-made features are being traded and held by
individuals.
a. Public Market c. Physical Market
b. Private Market d. Spot Market

8. The transactions in this market change the size of the capital structure of the company.
a. Private Markets c. Primary Markets
b. Public Markets d. Secondary Markets

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9. These are factors and situations that primarily affect the financial aspects of the corporation.
a. Financial Management c. Financial Intermediaries
b. Financial Environment d. Financial Markets

10. He is responsible for the custody of financial records, preparation of the financial statements, and
interpretation of financial data.
a. VP-Finance c. Treasurer
b. VP-Audit d. Controller

11. It is the minimum rate of return acceptable by the investor on the portfolio investment.
a. Expected Rate of Return c. Actual Rate of Return
b. Market Equilibrium d. Required Rate of Return

12. The percentage or rate of return that is expected to be realized on an investment after taking into
account the probability of possible outcomes.
a. Expected Rate of Return c. Actual Rate of Return
b. Market Equilibrium d. Required Rate of Return

13. This is a premium on the risk that long term investors encounter over the short term investors of debt
security.
a. Risk Premium c. Maturity Risk Premium
b. Liquidity Premium d. Inflation Premium

14. This is a corporation whose shares are offered to public or traded in the Philippine Stock Exchange.
a. Stock Corporation c. Publicly listed Company
b. Non-stock Corporation d. Privately owned Company

15. Return on Asset and Return on Equity are measures of

a. Profitability c. Solvency
b. Activity d. Liquidity

16. A tool that analyzes the return on asset and return on equity of the company by breaking down into
component ratios.
a. Financial Ratios c. Horizontal Analysis
b. DuPont Technique d. Vertical Analysis

17. The investment company that pools money from the investors then invests these accumulated
amount in a portfolio of securities.
a. Pension Fund c. Mutual Funds
b. Financial Institution d. Unit Investment Trust Fund

18. It is the issuance of additional shares of stocks of the company after its first time offering in order to
finance the capital budget or to improve its capital structure.
a. Primary Market c. Intial Public Offering Market
b. Secondary Market d. Seasoned Offering

19. This level of efficiency in Efficient Market Hypothesis (EMH) shows that the information regarding
past or historical prices of a particular stock is not conclusive in predicting stock prices.
a. Strong form c. Weak form
b. Semi-strong form d. Semi-weak form

20. A situation where a stock and its dividends grow at a different rate at the earlier part of its life.
a. Nonzero Coupon Bonds c. No Growth Stocks

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 b. Non-constant Growth Stocks d. Constant Growth Stocks

21. This model takes into consideration the expected cash flows of investment in stocks which are
dividends and stock price upon sale.
a. Net Asset Value Approach c. Discounted Dividend Model
b. Free Cash Flow Model d. Price-Earnings Relative Valuation Approach

22. This is a kind of bond that is exchangeable at the option of the bondholder for the issuing company’s
common stocks.
a. Convertible Bond c. Bond with Warrant
b. Callable Bond d. Bond with Put Provision

23. It is the metric that shows the extent to which a given stock’s returns move up and down with the
stock market.
a. Portfolio c. Risk-free Rate
b. Beta d. Risk Premium

24. This is the difference between the rate of return on the market portfolio and risk-free rate.
a. Risk Premium c. Maturity Risk Premium
b. Liquidity Premium d. Market Risk Premium

25. It is the process of planning, directing, organizing, controlling, and monitoring of the monetary
resources in order to achieve objectives and goals of the business.
a. Financial Management c. Financial Intermediaries
b. Financial Environment d. Financial Markets

26. It provides assessment of the significant increase or decrease in these different items in the financial
statements.
a. Financial Ratios c. Horizontal Analysis
b. DuPont Technique d. Vertical Analysis

27. It measures how efficiently the company produces revenue through the management of its assets.
a. Profitability Ratio c. Activity Ratio
b. Liquidity Ratio d. Leverage Ratio

28. It is also known as real asset or tangible markets because the products involved are real estate,
property, plant and equipment, inventories, etc.
a. Money Market c. Stock Market
b. Physical Market d. Spot Market

29. This is a premium present on short term and long term government or corporate issued debt security.
a. Risk Premium c. Maturity Risk Premium
b. Liquidity Premium d. Inflation Premium

30. Financial Ratios are used as tools and techniques in analyzing the financial statements
a. Because every single ratios developed are meaningful for the investors
b. Because they are prescribed by GAAP
c. Because they can provide information that may not be apparent from inspection of the
individual components of a particular ratio
d. Because they are required by the PFRS

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MULTIPLE CHOICE PROBLEM SOLVING. Indicate your answers by writing the letter representing your
answer of your choice on the provided answer sheet. Show your solution in good form at the back of your paper.

