FRA

Question 1

Which of the following statements least accurately describes a role of financial statement analysis?

Answer 1

Provide reasonable assurance that the financial statements are free of material errors.

THIS DESCRIBES ROLE OF AN AUDITORS, NOT AN ANALYSIST.

Question 2

A firm issues a $10 million bond with a 6% coupon rate, 4-year maturity, and annual interest payments when market interest rates are 7%.

If the market rate changes to 8% and the bonds are carried at amortized cost, the book value of the bonds at the end of the first year will be:

Answer 2

$9,737,568.

note: Book Value calculations remain the same, except for 3 periods instead of 4. Therefore, the book value is standardly AMORTIZED UP (its last book value + int exp - Coup payment)

Question 3

Which of the following is least likely to be disclosed in the financial statements of a bond issuer?

A) The amount of debt that matures in each of the next five years.
B) Collateral pledged as security in the event of default.
C) The market rate of interest on the balance sheet date.

Answer 3

C) the market rate of interest on the balance sheet date.

The market rate on the balance sheet date is not typically disclosed. The amount of debt principal scheduled to be repaid over the next five years and collateral pledged (if any) are generally included in the footnotes to the financial statements. (LOS 30.e)