Module 7: Questions

Topic 1 – 3 Financial Statement Analysis

1. Providing information about the performance and financial position of companies

so that users can make economic decisions best describes the role of

A. auditing.
B. financial reporting
C. financial statement analysis.
D. Fundamental analysis

2. A company’s current financial position would be evaluated using the

A. balance sheet.
B. income statement.
C. cash flow statement.
D. financial activities

3. A company’s profitability for a period would best evaluated using the

A. balance sheet.
B. income statement.
C. cash flow statement.
D. Financial activities

4. Accounting methods, estimates, and assumptions used in preparing

financial statement are found

A. in footnotes.
B. in the auditor’s report.
C. in the proxy statement.
D. In the director’s report

5. Information about management and director compensation would best be

found.

A. in footnotes.
B. in the auditor’s report.
C. in the proxy statement.
D. In the director’s report

6. Information about material events and uncertainties would best be found in

 A. footnotes.
B. the proxy statement
C. management’s discussion and analysis.
D. Auditor’s report

7. What type of audit opinion is preferred when analyzing financial statements?

A. Qualified.
B. Adverse.
C. Unqualified.
D. Certified

8. Ratios are an input into which step in the financial analysis framework?

A. Process data.
B. Collect input data.
C. Analyze/interpret the processed data.
D. Output data

Questions 9 - 20 are based on the following:

Sunshine Citrus Growers

Income Statement (1997)

Sales $ 2,500,000.00
Cost of goods sold $ 1,260,000.00
Gross Profit $ 1,240,000.00
Selling and administrative expenses $ 700,000.00
Operation profit $ 540,000.00
Interest expenses $ 160,000.00
Income before tax $ 380,000.00
Tax expense $ 152,000.00
Net income $ 228,000.00

Balance Sheet
1997 1996
Cash $ 60,000.0 $ 50,000.00
Accounts receivable $ 500,000.0 $450,000.00
Inventory $300,000.00 $270,000.00
Total current assets $860,000.00 $770,000.00
Fixed assets $2,180,000.00 $2,000,000.00
Total assets $3,040,000.00 $2,770,000.00
Accounts payable $200,000.00 $170,000.00
Bank Loan $460,000.00 $440,000.00
Total current Liabilities $660,000.00 $610,000.00
Bonds Payable $860,000.00 $860,000.00
Total liabilities $1,520,000.00 $1,470,000.00
Common stock (30,000 shares) $120,000.00 $120,000.00
Retained earnings $1,400,000.00 $1,300,000.00
Total liability & s/h equity $3,040,000.00 $2,890,000.00

Note : The common shares are trading in the stock market for $36 each.

9. Refer to the financial statements of Sunshine Citrus Growers. The firm's current ratio for
1997 is_______ .

A. 0.28
B. 1.30
C. 2.31
D. 2.07

10. Refer to the financial statements of Sunshine Citrus Growers. The firm's quick ratio for
1997 is _______ .

A. 0.78
B. 1.71
C. 1.00
D. 0.85

11. Refer to the financial statements of Sunshine Citrus Growers. The firm's debt to equity
ratio for 1997 is _______.

A. 1.56
B. 1.62
C. 0.64
D. 0.87

12. Refer to the financial statements of Sunshine Citrus Growers. The firm’s times interest
earned ratio for 1997 is __________.

A. 1.56
B. 1.62
 C. 2.00
D. 3.37

13. Refer to the financial statements of Sunshine Citrus Growers. The firm's times interest
earned ratio for 1997 is _______.

A. 5.26
B. 49.05
C. 61.31
D. 69.35

14. Refer to the financial statements of Sunshine Citrus Growers. The firm's inventory
turnover ratio for 1997 is _______.

A. 1.04
B. 2.58
C. 4.42
D. 1.62

15. Refer to the financial statements of Sunshine Citrus Growers. The firm's fixed assets
turnover ratio for 1997 is _______.

A. 1.20
B. 0.63
C. 1.97
D. 2.58

16. Refer to the financial statements of Sunshine Citrus Growers. The firm's asset turnover
ratio for 1997 is _______.

A. 1.34
B. 1.63
C. 0.86
D. 2.58

17. Refer to the financial statements of Sunshine Citrus Growers. The firm's return on sales
ratio for 1997 is ________ percent.

