American Bankers Association American Bankers Association Certifications CTFA Questions & Answers

• Question 1:

  The concept that dollar today is worth more than a dollar received in future. It is:

  A. Time value of money

  B. Compounding

  C. Timeline

  D. Future value

  Correct Answer: A

• Question 2:

  The cost of equity capital is all of the following Except:

  A. The minimum rate that a firm should earn on the equity-financed part of an investment

  B. A return on the equity-financed portion of an investment that, at worst, leaves the market price of the stock unchanged

  C. By far the most difficult component cost to estimate

  D. Generally lower than the before-tax cost of debt

  Correct Answer: D

• Question 3:

  If the following are balance sheet changes: $5,005 decrease in accounts receivable $7,000 decrease in cash $12,012 decrease in notes payable $10,001 increase in accounts payablea "use" of funds would be the:

  A. $7,000 decrease in cash

  B. $5,005 decrease in accounts receivable

  C. $10,001 increase in accounts payable

  D. $12,012 decrease in notes payable

  Correct Answer: D

• Question 4:

  What are the earnings per share (EPS) for a company that earned $100,000 last year in after-tax profits, has 200,000 common shares outstanding and $1.2 million in retained earning at the year end?

  A. $100,000

  B. $6.00

  C. $0.50

  D. $6.50

  Correct Answer: C

• Question 5:

  A single, overall cost of capital is often used to evaluate projects because:

  A. It avoids the problem of computing the required rate of return for each investment proposal

  B. It is the only way to measure a firm's required return

  C. It acknowledges that most new investment projects have about the same degree of risk

  D. It acknowledges that most new investment projects offer about the same expected return

  Correct Answer: A

• Question 6:

  "Shareholder wealth" in a firm is represented by:

  A. The number of people employed in the firm

  B. The book value of the firm's assets less the book value of its liabilities

  C. The amount of salary paid to its employees

  D. The market price per share of the firm's common stock

  Correct Answer: D

• Question 7:

  The long-run objective of financial management is to:

  A. Maximize earnings per share

  B. Maximize the value of the firm's common stock

  C. Maximize return on investment

  D. Maximize market share

  Correct Answer: B

• Question 8:

  Budget control schedule is:

  A. A summary that shows how actual income and expenses compare with the various budget categories

  B. A summary that shows how actual income and expenses compare with the various budget categories and where variances (surplus or deficit) exist

  C. A graphical presentation of cash flows

  D. The interest earned each year

  Correct Answer: B

• Question 9:

  Total monthly loan payments divided by monthly gross (before-tax) income; provides a measure of the ability to pay debts promptly is:

  A. Solvency ratio

  B. Liquidity ratio

  C. Savings ratio

  D. Debt service ratio

  Correct Answer: D

• Question 10:

  A cash budget is the valuable money management tool that helps you EXCEPT:

  A. Maintain the necessary information to monitor and control your finances

  B. Decide how to allocate your income to reach your financial goals

  C. Implement a system of disciplined spending-as opposed to just existing from one paycheck to the next

  D. Enhance needles spending so you can increase the funds allocated to savings and investments

  Correct Answer: D