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IIA CIA Exam
Certified Internal Auditor Exam (Page 8 )

Updated On: 12-Jan-2026
Page 8 of 342
PDF with 1702 Questions

An entity has a high fixed-assets turnover ratio. What conclusion can a financial analyst
draw from this?

  1. The entity may be overcapitalized.
  2. The entity may have a problem with employees converting inventory to personal use.
  3. The entity may be undercapitalized.
  4. The entity has favorable profitability.

Answer(s): C

Explanation:

The fixed-assets turnover ratio equals net sales divided by net fixed assets. A high ratio indicates either that the entity is undercapitalized, that is, it cannot afford to buy enough fixed assets. or that it uses fixed assets efficiently.



The basic formula for the Black-Scholes Option Pricing Model essentially refs is Th., difference between the expected present value of the final stock price and the present value of the exercise price.

An entity wishes to price a call option written on a nondividend-paying stock using the Black-Scholes Option Pricing Model. The current stock price is US $50. the exercise price is US $48. the risk-free interest rate is 5.0%. the option expires in 1 year, and the cumulative probabilities used to calculate the present values of the final stock price and the exercise price are 65 and .58. respectively. If the value of et-n) is .9512. the current value of the call option is

  1. US $6.02
  2. US $4.66
  3. US $4.02
  4. US $2.00

Answer(s): A

Explanation:

C is the current value of a call option with time t in years until expiration, S is the current stock price. N di ) is the cumulative probability that ai deviation less than di will occur in a standardized normal distribution [N di) is an area to the left of d under the curve for the standard normal distribution], E is the call's exercise price. e is a constant approximately 2.7183), and r is the annualized continuous risk-free rate of return. Thus, the value of the call is



A forward contract involves:

  1. A commitment today to purchase a product on a specific future date at a price to be determined some time in the future.
  2. A commitment today to purchase a product some time during the current day at its present price.
  3. A commitment today to purchase a product on a specific future date at a price determined today.
  4. A commitment today to purchase a product only when its price increases above its current exercise price.

Answer(s): C

Explanation:

A forward contract is an executory contract in which the parties involved agree to the terms of a purchase and a sale, but performance is deferred. Accordingly, a forward contract involves a commitment today to purchase a product on a specific future date at a price del ermined today.



When an entity finances each asset with a financial instrument of the same approximate maturity as the life of the asset, it is applying:

  1. Working capital management.
  2. Return maximization.
  3. Financial leverage.
  4. A hedging approach.

Answer(s): D

Explanation:

Maturity matching, or equalizing the life of an asset and the debt instrument used to finance that asset, is a hedging approach. The basic concept is that the entity has the entire life of the asset to recover the amount invested before having to pay the lender.



The term "short-selling" is the

  1. Selling of a security that was purchased by borrowing money from a broker.
  2. Selling of a security that is not owned by the seller.
  3. Selling of all the shares you own in an entity in anticipation that the price will decline dramatically.
  4. Betting that a stock will increase by a certain amount within a given period of time.

Answer(s): B

Explanation:

Short-selling is accomplished by borrowing securities from a broker and selling those securities. At a later time, the loan is repaid by buying securities on the open market and returning them to the broker. The seller speculates that the stock's market price will decline.



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