GMAC Business

Fundamentals Quiz
Answer Sheet

Statistics
Question 1
Suppose that the set D = {3, 7, 9, x}, where x is some real number, has the property
that its median is equal to its mean. What are all possible values for the median?

I) 8 only

II) 6 and 8

III) 5, 6, and 8

IV) 5 and 8

Answer Explanation
In order to make the median equal the mean, we need to make the set symmetric.
One way to do this is to let x = 5, which results in a median of 6. Alternatively, we could
let x = 1, leaving a gap of 2 between 1 and 3 to mirror the gap of 2 between 7 and 9. This
results in a median of 5. Similarly, we could let x = 13, leaving a gap of 4 between 9 and
13 to mirror the gap of 4 between 3 and 7. This results in a median of 8.

Question 2
Which of the following statements about scatter plots are true?

I) Scatter plots are appropriate for bivariate data in which one or both variables
are numerical.

II) The variable plotted on the vertical axis is the explanatory variable, while the
variable plotted on the horizontal axis is the response variable.

III) Scatter plots can demonstrate an association, but not causation, between two
variables.

Answer Explanation
Scatter plots can demonstrate an association between numerical variables, but
never a causal relationship. Scatter plots are only appropriate for bivariate data in
which both variables are numerical, not when one or both variables are categorical.
The explanatory variable is the one plotted on the horizontal axis, while the response
variable is the one on the vertical axis.
 GMAC Business
Fundamentals Quiz
Answer Sheet

Statistics
Question 3
How many distinct simple random samples of size 3 can be taken from a population
of five individuals?

I) 3

II) 6

III) 10

IV) 12

Answer Explanation
Let’s call the five individuals A, B, C, D, and E. The possible trios would be: ABC, ABD, ABE,
ACD, ACE, ADE, BCD, BCE, BDE, CDE. Hence, there are ten possible SRS’s.

Question 4
Suppose that you decide to order food delivery for lunch from Monday to Friday this
week. Each delivery has a 12% chance of arriving late, and each delivery’s probability
of being late is independent of the other deliveries. Which of the following expressions
represents the probability that at least one delivery arrives late?
I) 0.12
5
II) 1 – (0.88)

III) 0.12 + (0.88) 4

5
IV) 1 - (0.12)

Answer Explanation
For any given delivery, there is a 0.12 chance of being late and therefore a 1 - 0.12 = 0.88
5
chance of being on time. As such, (0.88) represents the probability that none of the
deliveries arrive late across all five days. The compliment of no deliveries arriving late
across all five days is at least one delivery arriving late across the five days, so the
5
probability we are looking for is 1 - (0.88) .
 GMAC Business
Fundamentals Quiz
Answer Sheet

Statistics
Question 5
The scores for a licensing exam are normally distributed with a mean of 205 and a
standard deviation of 25. Using the empirical rule, compute the score of a test-taker
who is in the 84th percentile.

I) 218

II) 255

III) 230

IV) 280
Answer Explanation
By the empirical rule, about 68% of the population will be within one standard deviation
of the mean. By symmetry, 34% of the population will score within one standard deviation
above the mean, which in this case would be between 205 and 230. A test-taker in the
84th percentile would have scored at the high end of this interval, that is, 230.
 GMAC Business
Fundamentals Quiz
Answer Sheet

Accounting
Question 6
How do creditors make use of financial statements?
I) They analyze financial statements to estimate return on investment.

II) They use financial statements to make decisions that increase value for shareholders.

III) They monitor financial statements to ensure companies provide full and fair financial
reporting.

IV) They use financial statements to assess the likelihood they will receive payment for
the goods and services they sell and deliver.

Answer Explanation
Creditors include suppliers, who use financial statements to assess the likelihood they
will receive payment. Equity investors use financial statements to estimate return on
investment, while the Board of Directors uses financial statements to evaluate
management performance and make decisions that benefit shareholders. Regulators
use financial statements to monitor company compliance with various standards.

Question 7
The income statement reports which of the following items?

I) Assets and liabilities

II) Revenues and expenses

III) Retained earnings and dividends

IV) Revenues, expenses, and dividends

Answer Explanation
The income statement reports revenues and expenses. Assets and liabilities are reported
on the balance sheet, dividends are reported on the statement of shareholders’ equity,
and retained earnings are reported on both of those statements.
 GMAC Business
Fundamentals Quiz
Answer Sheet

Accounting
Question 8
A company orders and receives 2,000 units of product to re-sell from a supplier at a
unit cost of $5.00. The supplier payment terms are 30% cash on delivery with the
balance due in 60 days. How would this transaction show up in a transaction
analysis?

