IMA CMA Part 2: Strategic Financial Management Sample Questions:

1. It is possible to eliminate risk in a two-stock portfolio of common stocks if

A) there is no correlation between the stocks.
B) the two stocks have equal positive beta coefficients
C) there perfect positive correlation between the stocks
D) there is perfect negative correlation between the stocks

2. A foreign subsidiary of a U S company has an intercompany loan from the parent company. Which one of the following statements about the subsidiary's functional currency is true?

A) It is the US dollar because the parent company is in the US
B) It is the U S dollar because the subsidiary has an intercompany loan from the parent company
C) It should be determined by the management of the U.S. Company
D) It should be the U S dollar if the local currency is hyper inflated

3. Define the term structure of interest rates and explain now it could impact QDD's objective of obtaining the lowest coupon rate Essay Quality Digital Design (QDD) Inc is a public-traded technology company Selected financial data of QDD for the prior year are as follows

QDD's stock was trading at $160 per share at the beginning of the yea: and at $176 per share by the end of the year. The company paid dividends of S5 per share. The company "s stock had a beta of 1 4 The stock market provided a total return of 12% last year, well above the 3% risk free rate of return QDD is considering the issuance of $200 million of bonds to fund the repurchase of $200 million of its stock.
QDD is evaluating the bond, including its term structure, maturity, and whether it should be callable obtaining the lowest coupon interest is an important objective of QDD. The CFO has estimated that sales for the current year would remain the same as last year and the new bond would add S12 million in annual interest payments

4. A company had an operating cycle of 110 days, a cash cycle of 40 days, and an accounts receivable period of so days. The company s inventory period and accounts payable period are

A) inventory period = 70 flays and accounts payable period = 50 flays
B) inventory period = 50 days ana accounts payable period - 150 flays
C) inventory period = 10 days and accounts payable period = 50 days
D) inventory period = 50 days and accounts payable period = 70 days

5. Safety Strollers was recently sued by several people who alleged harmful and unsafe strollers. The management team was largely unconcerned about these lawsuits due to the apparent negligence of the plaintiffs However, a consumer grassroots effort Drought these dangers into the public eye and the management team now fears for their brand s reputation and the sales o' their products. The facts are staring to get distorted and some stores are electing to no longer carry this brand. This situation could best be considered a

A) financial risk managed through product diversification
B) catastrophic force that could have been managed better with a robust crisis management plan
C) hazard loss mal can be mitigated with liability insurance
D) cost of doing business mat the company's m-house legal counsel will hand.

Solutions: