Free Certified Credit Research Analyst – Level 2 Exam CCRA-L2 Exam Practice Test

Under an advance factoring contract, following flow of money takes place:A: Factor pays a percentage of the invoice face value to the seller at the time of saleB: The remainder of the purchase price is held by factor until the payment by the account debtor is made.C: The cost associated with the transaction is paid upfront by the seller to the factoring agent.

• Only B
• A, B and C
• Only C
• Only A and B

Risk in CDS price is reflective of

• increase in probability of default
• increase in interest rates
• decrease in probability of default
• increase in recovery rates

Awesome Mobile Ltd is a leading mobile seller who manufactures mobile phone under own brand Awesome.Which of the following is the biggest business risk for Awesome?

• Technology Risk
• Branding risk
• Raw material price risk
• Competition

Change in priority ranking of reference obligations is:

• Obligation acceleration
• Obligation default
• Restructuring
• Repudiation

Which of the following is a factor considered while evaluating resources profile for rating of bank?

• Size and growth of deposits
• All of the three
• Deposit composition & stickiness
• Geographic distribution of deposits

Z spreads in Callable bonds include:

• Does not include premium for credit risk and call option price for prepayment risk.
• Premium for credit risk and call option price for prepayment risk in included.
• Premium for credit risk is only included.
• Premium for call option price for prepayment risk os only included.

A holder of which of the following types of bonds is least likely to suffer from rising interest rates?

• Floating rate bonds
• Fixed rate bond
• Zero-coupon bonds

Mr. Gopi, while teaching the CCRA course to students described Altman’s Model and stated that following variables do exist for Altman’s Model:

• total debt/total assets,
• retained earnings/total assets.
• earnings before interest and taxes/total assets,
• market value equity/book value of total liabilities,
• sales/total assetsExactly how many variables are incorrectly identified?
• Exactly Four
• Exactly One
• Exactly Two
• Exactly Three

Mark Construction Company (MCC) has bagged a contract for construction of a large dam and hydro power project on river Shivna in Madhya Pradesh (MP). The project is also of relevance from the irrigation perspective due to its location and as per the agreement MCC will have to undertake construction of web of canals, approach road to dam, power house and other ancillary units. MCC is promoted by Mr. Thomas Mark, who is a MP from the ruling party which recently formed government in MP. Historically, MCC has been engaged into construction of rural roads, small bridges and railway platforms on contract basis for the Government. MCC will have a separate special purpose vehicle (SPV) floated for this venture.The hydro power project comes under the public private partnership scheme of the Government of MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power plant. The detailed terms of the hydro power project agreement are as follows:

• The construction of the dam, canals and hydro power plant shall be undertaken by the contractor. TheGovernment of MP will have to acquire land which will submerge on construction of dam and shall rehabilitate the owners of land.
• MCC shall have right to operate the hydro power project from date of commencement of commercial operations (DCCO) for a period of 20 years and shall transfer the project to Government thereafter. Further,SPV shall be tax exempt for a period of five years from DCCO i.e. FY17-FY21.
• The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the project is estimated to be commercially operational by April 1, 2016 with two units operational om same day and one unit each will be operational on April 1, 2017 and April 1, 2018.
• Means of finance:Means of Finance INR MillionGovernment Aid (To be classified as Equity) 500Equity 900 Debt 2100
• Amount if expenditure estimated in various years is as follows:
• Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the principal. The expected principal along with capitalized interest is expected to be INR2, 400 Million (i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of the same shall be in 12 equated annual installments starting from FY17.
• Brief projections for the period of FY17 to FY21 are given below:
• Developments as on March 31, 2015
• The project manager for the SPV made following comments at a press conferee on March 31, 2015: As you all are aware, we were running bang on schedule till we last met on December 21, 2014. From today we are just left with one more year to complete the project in time. However, the flash floods which struck our dam site on this March 15, 2015 have created havoc in the region. I shall not point out the loss of lives in the region as you all are well aware of those. Our project has also been badly hit due to the same and we have been assessing the damage over the last one week. After analyzing damage, we have made changes in project schedule. Now we will be making only one unit of 150 MW operational on April 1, 2016 and 1 unit each will be added in each of subsequent year(s).
• Development as on September 30, 2015
• Post the flash floods, lot of environmentalists started raising issues of changes in environment due to construction of large number of dams. A few Public Interest Litigations (PILs) have been filed in various courts.
• Honorable High Court of MP on September 27, 2015, banned construction of any dams in the region and banned permissions for new dams till next hearing scheduled on November 30, 2015. MCC in its press release has indicated that they will apply to the higher court on the matter.
• After the developments of March 31, 2015, assuming revenues are directly linked to the power production and the EBITDA margins remain intact for the year, as were projected, compute the revised interest coverage ratio dfor FY17 and FY18?
• FY17: 0.90; FY18: 1.85
• FY17: 1.85; FY18: 2.93
• FY17: 0.49; FY18: 0.97
• FY17: 1.80; FY18: 2.78

Strategy consists of buying a bond with maturity longer than the investment horizon (for investor)or buying a long-maturity bond with short-term funding through repo (for speculator).

• Barbell, Ladder and Butterfly
• Yield Spread Anticipation
• Rate Anticipation with Maturity Mismatch
• Riding the yield curve