CMA P2 Flashcards
“Fairness.” IMA Statement of Ethical Professional Practice, one of the overarching
ethical principles
acting in an impartial manner and being free from bias, dishonesty, or injustice; being
open-minded, tolerant and accepting
Objectivity
basing a judgment on an established set of criteria.
“Responsibility”
performing an act or a function completely and in a timely manner; being answerable or
accountable for something that is within your own power, control or management.
Fraud Triangle
The three sides of the Fraud Triangle are pressure, opportunity, and rationalization. All
three conditions need to be present for an employee to commit a fraudulent act against
an employer. Pressure is present, because the employee has a gambling problem.
Rationalization is present, because the employee is disgruntled and can rationalize the
fraudulent act. However, because the company has a strong internal control structure in
its accounting department, the disgruntled employee will not have much opportunity to
commit a fraudulent act. The fraud risk for the company’s situation is not eliminated, but
it is lowered by the strong internal control structure.
If consumer income increases,
the demand curve for all normal goods will shift to the
right.
When a product has elastic demand, the percentage change in price
is less than the percentage change in quantity demanded.
When a product has an elastic demand, any percentage change in price results in
a larger percentage change
in the quantity demanded.
For example, a 12% decrease in price will cause the quantity
demanded to increase by more than 12%.
A monopoly will maximize profits if it produces an output
where marginal cost (the cost to produce one more unit) is equal to
the marginal revenue (the revenue received from producing and selling one more unit)
represents a plot of the relation between expected return and systemic risk
security market line
represents a plot of the relation between expected return and systemic risk
beta coefficient
Stock price = D1 ÷ (r − g)
A company’s stock is trading at $20 per share. If the company has a 7% cost of capital and announced that it would distribute $1 dividends per share next year, what is the dividend growth that investors expect out of the stock?
2% = 7% − ($1 ÷ $20)
A company paid $10 dividends per share in the current year and is expected to pay 3% more of this next year. Assuming the company’s cost of equity is 8%, and dividend growth remains the same in perpetuity, what is the price of the company’s stock?
The stock price computation is: [$10 × (1 + 3%)] ÷ ( 8% − 3% ) resulting in $206.
