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QUESTION NO: 1
An individual has a 10% probability of suffering from a headache when he has a cold versus 1% when he does not have a cold. If the individual has a probability of developing a cold equal to 5%, what is
the probability that this individual suffers from a headache?
A. 1.45%
B. 2.23%
C. 11%
Answer: A
Explanation: Assume event A is the event in which the individual suffers from a headache. Using the
Total
Probability Rule, P(A) = 0.1 x 0.05 + 0.01 x 0.95 = 1.45%.

QUESTION NO: 2
A payment of a cash dividend represents a cash outflow from ________.
A. operating activities under the direct method only.
B. investing activities.
C. financing activities.
Answer: C
Explanation: The payment of a dividend is a cash outflow from financing activities because the payment of
a dividend provides owners with a return on their investment.

QUESTION NO: 3
Data that describe characteristics of entities (such as persons, places, companies) at a given moment in time is called:
A. a time-series data.
B. a database.
C. cross-sectional data.
Answer: C
Explanation: Cross-sectional data are data that describe characteristics of entities (such as persons, places, and companies) at a given moment in time. A balance sheet is just one example of cross sectional
data. A census is also an example of cross-sectional data.

QUESTION NO: 4
Which of the following statements describing options is FALSE?
A. A call option will be exercised only if the market value of the underlying asset is more than the exercise price.
B. A put option holder's profit increases when the value of the underlying asset increases.
C. A put option will be exercised only if the market value of the underlying asset is less than the exercise
price.
Answer: B

QUESTION NO: 5
What is the value of a zero-coupon bond that pays $1,000 in five years if the market rate for this
security is 7%?
A. $ 712.99
B. $ 708.92
C. $ 735.43
Answer: B
Explanation: The present value of a payment received n years hence is given by:
n
PV = FV / (1 + R)
where: PV = present value, FV = future value, R = discount rate per period, n = # of periods
Therefore, the value of this bond is:
5 x 2
PV = $ 1,000 / [1 + (0.07/2)] = $708.92.
Note that the semi-annual compounding should be assumed if not specified.

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Updated: May 26, 2022