A. 21.6
B. 15.0
 C. 4.0
D. 0.2

18. Refer to the financial statements of Sunshine Citrus Growers. The firm's return on equity
ratio for 1997 is _______.

A. 0.24%
B. 1.63%
C. 4.00%
D. 15.50%

19. Refer to the financial statements of Sunshine Citrus Growers. The firm's P/B ratio for
1997 is _______.

A. 7.88
B. 1.63
C. 4.00
D. 15.00

20. Refer to the financial statements of Sunshine Citrus Growers. The firm's market to book
value for 1997 is _______.

A. 0.24
B. 0.71
C. 4
D. 15

21. Squires & Johnson, Ltd., recorded $250,000 of depreciation expense in

December 2005. The most likely effect of the company’s accounting
equation is

A. no effect on assets.
B. a decrease in assets of $250,000.
C. an increase in liabilities of $250,000.
D. no effect on liabilities

22. An analyst who is interested in assessing a company’s financial position is

most likely to focus on which financial statement?

A. Balance sheet.
 B. Income statement.
C. Statement of cash flows.
D. Operating income

23. The statement of cash flow presents the flow into which three groups of
business activities?

A. Operating, Nonoperating, and Financing.

B. Nonoperating, Investing, and Financing.
C. Operating, Nonoperating, and Investing.
D. Operating, Investing, and Financing.

24. Which of the following statements about cash received prior to the
recognition of revenue in the financial statements is most accurate? The
cash is recorded as

A. deferred revenue, an asset.

B. accrued revenue, a liability.
C. deferred revenue, a liability.
D. accrued revenue, an asset

25. When, at the end of an accounting period, a revenue has been recognized
in the financial statements but no billing has occurred and no cash has
been received, the accrual is to

A. unbilled (accrued) revenue, an asset.

B. deferred revenue, an asset.
C. unbilled (accrued) revenue, a liability.
D. deferred revenue, a liability

26. When, at the end of an accounting period, cash has been paid with respect
to an expense incurred but not yet recognized in the financial statements,
the business should then record

A. an accrued expense, an asset.

B. a prepaid expense, an asset.
C. an accrued expense, a liability.
D. a prepaid expense, a liability

27. When, at the end of an accounting period, cash has not been paid with
respect to an expense that has been incurred, the business should then
record
 A. an accrued expense, an asset.
B. a prepaid expense, an asset.
C. an accrued expense, a liability.
D. a prepaid expense, a liability

28. The assumption that an entity will continue to operate for the foreseeable
future is called

A. accrual basis.
B. comparability.
C. going concern.
D. prudence

29. The assumption that the effects of transactions and other events are
recognized when they occur, not necessarily when cash movements occur,
is called

A. prudence
B. going concern.
C. relevance.
D. accrual basis

30. Denali Limited, a manufacturing company, had the following income

statement information:

Revenue $4,000,000
Cost of goods sold $3,000,000
Other operating expenses $ 500,000
Interest expense $ 100,000
Tax expense $ 120,000

Denali’s gross profit is equal to

A. $200,000
B. $280,000
C. $500,000
D. $1,000,000

Topic 4 – Bond & Time Value of Money

1. Which of the following bond quality ratings applies to default-free bonds?

A. AAA
 B. Aaa
C. Both b and a are default-free
D. None of the above are default-free.

2. Which one of the following companies is a bond rating service?

A. Dun & Bradstreet

B. Dow- Jones
C. Rating Agency of Malaysia
D. All of the above

3. If a $10,000 face value bond is selling for $10,212.50, its price will be quoted in the
financial newspaper in which one of the following ways?

1
A. 102
8
B. 21.25 premium
C. 102.125 x 100
D. 102.2

4. Which one of the following statements best describes corporate bonds?

A. Bond investors are creditors of the corporation.

B. A bond is an engraved certificate evidencing corporate borrowing.
C. The majority of bonds make coupon interest payments once per annum.
D. Both a and b are true.

5. An indenture is best described by which one of the following statements?

A. Deed of Trust is a synonym for indenture.

B. It is legal contract describing the rights of specific bondholders.
C. It describes the duties of the Trustee.
D. All of the above are true.

