D076 PA QUESTIONS AND CORRECT
ANSWERS 100% PASS
\Q\.In which way is accounting different from finance?
Accounting is backward looking, while finance is focused on the future.
\Q\.What is the term for an individual's beliefs concerning what is and is not acceptable to
personally do?
Morals
\Q\.Which factor contributes to the inflation of the prices of goods and services over time?
Increase in demand for goods and services
\Q\.Why can compounding interest be a good tool but also a significant detriment?
Compounding interest can be a good tool because it allows a lender to gain interest on interest,
but it is a detriment because it causes a borrower to pay interest on interest.
\Q\.Based on the following information about the stocks of several companies, which stock
displays the greatest amount of risk?
Stock A: Return = 22.22%, Standard Deviation = 9.99%
Stock B: Return = 15.05%, Standard Deviation = 7.35%
Stock C: Return = 38.83%, Standard Deviation = 4.54%
Stock D: Return = 5.69%, Standard Deviation = 5.32%
Stock A
\Q\.An energy company discovers that a new bill has been proposed to change the amount of
fuel that can be exported outside the country. If passed, this could have a serious negative
effect on the company's revenues. Some of the company's competitors are obtaining
insurance policies to compensate for this risk, but since the energy company believes the
likelihood of this bill passing is low, it chooses to do nothing—ultimately taking responsibility
for this particular risk instead of trying to transfer the risk through an insurance policy.
, Risk retention
\Q\.Which type of ratio should be used to examine the cost efficiency of a firm's production?
Profitability
\Q\.What is the process of analyzing financial data with ratios to compare a firm's
performance to competitors?
Benchmarking
\Q\.Which action will increase the return on equity of a firm?
Increasing the asset usage efficiency of the firm
\Q\.Based on the information in the chart below, what can you conclude about Company A’s
ability to collect its accounts receivable (AR)?
Entity Percentage of Sales on Credit AR Turnover AR Collection Period
Industry 30% 12 30.42
Company A 30% 7 52.14
Company A is less efficient at collecting its accounts receivable than the industry.
\Q\.Why might an investor be concerned by how Company A is achieving its higher-than-
industry return on equity?
Entity Net Profit Margin Total Asset Turnover Leverage Multiplier Return on Equity
Company A 7% 1.25 2.5 21.88%
Company B 15% 1.30 1.3 25.35%
Industry 8% 1.30 1.5 15.6%
The company's significantly higher use of debt could present a financial risk.
\Q\.An investor is analyzing a portfolio to decide if there are any stocks that should be
removed from the pool of financial securities. Quiet Flag Industries, a company the investor
has invested in, has just released its annual report.
Trend analysis
\Q\.Which type of ratios are banks and lenders most concerned about?
Liquidity
ANSWERS 100% PASS
\Q\.In which way is accounting different from finance?
Accounting is backward looking, while finance is focused on the future.
\Q\.What is the term for an individual's beliefs concerning what is and is not acceptable to
personally do?
Morals
\Q\.Which factor contributes to the inflation of the prices of goods and services over time?
Increase in demand for goods and services
\Q\.Why can compounding interest be a good tool but also a significant detriment?
Compounding interest can be a good tool because it allows a lender to gain interest on interest,
but it is a detriment because it causes a borrower to pay interest on interest.
\Q\.Based on the following information about the stocks of several companies, which stock
displays the greatest amount of risk?
Stock A: Return = 22.22%, Standard Deviation = 9.99%
Stock B: Return = 15.05%, Standard Deviation = 7.35%
Stock C: Return = 38.83%, Standard Deviation = 4.54%
Stock D: Return = 5.69%, Standard Deviation = 5.32%
Stock A
\Q\.An energy company discovers that a new bill has been proposed to change the amount of
fuel that can be exported outside the country. If passed, this could have a serious negative
effect on the company's revenues. Some of the company's competitors are obtaining
insurance policies to compensate for this risk, but since the energy company believes the
likelihood of this bill passing is low, it chooses to do nothing—ultimately taking responsibility
for this particular risk instead of trying to transfer the risk through an insurance policy.
, Risk retention
\Q\.Which type of ratio should be used to examine the cost efficiency of a firm's production?
Profitability
\Q\.What is the process of analyzing financial data with ratios to compare a firm's
performance to competitors?
Benchmarking
\Q\.Which action will increase the return on equity of a firm?
Increasing the asset usage efficiency of the firm
\Q\.Based on the information in the chart below, what can you conclude about Company A’s
ability to collect its accounts receivable (AR)?
Entity Percentage of Sales on Credit AR Turnover AR Collection Period
Industry 30% 12 30.42
Company A 30% 7 52.14
Company A is less efficient at collecting its accounts receivable than the industry.
\Q\.Why might an investor be concerned by how Company A is achieving its higher-than-
industry return on equity?
Entity Net Profit Margin Total Asset Turnover Leverage Multiplier Return on Equity
Company A 7% 1.25 2.5 21.88%
Company B 15% 1.30 1.3 25.35%
Industry 8% 1.30 1.5 15.6%
The company's significantly higher use of debt could present a financial risk.
\Q\.An investor is analyzing a portfolio to decide if there are any stocks that should be
removed from the pool of financial securities. Quiet Flag Industries, a company the investor
has invested in, has just released its annual report.
Trend analysis
\Q\.Which type of ratios are banks and lenders most concerned about?
Liquidity
