CPFM General Practice Test 2

Question 1

Under the time value of money, which value answers 'how much is a future cash flow worth today'?

Accepted Answer

Present value

Answer

Present value discounts a future cash flow back to today using a discount rate.

Question 2

A bond's coupon rate is 5% and the market yield is 7%. The bond will most likely trade at a:

Accepted Answer

Discount

Answer

When market yield exceeds the coupon rate, the bond sells below par at a discount.

Question 3

Which ratio measures a company's ability to pay short-term obligations with its most liquid assets, excluding inventory?

Accepted Answer

Quick ratio

Answer

The quick (acid-test) ratio excludes inventory from current assets.

Question 4

What does a positive net present value (NPV) on a project indicate?

Accepted Answer

The project adds value and should be accepted

Answer

A positive NPV means returns exceed the required rate, adding shareholder value.

Question 5

Diversification primarily reduces which type of risk in a portfolio?

Accepted Answer

Unsystematic risk

Answer

Diversification reduces firm-specific (unsystematic) risk but not market-wide risk.

CPFM Practice Test