6. An indenture may contain protective clauses dealing with which of the following topics?

A. Collateral
B. A sinking fund.
C. Subordination clauses
D. All of the above

7. The quality ratings of a corporation’s bond issue are primarily determined by which of the
following?

A. The level and trend of the issuer’s financial ratios.

B. The level and structure of interest rates.
 C. the issuer’s financial condition and the indenture contract that governs the issuing
firm.
D. All the above.

8. Mortgage bond issues that are subordinated to the first mortgage bonds are called which
of the following?

A. Closed-end mortgage bonds

B. Limited open-end bonds
C. Open-end bonds
D. Both a and b

9. Guaranteed bonds are which of the following?

A. Corporate bonds that are guaranteed by the Malaysian government

B. Corporate bonds of one company that are guaranteed by another company that
acquired the first company
C. May be guaranteed with respect to principal or interest or both
D. Both b and c

10. One bond with an AAA-grade rating might pay a higher yield-to--maturity than another
AAA-grade bond issued at a different time by the same corporation because of which of
the following reasons?

A. Bonds with longer maturities always pay higher rates of interest than similar
bonds that have shorter maturities.
B. The bond market is sometimes simply irrational and evaluates the riskiness. o
some bond issues erroneously.
C. One of the bond issues may have protective provisions that makes it safer than
other bond issues from the same issuer.
D. All the above are true.

11. A coupon bond that pays interest annually is selling at par value of $1,000, matures in
years, and has a coupon rate of 9%. The yield to maturity on this bond is:

A. 6.00%
B. 8.33%
C. 9.00%
D. 45.00%

12. A coupon bond that pays interest annually, has a par value of S 1,000, matures in 5 years,
and has a yield to maturity of 10%. The intrinsic value of the bond today will be
___________if the coupon rate is 12%.

A. $92237
 B. $924.16
C. $1,075.82
D. $1,077.20

13. A coupon bond that pays interest of $100 annually has a par value of $1,000, matures in
5 years, and is selling today at a $72 discount from par value. The yield to maturity on this
bond is:

A. 6.00%
B. 8.33%
C. 12.00%
D. 60.00%

14. You purchased an annual interest coupon bond one year ago that now has 6 years
remaining until maturity. The coupon rate of the interest was 10% and par value was
$1,000. At the time you purchased the bond, the yield to maturity was 8%. The amount
you paid for this bond one year ago was

A. $1,057.50
B. $1,075.50
C. $1,088.50
D. $1,104.13

15. A 10% coupon bond, annual payments, 10 years to maturity is callable in 3 years at a
call price of $1,100. If the bond is selling today for $975, the yield to call

A. 10.26%
B. 10.00%
C. 9.25%
D. 13.98%

16. Convertible bonds

A. give their holders the ability to share in price appreciation of the underlying stock.
B. offer lower coupon rates than similar nonconvertible bonds
C. offer higher coupon rates than similar nonconvertible bonds.
D. both a and b are true

17. Holding other factors constant, the interest rate risk of a coupon bond is higher when the
bond’s:
A. term-to-maturity is lower.
B. coupon rate is higher.
C. yield to maturity is lower.
D. current yield is higher
18. Calculate the real risk-free rate of return If a 30-day government security yields is 6% and
you are given the additional following information:
inflation premium 3%
liquidity premium 1%
default risk premium 2%

A. 2%
B. 3%
C. 4%
D. 9%

19. A bond with par 850 has 10% annual coupon has 5 years to maturity. What is current
yield on bond if the required rate of return is 8%?

A. 1.26
B. 8
C. 9.26
D. 10

20. You purchased an annual interest coupon bond one year ago that now has 6 years
remaining until maturity. The coupon rate of interest was 10% and par value was
RM1,000. At the time you purchased the bond, the yield to maturity was 8%. The
amount you paid for this bond one year ago was (in RM)

A. 1,057.50
B. 1,075.50
C. 1,088.50
D. 1,104.13

21. The following are the long-term credit ratings given by Malaysian Rating Corporation
Bhd (“MARC”). Which is the lowest investment grade category?
MARC Rating Categories
AAA
AA
A
BBB
BB
B
C
D

A. A
B. BBB
C. BB
D. B
22. A bond with annual interest of RM60 has a par RM1,000. It has 20 year to maturity. it
is callable after 10 year at RM1100. If it is currently selling at RM1055.84, the yield
to call on this bond is:

A. 6%
B. 6.58%
C. 7.2%
D. 8%

23. The _____________ is a measure of the average rate of return an investor will earn if
the investor buys the bond now and holds until maturity.

