CMA Economic & Financial Analysis 2

Question 1

Which yield curve shape typically signals an upcoming economic recession?

Accepted Answer

Inverted yield curve

Answer

An inverted yield curve, where short-term rates exceed long-term rates, has historically preceded recessions by 6-18 months.

Question 2

A company's current ratio is 1.8 and its quick ratio is 0.9. What does this discrepancy most likely indicate?

Accepted Answer

The company carries a large inventory balance

Answer

A large gap between current and quick ratios indicates significant inventory, since the quick ratio excludes inventory from current assets.

Question 3

What does the term 'crowding out' refer to in macroeconomics?

Accepted Answer

Government borrowing raising interest rates and reducing private investment

Answer

Crowding out occurs when government deficit spending increases demand for loanable funds, raising interest rates and displacing private sector investment.

Question 4

In discounted cash flow analysis, which scenario would INCREASE the estimated intrinsic value of a stock?

Accepted Answer

Reducing the weighted average cost of capital

Answer

A lower WACC reduces the discount rate applied to future cash flows, increasing their present value and thus the intrinsic value estimate.

Question 5

The Quantity Theory of Money (MV = PQ) predicts that if money supply doubles and velocity is constant, what happens to nominal GDP?

Accepted Answer

Nominal GDP doubles

Answer

With constant velocity, doubling M must cause PQ (nominal GDP) to double, since MV must equal PQ.

(CMA) Certified Market Analyst Practice Test

(CMA) Certified Market Analyst Practice Test

CMA Economic & Financial Analysis 2