AS 03 Finance & Economics for Actuarial Mock Test 07
These questions cover core concepts of corporate finance, accounting, taxation, and economics. Major topics include convertible preference shares, the going concern concept, capital gains taxation, income cover ratio, market failure, the role of finance in business decisions, monopolistic competition, operating leverage, government capital expenditure, and types of leverage. The set emphasizes understanding of capital structure, financial ratios, accounting principles, public economics, market behaviour, and macroeconomic policy. These concepts are fundamental for AS 03 – Finance & Economics for Actuarial and help candidates build strong analytical, financial, and economic decision-making skills required in actuarial examinations.
1. What is a convertible preference share?
A. Preference share that converts into debentures
B. Preference share that gives the right to convert into ordinary shares of the company at a later date
C. Debenture that converts into preference shares
D. Government security convertible to foreign bonds
E. Bond that converts to fixed deposits
2. The 'Going Concern' accounting concept assumes that:
A. The company will cease operations at the end of the current period
B. The company has no outstanding debts to creditors
C. The business will be profitable for the next 10 years
D. The company is not going broke and will continue in operation for the foreseeable future
E. Management has approved a five-year business plan
3. What determines whether a Capital Gain is short-term or long-term?
A. The price of the asset
B. Whether the asset is movable or immovable
C. The location where the asset is held
D. The type of buyer purchasing the asset
E. The length of time for which the capital asset was held before the transfer
4. What is Income Cover also sometimes called?
A. Asset cover
B. Capital gearing ratio
C. Interest cover or Times Interest Earned Ratio
D. Debt Service Coverage Ratio
E. Leverage ratio
5. Which of the following BEST illustrates a situation requiring government intervention due to market failure?
A. A private firm maximising profits in a perfectly competitive market
B. A perfectly competitive market reaching its long-run equilibrium position
C. Consumers voluntarily paying the full social cost for all goods they buy
D. International free trade operating without any tariffs or trade barriers
E. A factory producing pollution (negative externality), public goods being under-provided due to the free-rider problem, and demerit goods being over-consumed
6. What role does finance play in a company's decision-making process?
A. A minor administrative role
B. Only an accounting function
C. Only relevant for large companies
D. A pivotal role – it is the common thread in making most decisions
E. A role limited to annual reporting
7. In monopolistic competition in the short run, supernormal profits are possible. What happens in the long run?
A. Supernormal profits are maintained permanently
B. Firms leave the industry
C. New firms are attracted to the industry because of low barriers to entry, driving down demand until only normal profits remain
D. The government regulates profits
E. Firms merge to maintain profits
8. When does Operating Leverage arise?
A. When there are fixed operating costs in the firm's financial structure
B. When there are fixed financial costs like interest
C. When a company borrows money from banks
D. When dividends are paid to shareholders
E. When a company issues new shares
9. Government capital spending on transport infrastructure has what effect on businesses?
A. It immediately and predictably reduces unemployment in all industries
B. It always leads to a short-term reduction in GDP and national income
C. It can have a direct but unpredictable effect in the long run on the competitiveness and costs of businesses in every industry
D. It only benefits the construction sector with no wider economic impact
E. It has absolutely no measurable effect on private sector activity
10. Which type of leverage is determined by operating fixed expenses?
A. Financial leverage
B. Combined leverage
C. Total leverage
D. Operating leverage
E. Capital leverage