I) $10,000 increase in inventory; Liabilities: $7,000 increase in accounts payable;

Owners equity: $3,000 decrease in retained earnings

II) Assets: $3,000 decrease in cash, $10,000 increase in inventory; Liabilities: $7,000
increase in accounts payable; Owners equity: no change

III) Assets: $10,000 increase in inventory; Liabilities: no change; Owners equity:

$10,000 decrease in retained earnings

IV) Assets: $3,000 decrease in cash, $3,000 increase in inventory; Liabilities: no

change; Owners equity: no change

Answer Explanation
The total increase in inventory is 2,000 x $5.00 = $10,000 - this is recorded as an asset
instead of an expense since the product has future economic value to the company.
30% of this was paid for in cash, so cash decreases by $3,000. The balance of $7,000
is recorded as accounts payable (a liability).
 GMAC Business
Fundamentals Quiz
Answer Sheet

Accounting
Question 9
Which of the following statements correctly describes an adjusted trial balance?

I) It helps verify that total debits equal total credits.

II) It is prepared after preparing the income statement.

III) It is prepared before making adjusting journal entries.

IV) It helps verify that total assets equal total liabilities.

Answer Explanation
The adjusted trial balance is confirmation that total debits equal total credits after
posting all transaction and adjusting journal entries to the T accounts in the general
ledger. It is used to prepare the financial statements.

Question 10
When using the indirect method to determine cash flow from operations, which of
the following items should be subtracted from net income?

I) Depreciation expense

II) Decrease in accounts receivable

III) Increase in inventory

IV) Loss on sale of equipment

Answer Explanation
Under the indirect method, the increase in inventory is subtracted from net income as it
relates to cash outflows without an expense being recorded this period. A decrease in
accounts receivable is the opposite (cash inflows without revenue being recorded this
period) and should be added to net income. Depreciation expense and loss on sale of
equipment are also non-cash items that need to be added back to net income.
 GMAC Business
Fundamentals Quiz
Answer Sheet

Finance
Question 11
Which terms can be used interchangeably when talking about time value of money?

I) Present value and future value

II) Rate of return, discount rate, and interest rate

III) Rate of return and future value

IV) Rate of return and compounding period

Answer Explanation
Rate of return, discount rate, and interest rate all refer to the rate used in time value of
money calculations, although people tend to use discount rate when talking about a
present value and interest rate when talking about a future value.

Question 12
A company has $3,925,000 of revenue, $1,320,000 of net income, $9,100,000 of
assets and $5,450,000 of shareholder equity. What is its Return on Equity (ROE)?
Round to the nearest tenth of a percent.

I) 14.5%

II) 43.1%

III) 72.0%

IV) 24.2%

Answer Explanation
Net Income 1,320,000
Return on Equity (ROE) = = = 24.2%
Shareholder Equity 5,450,000
 GMAC Business
Fundamentals Quiz
Answer Sheet

Finance
Question 13

What would the payment be on a 20-year loan for $600,000 with an annual rate of
6.5% and quarterly payments?

II) $13,455.60

II) $35,379.58

III) $39,254.64

IV) $54,453.84

Answer Explanation
This is a problem where you need to calculate a payment, so use the spreadsheet PMT()
function. The variables are as follows:

Rate: 6.5%/4 (compounding period is quarterly, so annual rate / 4)

Nper: 20 x 4 (quarterly compounding, so use the number of years x 4)

PV: 600,000 (loan amount)

The spreadsheet formula is: =-PMT(6.5%/4,20*4,600000),

which comes out to $13,455.60
 GMAC Business
Fundamentals Quiz
Answer Sheet

Finance
Question 14
A company’s stock price is $10 and it does a 1-for-5 reverse split. What would be
the price of each share after the reverse split?
II) $2

II) $5

III) $50

IV) $25

Answer Explanation
A 1-for-5 reverse split means that the company issues one new share to replace every
five old shares at the time of the split. So the value of five old shares at $10 x 5 = $50 is
the value of each share after the split.

Question 15
How is the price of an investment determined in the market?

II) Set by the issuer

II) Set by rating agencies

III) Based on the amount of perceived risk

IV) Equated to the price of government bonds at the time of issue

Answer Explanation
The amount of perceived risk determines the price of an investment. Investors require
higher interest rates when an investment appears riskier.
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