Free CTP Certification Questions And Answers — Questions and Answers
Question 1: An agreement that grants the right to purchase a certain quantity of common shares at a particular price is referred to as:
- a subordinated debenture
- an equity warrant (Correct answer)
- a put option
- a zero coupon bond
Correct answer: an equity warrant
An equity warrant gives a lender the option to buy a predetermined number of shares at a predetermined price per share (e.g., exercise price) or a specific percentage of the firm (usually between 1-5%). As a result, they resemble call options in the stock market.
Question 2: A corporation needs to issue loans at a low interest rate now but wants to issue further equity during the following 12 months. Which of the following tools would best achieve this goal?
- Preferred stock
- Subordinated debentures
- Convertible bonds (Correct answer)
- Private placement issue
Correct answer: Convertible bonds
An investor who purchases a convertible bond has the option or duty to convert the bond into a predetermined number of shares of the issuing business at specific points during the bond's tenure. It is a hybrid security that combines aspects of equity and debt.
Question 3: A loan agreement is one in which the borrower agrees to make regular payments to a different custodial account for the purpose of repaying the debt.
- zero-coupon bond
- sinking fund (Correct answer)
- balloon payment
- mortgage
Correct answer: sinking fund
A sinking fund is a collection of funds that have been put up or saved to pay off bonds or debts. A corporation that issues debt will eventually have to pay that debt back, and the sinking fund lessens the burden of a significant outlay of revenue.
Question 4: Which of the following devices makes loan documentation for various advance features simpler?
- Indenture agreement
- Note purchase agreement
- Banker's acceptance
- Master note (Correct answer)
Correct answer: Master note
A master note, sometimes known as a master global note, is a document that lists all the securities that were issued in accordance with a certain debt issuance plan.
Question 5: Which of the following international cash management strategies involves transferring ownership of the items when they are sold between companies?
- Multilateral netting
- Pooling
- Re-invoicing (Correct answer)
- Internal factoring
Correct answer: Re-invoicing
Although the entity re-invoicing the given services did not perform them, the goal of re-invoicing is to shift the costs spent by the re-invoicing company onto the entity that actually used the given services.
Question 6: An ordinary swap transaction involves two parties agreeing to trade:
- cash flows at future points in time. (Correct answer)
- notional principal amounts.
- amortization schedules.
- maturity dates of obligations.
Correct answer: cash flows at future points in time.
An agreement to swap cash flow sequences for a predetermined amount of time is known as a swap.
Question 7: The price volatility of pork belly is causing anxiety for a Chicago-area meat processor. Which derivative product from the list below would be used to set these prices within a certain range?
- Cap
- Spot purchase
- Collar (Correct answer)
- Swap
Correct answer: Collar
A collar in finance is an option strategy that establishes a range for the potential positive or negative returns on an underlying. A collar strategy, which consists of long put options financed with short call options, is one technique to protect against potential losses.
Free CTP Certification Questions And Answers
An agreement that grants the right to purchase a certain quantity of common shares at a particular price is referred to as: