AAFM MCQ 2

Question 1

Which financial statement reports a company's revenues and expenses over a specific period?

Accepted Answer

Income statement

Answer

The income statement summarizes revenues and expenses over a period to show net profit or loss.

Question 2

What does the term 'liquidity' primarily measure for a business?

Accepted Answer

Ability to meet short-term obligations

Answer

Liquidity measures how easily a firm can cover its short-term liabilities with available assets.

Question 3

In portfolio management, diversification primarily aims to reduce which type of risk?

Accepted Answer

Unsystematic risk

Answer

Diversification reduces unsystematic (company-specific) risk by spreading investments across assets.

Question 4

The time value of money concept holds that a dollar today is worth:

Accepted Answer

More than a dollar in the future

Answer

A dollar today can be invested to earn returns, making it worth more than the same dollar later.

Question 5

Which ratio measures a company's total debt relative to its shareholders' equity?

Accepted Answer

Debt-to-equity ratio

Answer

The debt-to-equity ratio compares total liabilities to shareholders' equity to gauge leverage.

American Academy of Financial Management (AAFM) Practice Test