A. current yield
B. dividend yield
C. P/E ratio
D. yield to maturity

24. A coupon bond that pays interest annually is selling at par value of $1,000, matures in
5 years, and has a coupon rate of 9%. The yield to maturity on this bond is ______.

A. 6.00%
B. 8.33%
C. 9.00%
D. 45.00%

25. If the future value for $1 at the end of n years at i% is $2.5937, the present value of
$1 to be received at the end of n years at i% is:

A. $0.12486
B. $0.25937
C. $0.3855
D. insufficient data provided.

26. Investment income on $500 invested for one year at annual interest rate of 12% and
compounded quarterly is:

A. $58.23
B. $60.00
C. $62.75
D. none of the above.

27. What is the value in five years of $100 invested today at an interest rate of 8 percent
per year compounded quarterly?

A. $144.50
B. $146.93
 C. $148.02
D. $148.59

28. What quarterly payment is necessary to accumulate $1.5 million over 15 years if the
annual interest rate is 6.75% compounded quarterly? Assume payments are made at the
end of each quarter.

A. $10,703
B. $14,637
C. $24,748
D. $25,000

29. As of January 1st, 1991, an annuity offers $5,000 per year for seven years with the
first payment due January 1st, 1996. If the annual interest rate is 11.5%, what is the
present value of the annuity?

A. $13,453
B. $15,000
C. $23,185
D. $30,348

30. An investment of $2,000 today results in a return of $150 at the end of the first year
and $2,150 at the second year. The internal rate of return on the investment is:

A. 6.4%
B. 7.5%
C. 9.0%
D. 12.5%

31. What is the present value of the following stream of year-end payments discounted at
12% per year?

Year 1 Year 2 Year 3 Year 4

$-100 -$200 -$100 $450

A. -$53.37
B. -$44.65
C. -$33.92
D. -$13.06

32. If $1,500 is invested today and $1,500 is invested one year from today both at the
annual interest rate of 12% compounded annually, what will be the total amount in the
account two years from today?

A. $3,180
B. $3,360
C. $3,382
 D. $3,562

33. An investment of $231 will increase in value to $268 in three years. The annual
compound growth rate is closest to:

A. 3.0%
B. 4.0%
C. 5.0%
D. 6.0%

34. An investment has the following stream of annual year-end cash flows:
Year-End Cash Flows
1 2 3 4
$15 $25 $10 $-5

If the discount rate is 12%, the present value of this stream of cash flows is closet to:

A. $28.60
B. $37.26
C. $43.62
D. $45.00

35. An investor wants to have $140,000 available at the end of 12 years. This investor plans
to make 12 equal year-end payments into an investment that is expected to earn an 8%
annual rate of return. The required amount of each year-end payment is closest to:

A. $4,633
B. $6,831
C. $7,377
D. $10,802

36. An investor wants to buy an annuity that will pay $25,000 at the end of each of the
next 15 years. If the investor can earn 8% interest per year on the annuity, the
purchase price of the annuity is closest to:

A. $125,470
B. $213,987
C. $347,222
D. $375,000

37. Assuming a 10% annual discount rate, which one of the following cash flows has the
highest present value today:

Received 1 Year Received 2 Year Received 3 Year

From Today From Today From Today
A. $50 $200 $0
B. $10 $0 $300
C. $240 $0 $0
 D. $0 $275 $0

38. An individual deposits $10,000 at the beginning of each of the next 10 years, starting
today, into an account paying 9% interest compounded annually. The amount of
money in tile account at the end of 10 years will be closest to:

A. $109,000
B. $143,200
C. $151,900
D. $165,600

39. An investment promises to pay $100 one year from today, $200 two years from today
and $300 three years from today. If the required rate of return is 14%, compounded
annually, the value of this investment is closest to:

