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IIA-CIA-Part2 real exams

Exam Code: IIA-CIA-Part2

Exam Name: Practice of Internal Auditing

Version: V13.25

Q & A: 72 Questions and Answers

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NEW QUESTION: 1
Valentine notes that a share of Trailblazer's stock is currently priced at $32. Moreover, she expects the dividend for next year to be $1.47 and forecasts that the price of one share of Trailblazer stock at the end of the year wilt be $35.
In her report, Valentine makes the following statements about Trailblazer dividends:
Statement 1: Trailblazer is expected to pay a dividend next year and will continue to do so for the foreseeable future.
Statement 2: The required rate of return for Trailblazer stock will likely exceed the growth rate of its dividends.
Statement 3: Trailblazer is in a mature sector of its industry, and accordingly, I expect dividends to decline to a constant rate of 4% indefinitely.
In speaking to a colleague at her firm, Valentine makes the following additional statements after her report is released:
Statement 4: Trailblazer has a 10-year history of paying regular quarterly dividends.
Statement 5: Over a recent 10-year period, Trailblazer has experienced one 3-year period of consecutive losses and another period of two annual losses in a row but has been extremely profitable in the remaining five years.
Valentine is concerned about the theoretical validity of using the APT to obtain an estimate of the required rate of return on equity. She decides to attend a conference dealing specifically with estimation techniques that analysts can employ. At one of the conference seminars, the following points are made:
Statement 6: The APT is a better approach than the CAPM because even though the factor risk premiums are difficult to estimate, the CAPM is more problematic because it relies on a single market risk premium estimate, which in turn leads to greater input uncertainty.
Statement 7: Model uncertainty is a problem with the APT but not with the CAPM.
Valentine is also analyzing the stock of Farwell, Inc. Farwell shares are currently trading at $48 based on current earnings of $4 and a current dividend of $2.60. Dividends are expected to grow at 5% per year indefinitely. The risk-free rate is 3.5%, the market risk premium is 4.5%, and Farwell's beta is estimated to be 1.2.
Are Statements 6 and 7 correct?
A. Only Statement 7 is incorrect.
B. Both statements are incorrect.
C. Only Statement 6 is incorrect.
Answer: B
Explanation:
Explanation/Reference:
Explanation:
From a purely theoretical point of view, one cannot say that the APT is better than the CAPM because the CAPM relies on a single risk premium. If anything, due to the greater number of inputs required in APT estimation, input uncertainty is probably a more significant problem for the APT than it is for the CAPM.
Thus, Statement 6 is incorrect. Statement 7 is not a reasonable statement as both approaches suffer from model uncertainty. It is not clear in the case of the APT what the appropriate number of factors to use is; for the CAPM, the appropriate proxy for the market is not clear. (Study Session 10, LOS 35.b,d)

NEW QUESTION: 2
When a client company does not maintain its own stock records, the auditor should obtain written
confirmation from the transfer agent and registrar concerning:
A. Restrictions on the payment of dividends.
B. The number of shares issued and outstanding.
C. Guarantees of preferred stock liquidation value.
D. The number of shares subject to agreements to repurchase.
Answer: B
Explanation:
Explanation/Reference:
Explanation:
Choice "B" is correct. When a client company does not maintain its own stock records, the auditor should
request the transfer agent and registrar to confirm the number of shares issued and outstanding.
Choice "A" is incorrect. Restrictions on the payment of dividends should be in the board minutes, or
possibly confirmed by the bank if the restrictions are due to outstanding loan(s).
Choice "C" is incorrect. Guarantees of preferred stock liquidation value should be in the board minutes or
the stock redemption agreement.
Choice "D" is incorrect. The number of shares subject to agreements to repurchase should be in the board
minutes and in any repurchase agreements.

NEW QUESTION: 3
While setting up a secure wireless corporate network, which of the following should Pete, an administrator, avoid implementing?
A. PEAP
B. EAP-TLS
C. WEP
D. WPA
Answer: C

NEW QUESTION: 4
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A. Stemming
B. Fuzzy Logic
C. Phonic
D. Synonym
Answer: A

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