Finance Practice questions
Which of the following is note evidence of the lack of diversity in financial careers as indicated in class session?
- The proportion of women obtaining substantial positions on Wall Street is only about 20.0%. Only about 3.5% of financial planning positions are held by African Americans or Latinos. Leadership roles for African American and Latinos in financial services does not mirror the proportion of those groups in the US population.
According to the text, synergies can be valued in this way:
- value of the combined acquirer and target firms - (value of the acquiring firm + value of the target firm) 5-year average operating income - 5-year free cash flow value of future cash flows of the target firm - value of existing cash flows of the acquiring firm EPS of the combined acquirer and target firms - EPS of the acquiring firm
What is the primary purpose of dark pools?
-A place where securities can be traded with no immediate record of the transaction A good place to swim if you have really ugly swimsuit A place for criminal activities on the internet It does not really exist - fake news!!
Which of the following is (are) typically used in determining how much risk an investor wants to take with their investments?
-All of the above The age of the investor Current and future market conditions The investment time horizon
According to lessons in Week 5...
-Amsterdam was home to the first stock exchange in the world, as of 1609. London was home to the world's first public corporation, as of 1602. Wall Street was named for a similar street in southeast London where merchants met daily to price and exchange various commodity goods. Antwerp was home to the first public markets, around the early 1600s, where traders exchanged legal bills of exchange.
Who is primarily responsible for setting a company's objectives and making sure that they meet those objectives?
-Board of Directors Bondholders and Lenders Rank & File Employees Senior Management
As pointed out in lecture, which of the workshops listed below is unusually connected to additional studies as part of the finance major?
-Charles Schwab Wealth Management Investment Banking Commercial Real Estate Consulting
All of the following are considered to be quality management skills required of a financial analyst, EXCEPT:
-Cost accounting Process improvement Problem solving Developing standards
Which of the main pieces of legislation discussed in lecture separated commercial and investment banking?
-Glass-Steagall Act of 1933 Federal Reserve Act of 1913 National Bank Act of 1863 Dodd-Frank Act of 2010
If you are trying to minimize the risk of price changes in the spot value of an underlying asset by taking an offsetting position in derivatives, then you are:
-Hedging Speculating Arbitraging Fundamental Trading
Which of the following items are part of the basic recipe for value creation? I. The company must beat its cost of capital, for many years II. The company must find its optimal capital structure III. The company must beat its cost of capital, but only for 3-5 years IV. The company must reinvest additional profits at high rates through growth V. The company must NOT pay any dividends to its shareholders
-I and IV only I, II and V only II, III and IV only You Answered I, II, IV and V only
What are the three most important components in forecasting cash flows? I. Terminal Value II. Determining the Cost of Capital III. Determining the Length of the Extraordinary Growth Period IV. The Terminal Value Calculation V. The Expected Growth Rate in the Economy Correct Answer
-I, III and IV II, III, and V I, III and V I, II and IV
Based on our class discussions, what do you think the primary goal of a firm's management should be?
-Increase the economic value of the business to the benefit of all key stakeholders. Maximize the compensation to the senior management team (CEO, COO, CFO). Get today's stock price as high as you can, no matter what you have to do. Make the firm the biggest one in its industry.
Which of the following items would be considered a disadvantage of stock repurchases?
-Indicates the company does not have any good investment alternatives Increases earnings per share Is an alternative to increasing dividends Increases the market price per share Reduces the number of shares outstanding
Which area of Goldman Sachs contains their Merchant Banking Division?
-Investing and Lending Investment Banking Division Institutional Client Services Investment Management
Which of the following statements about the Statement of Cash Flows is Most Correct?
-It provides a reconciliation between net profit and change in cash on the balance sheet. Sources of funds represent money flowing OUT of a firm. It has three key parts: Assets, Liabilities and Equity. Most finance professionals do NOT think this is a very important statement.
All of the following are characteristics of over-the-counter (OTC) venues, EXCEPT:
-Open outcry trading Securities are traded by investment banks that act as dealers Many securities are handled by market makers Dealers may act as brokers or agents
When a company grows by investing in positive NPV projects or expanding existing operations by building new assets, this is referred to as:
-Organic growth None of the above Inorganic growth Dividend growth
Which of the following is generally considered to be the weakest of the capital budgeting evaluation techniques?
-Payback Period Net Present Value Internal Rate of Return All of the above are equally effective.
The ratios that measure a firm's profitability in relation to revenues and/or investment are known as what?
-Performance Debt Management Liquidity Asset Management
When an investment bank is trading as a principal for its own account, this is referred to as:
-Proprietary Trading Counterparty Trading Agency Trading None of the above
Which type of bond issue is generally registered with the SEC and rating by one of the nationally recognized rating agencies?