A. $404
B. $444
C. $462
D. $516

40. Determine the present value of the following cash flows if the assumed discount rate is
14%:
0 1 2 3 4

$0 $1000 -$500 $2,000 -$600

A. $1.214.85
B. $1,487.15
C. $1,601.85
D. $1,710.15

Topic 5 - Equity

1. An analyst gathered the following information about a stock market index:

I. Required rate of return = 15%
II. Expected dividend payout ratio = 40%
III. Expected return on equity investment = 20%
The expected price/earnings (P/E) ratio of the index is closest to:
A. 3.5
B. 7.0
C. 13.3
D. 35.0
2. Identify the correct statement about price/sales ratios
A. A low price/sales ratio may indicate an abnormally low debt ratio.
B. One would expect high turnover businesses with low profit margins to have high
price/sales ratios.
C. Analysts seek out socks with high price/sales ratios to recommend for purchase.
D. Price/sales ratios are used to avoid the difficulty of normalizing earnings for use in
P/E ratios

3. A company whose stock is selling at P/E ratio greater than the P/E ratio of a market index
most likely has:

A. an anticipated earnings growth which is less than that of the average company.
B. a dividend yield which is less than the of the average company
C. less predictable earnings growth than that of the average company
D. greater cyclicality of earnings growth than that of the average company

4. Assume that at the end of the next year, Company A will pay a $2.00 dividend per share,
an increase from the current dividend is expected to increase at a constant rate of 5%. If
you require a 12% return on the stock, what is the value of the stock?

A. $28.57
B. $28.79
C. $30.00
D. $31.78

5. You are considering acquiring a common stock that you would like to hold for one year.
You expect to receive both $1.50 in dividend and $26 from the sale of stock at the end of
the year. What is the maximum price you would pay for the stock today if you wanted to
earn a 15% return?

A. $23.91
B. $24.11
C. $27.30
D. $27.50

6. Assuming all other factors remain unchanged, which one of the following would reduce a
firm's price/earnings ratio?

A. The dividend payout ratio increases.

B. Investors become less risk averse.
C. The level of inflation is expected to decline
D. The yield on Treasure bills increases.
7. A share of stock is expected to pay a dividend of $1.00 one year from now, with growth at
5 percent thereafter, In the context of a dividend discount model, the stock is correctly
priced today at $10.According to the single stage, constant growth dividend discount
model, if the required return is 15 percent, the value of the stock two years from now
should be:

A. $11.03
B. $12.10
C. $13.23
D. $14.40

8. In applying the constant-growth dividend discount model, lowering the market

capitalization rate will cause a stock's intrinsic value to:

A. decrease.
B. increase.
C. remain unchanged
D. decrease or increase, depending upon other factors

9. Assume the following information for a stock:

Beta coefficient = 1.50

Risk free rate = 6 percent
Expected rate of return on market = 14 percent
Dividend payout ratio = 30 percent
Expected dividend growth rate = 11 percent

Using a dividend discount model approach, the normalized price earnings ratio is:

A. 3.33
B. 4.29
C. 5.56
D. 10.00

10. A stock has a required return of 15 percent, a constant growth rate of 10 percent, and a
dividend payout ratio of 45 percent. The stock's price-earnings multiple is most likely to
be:
A. 3.0 times.
B. 4.5 times.
C. 9.0 times.
D. 11.0 times.
11. All of the following statements about various types of risk are true EXCEPT:

A. Business risk is the certainty of income flows caused by the nature of a firm's
business.
B. Financial risk is the uncertainty introduced by the method by which the firm
finances its investments.
C. Exchange rate risk is the uncertainty of returns caused by the possibility of a
major change in the political or economic environment of a country.
D. Liquidity risk is the uncertainty introduced by the secondary market for an
investment.

12. The constant-growth dividend discount model would typically be most appropriate in
valuing the stock of a:

A. new venture expected to retain all earnings for several years.

B. rapidly growing company.
C. moderate growth, "mature" company.
D. company with valuable assets not yet generating profits.

13. An investor plans to buy a common stock and hold it for one year. The investor expects
to receive both $1.50 in dividends and $26.00 from the sale of the stock at the end of the
year should pay for the stock today is closest to:

A. $22.61
B. $23.91
C. $24.50
D. $27.50

14. The constant-growth dividend discount model will not produce a finite value for a stock
if the dividend growth rate is:

A. above its historical average.

B. below its historical average.
C. above the required rate of return on the stock.
D. below the required rate of return on the stock.

