FASEA Financial Analysis and Reporting 3

Question 1

When using the dividend discount model (DDM) to value a stock, increasing the required rate of return while holding dividends constant will:

Accepted Answer

Decrease the intrinsic value

Answer

In DDM, intrinsic value = D1 / (r - g); a higher required return (r) increases the denominator, reducing the calculated intrinsic value.

Question 2

A client's SMSF financial statements show a large unrealised gain in listed equities. Under current tax treatment, this gain is:

Accepted Answer

Not taxable until the asset is disposed of

Answer

Unrealised capital gains are not taxable in an SMSF (or any entity) until the asset is sold and the gain is realised.

Question 3

Which ratio best measures how efficiently a company uses its assets to generate sales revenue?

Accepted Answer

Asset turnover ratio

Answer

Asset turnover (revenue ÷ average total assets) directly measures how much sales revenue each dollar of assets generates.

Question 4

In preparing a client's consolidated financial picture, a financial adviser discovers two margin loans secured against the same portfolio. The primary risk this creates for the client is:

Accepted Answer

Margin call amplification if the portfolio falls in value

Answer

Multiple margin loans against one portfolio magnify the risk of simultaneous margin calls during a market downturn, potentially forcing asset sales at depressed prices.

Question 5

The FASEA Code of Ethics Standard 6 requires financial advisers to take into account the broad effects of their advice. This primarily addresses which analytical risk?

Accepted Answer

Advice that serves the adviser's interests at the expense of the client

Answer

Standard 6 targets conflicts of interest, requiring advisers to prioritise client interests over their own financial benefit when giving advice.

(FASEA) Financial Adviser Standards and Ethics Authority Practice Test

(FASEA) Financial Adviser Standards and Ethics Authority Practice Test

FASEA Financial Analysis and Reporting 3