-Public Offering Private Placement Restricted Offering Qualified Institutional Offering
What type of risk can be significantly reduced (but not completely eliminated) by holding a diversified portfolio of stocks?
-Stand-alone risk You Answered Market risk Default risk Price risk
The corporate functional areas of risk management, cash management and external financing usually fall under which corporate officer?
-Treasurer Internal Auditor Controller None of the above External Auditor
Which of the following is considered a disadvantage of stock financing?
-Underwriting costs of new common stock are often significant. Common stock does not mature. Common stock does not obligate a company to make fixed payments to investors. All of the above are disadvantages.
The active investing approach that tries to find firms that are underrated in the stock market is referred to as:
-Value Income Growth Cyclical
When you sign up for courses for SP2021, you will face something that was directly relevant to the lessons in Week 6. This is...
-a situation with asymmetric information: professors know much more about the quality and usefulness of the course than you do. a situation with asymmetric information: the registrar knows much more about what's needed to be successful in any particular course than you do. a situation that is much like a financial option: you sign up for the course but have the option of dropping it during the first few weeks if you don't like it or anyway need to make a change in your schedule. a situation that is very much like an boutique bank: professors are like bank analysts and you are like potential investors who buy their research reports.
An office building downtown St. Louis generates about $1.8 million in annual lease income. the current market value oof the property is estimated at $21 million. If five-year interest rates are about 3.0%, what is an appropriate cap rate for this property?
-about 8.6% about $54,000 about 3.0% about 5.6%
The Kelley workshops are a way for the school to meet two needs, according to the former chair of the finance department. Those are...
-getting students access to more specialized career training and satisfying industry demands. identifying high performing students who will represent the school well in front of recruiters and improving job placement results. expanding the school's reach into Wall Street careers and providing students with more specialized training not available in usual courses. satisfying Kelley alumni who want access to the top performing students and improving the overall average starting salaries of Kelley undergraduates.
The Kelley workshops are a way for the school to meet two needs, according to the former chair of the finance department. Those are...
-getting students access to more specialized career training and satisfying industry demands. identifying high performing students who will represent the school well in front of recruiters and improving job placement results. expanding the school's reach into Wall Street careers and providing students with more specialized training not available in usual courses. satisfying Kelley alumni who want access to the top performing students and improving the overall average starting salaries of Kelley undergraduates.
This kind of Wall Street career is typically more people and team oriented than some other kinds of Wall Street careers.
-investment banking financial planning consulting investment management
According to lecture, securitization of home mortgages...
-is a way for banks that make a lot of mortgages to raise capital for even more mortgages. creates an opportunity for investors to obtain mortgages at much lower interest rates than would otherwise be available to them. is a way for banks that make a lot of mortgages to sell off their underperforming mortgages to investors who prefer to have higher risks and higher returns. is essentially a packaging up of bundles of mortgages by banks that will then sell such packages to private equity firms that have more expertise at servicing these mortgages.
According to lecture, a merchant bank in the United Kingdom today...
-is the same as an investment bank in the US. is much more like a commercial bank than what exited back in the Middle Ages. has its roots in banking practices developed in ancient China. is the same as a retail bank in the US.
One of the important items mentioned regarding the career plan assignment is that...
-it is a prompt for reflection and good thinking about your career plans right now. it must be six pages, double spaced, and with proper margins. you should use this as a guide to your next three years of college life. it should not include a career objective, since the objective section of a typical resume is no longer appropriate.
According to the lessons from Week 5, your resume will naturally highlight positive things about you. It is also important that the resume...
-not embellish things so much that readers identify you as fake and insincere. include up front a section detailing your career objective, and in a way that aligns it with the company or industry you are targeting. reflect your personality in an effort to distinguish you from the possibly hundreds of other resumes recruiters are browsing. not mention any hobbies or activities unrelated to your career objective.
According to notes from lecture, a quality framework for conducting credit analysis is...
-the five Cs of credit. the four Cs of credit. the credit application completed by customers. the credit score for customers.
According to the lecture, banks are intermediaries because they act as middle persons between, usually, suppliers of capital and demanders of capital. There are also intermediaries because...
-they transform what the suppliers have into something more practical that the demanders want. they often take of the capital for themselves and trade it on their own accounts. legislation requires them to primarily protect the interests of the suppliers of capital. legislation requires them to primarily protect the interests of the demanders of capital.
As noted during lecture, a helpful way to think about careers is...
-to consider them bundles that include not only the job and salary and usual benefits, but also relationships, locations, opportunities for growth, and some degree of challenge. that they are a direct result of the major we choose as undergraduates. that they are a direct result of Kelley undergraduate students' participation in workshops. to follow the Industry Category Code List Links to an external site. provided by the Census Bureau.
If you have an interest in either the Investment Banking Workshop or the Capital Markets and Banking Workshop, then an important step to take soon will be...