For items 31-35:

ASI Company has information pertaining to its total assets. However, only Cash and Equipment has a
determined amount of ₱100,000 and ₱800,000 respectively, other assets were Account Receivables and
Inventories. More so, the company has net sales amounting to ₱1,200,000. If Operating Profit Margin was
10%, Gross Profit Rate based on cost was 20%, Current ratio was 4:1, Turnovers based on year end
balances were 5 times and 4 times for Accounts Receivable and Inventorty respectively.

31. What is the ending balance of Accounts Receivable of ASI Company?

a. ₱200,000 c. ₱160,000
b. ₱240,000 d. ₱190,000

32. What is the ending balance of Inventories of ASI Company?

a. ₱240,000 c. ₱250,000
b. ₱160,000 d. ₱150,000

33. How much is the the Total Liability and Equity of ASI Company?
a. ₱1,390,000 c. ₱1,290,000
b. ₱1,340,000 d. ₱1,190,000

34. What is the ending balance of the Total Current Liabilities of ASI Company?
a. ₱147,500 c. ₱347,500
b. ₱142,500 d. ₱342,500

35. How much is the Operating Expense of ASI Company?

a. ₱100,000 c. ₱80,000
b. ₱90,000 d. ₱70,000

For items 36-37:

The real risk free rate is 1.5%, while the inflation is expected to average 3% per year for two years, 3.5% for
three years, then after which the inflation is expected to average for 4% a year. The maturity and liquidity
risk premiums are 3.2% and 1.8%.

36. If an 8 year corporate bond has a coupon rate of 12%, what is the default risk premium?
a. None c. 5.14%
b. 3.74% d. 1.94%

37. If a 10 year treasury bond has a yield of 11%, what is the default risk premium?
a. None c. 2.65%
b. 5.85% d. 0.85%

For items 38-40:

A bond with current yield of 8.56% and annual coupon rate of 7% matures in 8 years. The face value of the
bond is ₱1,000.

38. What is the price of the bond if issued today?

a. ₱856.00 c. ₱817.76
b. ₱924.24 d. ₱1,000.00
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 39. What is the effective interest rate used in discounting the bond?
a. 7% c. 9.05%
b. 8.56% d. 10.42%

40. What is the Capital Gains Yield?

a. 0.49% c. 1.86%
b. 1.56% d. 2.02%

41. An equity has a beta of 1.05, the expected return on the market is 12%, and the risk-free rate is 5.6%.
What must be the required return on this equity share?
a. 12.23% c. 11.29%
b. 12.32% d. 11.92%

42. If a project has a return distribution with an expected value of ₱2,000 and coefficient of variation
0.20, its standard deviation is?
a. 10,000 c. 1,000
b. 4,000 d. 400

43. The ordinary equity share of Dimension Industries has an estimated beta of 1.2. The risk-free rate is
8% and the expected return on the market is 12%. What is the required rate of return using the
Capital Asset Pricing Model (CAPM)?
a. 13% c. 12%
b. 12.8% d. 11.8%

For items 44-45:

Global Technology’s stock is currently trading at ₱25 per share. The stock’s dividend is projected to
increase at a constant rate of 7% per year. The required rate of return on the stock is 10%.

44. What is the stock’s expected dividend yield today?

a. 2.8% c. 3.2%
b. 3.0% d. 7.0%

45. What is the expected stock price four years from today?
a. 28.14 c. 32.77
b. 30.63 d. 36.60

For items 46-50:

Darwin Corporation’s fund manager has a ₱20,000,000 portfolio with a beta of 1.5. The risk-free rate is
4.5% and the market risk premium is 5.5%. The manager expects to receive an additional ₱5,000,000, which
she plans to invest in a number of stocks. After investing the additional funds, she wants the fund’s required
return to be 13%.

46. What is the required rate of return for the ₱20,000,000 investments in stocks?
a. 10.20% c. 11.20%
b. 11.75% d. 12.75%

47. What is the required rate of return for additional ₱5,000,000 investment?
a. 12.75% c. 13%
b. 12.89% d. 14%

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 48. What should be the average beta of the new stock or stocks to be added to the portfolio?
a. 0.73 c. 1.73
b. 1.66 d. 2.66
49. What is the beta of the new portfolio with ₱25,000,000 investments?
a. 0.55 c. 1.55
b. 0.66 d. 1.66

50. What is the market rate of return of these kinds of stocks?

a. 8% c. 10%
b. 9.45% d. 10.45%

Prepared by:

Ericka Mae T. Verzo

VP for Academics, RTU-JPIA

Checked by:

Prof. Felecitas C. Tuazon, CPA

Faculty, Accountancy

Recommending Approval:

Prof. Elizabeth E. Salvador, CPA

Department Head, Accountancy

Approved by:

Prof. Amelia M. Arganda, CPA

CBET, Dean

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