Free CMA Exam Braindumps (page: 151)

Page 151 of 336
View Related Case Study

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

  1. $3846
  2. $41.60
  3. $50.00
  4. $60.00

Answer(s): C

Explanation:

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).



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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?

  1. Option
  2. Option
  3. Option
  4. Option

Answer(s): A

Explanation:

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



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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?

  1. Option
  2. Option
  3. Option
  4. Option

Answer(s): C

Explanation:

The basic formula is .This formula can be used to solve any time value of money problem incoming a single future cash flow (FVn). In this problem, the future amount needed after n time periods and the interest rate are known, The unknown is the value of an amount to be deposited today, i.e., the present value (PV). The formula PV = FV/(1 + j)fl is a transformed version of the basic TVMF formula. The future value of $1 table can be used to find the TVMF equal to (1 + or the present value of $1 table can be used to find the TVMF equal to 11(1 + 1) fl.



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Future value is best described as

  1. The sum of dollars-in discounted to time zero.
  2. The sum of dollars-out discounted to time zero.
  3. The value of a dollar-in at a future time adjusted for any compounding effect
  4. 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.

Answer(s): D

Explanation:

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 which 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.



Page 151 of 336



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