15. A common stock pays an annual dividend per share of $2.10. The Risk-free rate is 7%,
and the risk premium for this stock is 4%. If the annual dividend is expected to remain at
 $2.10, the value of the stock is closest to:

A. $19.09
B. $30.00
C. $52.50
D. $70.00

16. Financial leverage differs from the operating leverage because financial leverage
accounts for a company's:

A. use of debt.
B. variability in sales.
C. use of plant and equipment.
D. variability in fixed operating costs.

17. Which of the following assumptions does the constant growth dividend discount model
require?
I. Dividends grow at a constant rate.
II. The dividend growth rate continuous indefinitely.
III. The required rate of return is less than the dividend growth rate.

A. I only.
B. III only
C. I and II only
D. I, II, and III

18. Other things being equal, which one of the following would be consistent with a relatively
high price/earning ratio for a firm?

A. The variability of earning is high

B. The growth rate of earnings is low.
C. The degree of financial leverage is low.
D. The inflation rate is high.

19. Estimate the sustainable earnings growth rate given the following information:
Return on Equity = 20%
Dividend Payout Ratio = 30%

A. 6%
B. 10%
C. 14%
 D. 20%

20. Which of the following will result in an increase in book value per share?

A. Issuing long-term debt.

B. Retiring long-term debt.
C. Retiring shares at a market price above book value per share.
D. Issuing shares at a market price above book value per share.

21. Which one of the following statements is correct?

A. A low price/sales ratio indicates an abnormally low debt level.

B. High turnover businesses with low profit margins have high price/sales ratios.
C. Companies with high operating margins have low price/sales ratios.
D. Price/sales are comparable among companies.

22. Company B paid a $1.00 dividend per share last year and is expected to continue to pay
out 40% of its earnings as dividends for the foreseeable future. If the firm is expected to
generate a 10% return on equity in the future, and if you require a 12% return on the
stock, what is the value of the stock?

A. $12.50
B. $13.00
C. $16.67
D. $17.67

23. Which one of the following would best explain a situation where the ratio of "net income
to total equity" for a firm is higher than the industry average, while the ratio of the "net
income to total assets" is lower than the industry average?

A. Net profit margin is higher than the industry average.

B. Debt ratio is higher than the industry average.
C. Asset turnover is higher than the industry average.
D. Equity multiplier must be lower than the industry average.

24. A stock is not expected to pay dividend until three years from now. The dividend is then
expected to be $2.00 per share, the dividend payout ratio is expected to be 40%, and the
return on equity is expected to be 15%. If the required rate of return is 12%, the value of
the stock today is closest to:
 A. $27
B. $33
C. $53
D. $67

25. In theory, a firm wanting to maximize share value should pay out as much of its earnings
in dividends as possible if it believes that:

A. investors are indifferent to the form of their return.

B. the company's future growth rate will be below its historical average.
C. the company will still have positive cash flow.
D. the company's future return on equity will be below its market capitalization rate.

26. In its latest annual report, a company reported the following:

Net income = $1,000,000

Total equity = $5,000,000
Total assets = $10,000,000
Dividend payout ratio = 40%
Based on the sustainable growth model, the most likely forecast of the company's future
earning growth rate is:

A. 4%
B. 6%
C. 8%
D. 12%

27. Other things being equal, two companies have substantially different dividend payout
ratios. After several years, the company with the lower dividend payout ratio is most
likely to have:

A. lower inventory turnover.

B. higher inventory turnover.
C. less rapid growth of earnings per share.
D. more rapid growth of earnings per share.

28. If, during a bull market, an indicator of the breadth of the market declines to successive
new lows while the Dow Jones Industrial Average reaches new highs, the technical
analyst most likely would conclude that:
 A. trading volume will soon decline.
B. there is a pending major downturn in stock prices.
C. trading is being dominated by individual investors.
D. the second stage advance has begun.

29. A basic assumption of technical analysis in contrast to fundamental analysis is that:

A. financial statements provide information crucial in valuing a stock.

B. a stock’s market price will approach its intrinsic value over time.
C. aggregate supply and demands for goods and services are key determinants of
stock value.
D. security prices move in patterns, which repeat over long periods.

30. Which of the following are underlying assumptions of technical’ analysis?

I. Past performance has no influence on future performance or market values.

II. Security prices adjust rap to stock market information.
III. Security prices move in trends, which persist for appreciable lengths of time.
IV. The market value of any good or service is determined solely by the interaction of
supply and demand for the good or service.

A. I and II only
B. I and IV only.
C. II and III only.
D. III and IV only.