1

1 A
2 C
3 D
4 A
5 A
6 D
7 D
8 D
9 C
10 C
11 C
12 A
13 D
14 C
15 D
16
17
18
A
B
A
19 D
20 B
21 C
22 A
23 C
24 C
25 A
26 D
27 B
28 D
29 A
30 D
31
32
33
B
A
A
34 C
35 C
36 B
37 A
38 C
39 D
40 B
41 C
42 D
43 C
44 C
45 D
46
47
48
B
C
D
49 C
50 B
51 D
52 D
53 D
54 A
55 B
56 A
57 D
58 C
59 D
60 C
(60 marks)
Financial Accounting and Financial Statement Analysis
Question 2
2)
Efficiency ratios are ratios typically used to analyze how well a firm uses its assets and liabilities for its internal operations.
(1 mark)
Examples include: i.
Stock turnover ratio. ii.
Accounts receivable turnover. iii.
Fixed assets turnover. iv.
Sales to net working capital ratio.
(1 mark each, any three examples= 3 marks)
Total = 4 marks
Economics and Financial Markets
Question 3
3) Monetary policy is an economic policy designed by monetary authorities to control the cost and supply of money, thereby controlling the economy. (1 mark)
2

For example, lowering the interest rate in the economy through a reduction in the monetary policy rate (as it applies in Nigeria). (½ mark)
Fiscal policy on the other hand involves the use of government expenditure and revenue collection (taxation) to influence the economy. (1 mark)
Examples of fiscal policy include: reduction in the rate of taxation; increase in government spending. (½ mark)
Total =3 marks
Quantitative Analysis and Statistics
Question 4
A scatter graph or scatter diagram is used to investigate the relationship between two variables for a sets of paired data.
One variable is plotted on the horizontal axis and the other is plotted on the vertical axis.
The pattern of their intersecting points can graphically show relationship patterns. Most often a scatter diagram is used to prove or disprove cause-and-effect relationships.
While the diagram shows relationships, it does not by itself prove that one variable causes the other.
(2 marks)
Below is an illustration of a scatter graph:
(1 mark)
Total =3 marks
3

SECTION C: COMPLUSORY QUESTIONS
Financial Accounting and Financial Statement Analysis
Question 5
Cash flow statement of Blex Limited
5(a)
N' Millions
Cash flow from operating activities
Increase in Accounts Receivable
Increase in Accounts Payable
Net Cash flow from operations
Cash flow from investing activities
-20
2
92
½ mark
½ mark
Cash flow from financing activities
Repayment of Debt
Dividends Paid
Net Cash flow from financing activities
-5
-5
-10
1 mark
1 mark
Net increase in cash flow 82
Balance b/fwd
Balance c/fwd
3
85
1 mark
( 6 marks)
5(b)
Blex limited was able to generate strong cash flow from its operations during the period under consideration. This is the hallmark of a healthy company.
The company’s earnings quality was also very good since a substantial proportion of earnings ultimately translated to cash flow during the period.
However, in spite of the strong cash flow position, Blex limited did not commit resources into investments. The company did not enhance its future income generating capacity during this period.
4

Blex Limited company was able to comfortably pay dividends and make repayment of some of its outstanding debts. This is an indication of responsibility to equity holders as well as creditors.
( 4 marks)
Total = 6 marks
Economics and Financial Markets
Question 6
6(a1)
A financial intermediary is a financial institution that connects surplus and deficit economic agents. A typical example of a financial intermediary is a bank that transforms bank deposits into bank loans. Other examples include pension funds, stock brokers, collective investment schemes, insurance companies and financial advisers.
Through the process of financial intermediation, certain assets and liabilities are transformed into different assets and liabilities. As such, financial intermediaries channel funds from people who have extra money (savers) to those who do not have enough money to carry out a desired activity (borrowers).
6(a2)
Financial intermediaries perform the following functions: i.
Maturity transformation
This involves converting short-term liabilities to long term assets. For instance, banks deal with large number of lenders and borrowers, and reconcile their conflicting needs. ii.
Risk transformation
This involves converting risky investments into relatively risk-free ones. By lending to multiple borrowers, banks spread credit risk. iii.
Convenience denomination
Matching small deposits with large loans and large deposits with small loans. iv.
Advisory services
In the process of investment decision making by investors, financial intermediaries provide financial and investment advisory services to clients.
(1 mark for each point)
( 4 marks)
5

6(b)
In a perfectly competitive market, firms are said to be price takers. This is because a customer can buy products from one producer as easily as another. Any producer in the market faces a horizontal demand curve at the equilibrium price. If the firm tries to sell its products above the equilibrium price, customers will simply buy elsewhere and the firm will lose all of their business.
By contrast, lack of competition in a market creates a downward sloping demand curve for a monopolist. Although he will lose some business by raising prices, he will not lose it all, and it may be more profitable in most situations to sell at a higher price.
Though the monopolist is constrained by consumer demand, he is not a price taker. The monopolist has a choice: he can either have a target level of output that will ensure the monopoly price for the given consumer demand it faces in the industry, or it can set the monopoly price at the onset and adjust output to ensure no excess inventories occur as a result of the output level. Essentially, he can set his own price and accept a level of output determined by the market, or he can set his output quantity and accept the price determined by the market. The price and output are co-determined by consumer demand and the firm's production cost structure.
( 5 marks)
Total = 9 marks
Quantitative Analysis and Statistics
Question 7
I
Probability
Pr(i)
II
Sales
(ri)
I X II
Pr(i) x (ri) {(ri) - E(r)} 2 Pr(i) [(ri)- E(r)]
0.2 275 55 1764
2
352.8
0.4 250 100 289
0.25 200 50 1089
0.1 190 19 1849
115.6
272.25
184.9
0.05 180 9 2809 140.45
E(r) = 233 Var= 1066
7(a1) Expected value = Sum of Pr(i) x (ri) = 233 (2 marks)
7(a2) Variance = Sum of Pr(i) [(ri) - E(r)] 2 = 1066 (3 marks)
7(a3) Standard deviation = [Variance] 1/2 = (1066) 1/2 = 32.62 (2 marks)
7(b) Weaknesses of expected value (EV) i.
EV is a long run average; it is therefore best suited to repetitive decisions. ii.
Since it is an average, the expected value may not be one of the possible outcomes. iii.
It ignores risk.
(3 marks)
Total =10 marks
6