IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 631:

  Ricardo gets a Christmas bonus of $1,500 cash. He decides to invest the whole amount in a mutual fund where it is expected to earn a return of 12%. How much will Ricardo have in the account at the end of 4 years?

  A. $2,36100

  B. $2,107 50

  C. $2.64300

  D. $2,196.00

  Correct Answer: A

  Using FV factor tables, the FV factor for 12% at the end of 4 years is 1 574. Thus, the future value of the account at the end of 4 years is $2.36 1 .00(1.574 x $1 500)

• Question 632:

  Falcon AG, a German heavy machinery manufacturer, is planning to expand its manifesting base in the US. and has been offered a special loan of $25 million by the state of Georgia. The loan is for a term of 5 years and carries an interest of 4% to be paid annually Falcons normal borrowing rate for 5-year borrowing is 6%. What is the value of this special loan to Falcon?

  A. $4.212 million.

  B. $2113 million.

  C. $6325 million,

  D. $20.788 million.

  Correct Answer: B

  The value of the special loan can be calculated by computing the NPV of the loan using Falcon's normal borrowing rate of 6% for 5 periods. NPV equals $25 million minus PV of interest payments minus PV of principal. Thus, the NPV is $2.1 13 million ($25 million --[($25 million x .04 annual interest) x4.212 PV of an annuity for Syrsat6%]-- ($25 millionx747PVof$1 in5yrs. at6%]}.

• Question 633:

  Find the required rate of return for equity investors of a firm with a f of 1.2 when the ask- free rate is 6%, the market risk premium is 4%, and the return on the market is 10%.

  A. 4.80%

  B. 6%

  C. 10%

  D. 10.80%

  Correct Answer: D

  The capital asset pacing model adds the risk-free rate to the product of the coefficient (a erasure of risk) and the difference between the market return and the risk-free rate. Thus, the required rate of return is 10.8% [6% + 1.2(4%)].

• Question 634:

  If the amount to deposit today to be able to replace an asset at a specified time in the future is to be determined, which formula should be used?

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: C

• Question 635:

  Future value is best described as

  A. The sum of dollars-in discounted to time zero.

  B. The sum of dollars-out discounted to time zero.

  C. The value of a dollar-in at a future time adjusted for any compounding effect

  D. The value of a dollar-in at a future time adjusted for any compounding effect and the value of a dollar-out at a future time adjusted for any compounding effect.

  Correct Answer: D

  The future value of a dollar is its value at a time in the future given its present value. The future value of a dollar is affected both by the discount rate and the time at witch the dollar is received. Hence, both dollars-En and dollars-out in the future maybe adjusted for the discount rate and any compounding that may occur.

• Question 636:

  You have just purchased a 15-year, $ 1.000 par value bond. The coupon rate on this bond is 9% annually, with interest being paid each 6 months. If you expect to earn a 12% nominal rate of return on this bond, how much did you pay for it?

  A. $642.76

  B. $793.43

  C. $875.38

  D. $950.75

  Correct Answer: B

• Question 637:

  A $1,000 par value convertible bond is selling at $1,200. If the conversion ratio is 20, what is the conversion price?

  A. $3846

  B. $41.60

  C. $50.00

  D. $60.00

  Correct Answer: C

  The conversion price is calculated by duding the par value of the bond by the conversion ratio. Thus, the conversion price is $50 ($1,000 20).

• Question 638:

  If the interest rate is to be determined in a given transaction in which the present value and future value are known, which formula would be used?

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: A

  The basic formula. PV x (1 + j)fl FVn. can be used to solve any time value of money problem that involves a single future cash flow (FVn). To determine the interest rate, the formula is transformed to the relationship (1 + j)fl FV1PV by dividing each side of the basic formula by PV. Since the TVMF is equal to (1 + one can then look in the future value of $1 table for n periods to find that interest rate for which the table's TVMF is equal to the TVMF calculated from the formula

• Question 639:

  The discount rate ordinal' used in present value calculations is the

  A. Federal Reserve rate

  B. Treasury bill rate.

  C. Minimum desired rate of return set by the firm.

  D. Prime rate.

  Correct Answer: C

  The discount rate most often used in present value calculators is the minimum desired rate of return as set by management. The NPV arrived at in this calculation is a first step in the decision process. It indicates how the project's return compares vent the minimum deseed rate of return

• Question 640:

  Which formula is used to determine the future value that will be available if a given amount of money is invested?

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: A

  The basic formula used is PV(1 + j)fl = FV i.e., the present value times one plus the interest rate to the nth power equals the future value at the end of the nth time period. When the present amount is known (e.g., A = $100). as well as the interest rate (e.g., i = 10%) and the number of time pentodes (e.g., n = 2). the future value can be calculated as $100(1 + .10)2 $121. A is typical' used in the formula, but it stands (or the PV or FV (whichever is not on the other side of the equals sign).