Cisco
CompTIA
ISC
EC-Council
EXIN
Fortinet
ITIL
Juniper
Microsoft
VMware
Avaya
SAP
Google
NVIDIA
Salesforce
Amazon
Palo Alto Networks
ISC2
Splunk
ServiceNow
All Vendors
  2. Home
  3. Exams
  4. CFA
  5. CFA I

CFA CFA I Exam
CFA Level I Chartered Financial Analyst (Page 112 )

Updated On: 26-Jan-2026
Page 112 of 793
PDF with 3960 Questions

A firm wants to decrease its debt-to-asset ratio without affecting its current ratio. Which of the following actions can it undertake?

  1. Retire some of its outstanding bonds by using proceeds from the sale of old assets.
    II. Increase sales on credit.
    III. Pay off a part of the "salaries payable" account using cash.
    IV. Issue new stocks and invest the proceeds to purchase a production plant.
  2. I, II & III
  3. I & IV
  4. IV only
  5. II & III

Answer(s): C

Explanation:

Both "accounts receivable," which represents sales on credit and "salaries payable" are current accounts.
Therefore, if you do not want to affect current ratio, II and III are not acceptable strategies. When old assets are sold and the proceeds used to retire outstanding bonds, the debt-to-asset ratio decreases. This is because debt/asset ratio is almost always less than 1 (we will ignore abnormal cases where book equity can go negative; e.g. the case where the firm keeps borrowing and paying out the proceeds as dividends). Hence, when both numerator and denominator are decreased, the ratio decreases. However, the current portion of the long-term debt also gets retired, increasing the current ratio. So I is also not an acceptable strategy, though at first glance it appears so. With IV, debt is unaffected but assets increase, decreasing the debt/asset ratio.



When the Percentage of Sales method is used, the estimated bad debt expense is calculated by

  1. dividing total sales on account by the percentage
  2. subtracting the percentage of net sales on account from the balance of allowance for uncollectible accounts
  3. multiplying total sales on account times the percentage
  4. multiplying net sales on account times the percentage

Answer(s): D

Explanation:

This method bases the period adjustment on a percent of net sales on account for the period.



The interest expense on a discount bond _______ over time.

  1. decreases
  2. remains constant
  3. can increase or decrease, depending on interest rate movements
  4. increases

Answer(s): D

Explanation:

Remember that the book value of the liability of any straight bond equals the face value at maturity. Hence, when the bond is issued at a discount, the discount amount is amortized over the life of the bond. The outstanding liability thus increases steadily toward the face value. The increasing liability increases the interest expense over time.



An analyst has been researching a possible investment in collateralized debt obligations (CDOs). Identify the statement which is most likely correct.

  1. The underlying securities for a CDO are typically issued only by U.S.-based entities.
  2. A CDO with corporate bonds as the underlying security is known as a collateralized loan obligation (CLO).
  3. A CDO is typically structured into tranches, similar to a collateralized mortgage obligation (CMO).

Answer(s): C



Chris South owns $25,000 face value of Bradco bonds, which have a 7% coupon, pay interest semiannually, and have six years remaining until maturity. The bonds are callable at par. The bonds were rated A when Chris bought them at par two years ago, and they are currently worth $26,225, with a rating of AA. Which of the following statements most accurately describes the change in the risk of the Bradco bonds?

  1. Call risk has decreased.
  2. Liquidity risk has increased.
  3. Credit risk has decreased.

Answer(s): C



Viewing page 112 of 793
Viewing questions 556 - 560 out of 3960 questions



Post your Comments and Discuss CFA CFA I exam prep with other Community members:

Join the CFA I Discussion