-to enroll in F210 for the fall semester 2021. enroll in F210 for the spring semester 2021. attend the IBW and CMBW "First Look" meetings coming up later in October. achieve a cumulative GPA of at least 3.6 by the end of your freshman year.
If you combine all cash flows distributed back to shareholders with a good measure of capital gains on the stock, then you probably have a measure of...
-total shareholder return. earnings per share (EPS). return on free cash flow. gross profit margin.
According to lecture, banking activities began to develop in the Middle Ages...
-when trade and economic activity began to expand. when political upheaval and wars began to diminish. when usury laws - prohibitions on charging interest - finally were ignored and then eliminated. when the Crusades opened up Western Europe to accounting principles developed by cultures in the Middle East.
Bills of exchange were "bearer" certificates. This mean that...
-whomever held the certificate could demand payment from a buyer of goods. the certificate must be born with the goods or cargo for which payment was to be made; the bill of exchange could not be physically separated from the goods. the certificate was not transferrable. the certificate had an expiration date.
What is the Central Limit Order Book?
A bilateral trading system with bid/ask quotations. -An electronic, continuously matching auction. A market where investors directly trade with traders. None of the above.
What is the key element or assumption of using time value of money? .
A dollar in the future is worth more than a dollar today. When using timelines, all outflows occur today and all inflows occur in the future. None of the above statements are correct. -A dollar today is worth more than a dollar in the future.
Which of the following statements concerning accounting versus finance is most correct?
Accounting always wants to err on the side of optimism. Accounting rules do NOT take into account economic realities. -Accounting figures and cash flows are often NOT in sync. Finance and accounting are in full agreement in all areas.
Which of the following was an important part of the Glass-Steagall Act of 1933?
Allowed for the merger of investment banks and commercial banks. Addressed the "too big to fail" issue. -Created the FDIC to insure deposits. Created the Federal Reserve
Which of the following statements concerning the Google IPO in 2004 is FALSE?
An estimated $300 Million was "left on the table" There was a Pop in the stock price of over $15 per share on the first day of trading 22 million shares of Google changed hands on the first day of trading -All of the above statements are true
Which of the following statements regarding the philosophical basis for valuation is NOT correct?
An investor should not pay more for an asset that it is worth. The price paid for an asset should reflect the expected cash flows to be generated. -Asset prices can be easily justified by assuming someone will be willing to pay a higher price in the future.
The financial statement that reports the impact of a firm's activities on cash flows over a given period of time is the:
Balance Sheet Income Statement -Statement of Cash Flows Statement of Stockholder's Equity
What did Merrill Lynch do in 1987 in order to become a lead banker for initial public offerings?
Became a wire house. -Refused to participate in underwritings until they were allowed to be a lead bank. Innovated new products like the Liquid Yield Option Note (LYON). Adopted a mass merchandising strategy to the brokerage business.
The investment approach where the fund manager proceeds from the general to the particular (economy - markets - sector - stock) is usually called:
Bottom-Up Approach Strategic Allocation Approach -Top-Down Approach Tactical Allocation Approach
If you wanted a career helping individuals with their investment portfolios and retirement plans, which workshop would be the best choice for you?
Capital Markets and Banking Investment Banking -Wealth Management Investment Management
The process used by a company for allocating funds for investments in long-term assets is generally referred to as:
Capital Structure Capital Allocation -Capital Budgeting Capital Distribution
All of the following are advantages to using debt financing, EXCEPT:
Capital markets for debt are usually very efficient across a broad range of options. Debt usually costs less due to lower risk and tax-deductibility of interest -Debt may be accompanied by liens on assets. Debt holders to not get to vote in elections, providing a control advantage to the equity holders.
The Financial Planning and Budgeting area is usually under the control of which corporate officer?
Cash Manager Internal Auditor -Controller Treasurer
The Wealth Management Workshop at Kelley offers students to opportunity to prepare for which of the following certifications?
Certified Public Accountant (CPA) -Certified Financial Planner (CFP) Chartered Financial Analyst (CFA) Registered Investment Analyst (RIA)
Which of the following investment bank client services conveys information to investors about monetary or economic matters and makes recommendations about the prospects of listed securities?
Continuing Advisory Side -The Research Department Services for Investors Services for Issuers of Securities
According to lecture, which of the following investment banks appears to rely on M&A fees more than its competitors rely in M&A fees?
Credit Suisse Morgan Stanley Lehman Brothers -Goldman Sachs Wells Fargo JP Morgan Manufacturer's Hanover
The P/E or Price/Earnings multiple is popular to use for equity analysis. Which of the following P/E formats incorporates inputs for the prior 4 quarters of financial data?
Current P/E -Trailing P/E Forward P/E Diluted P/E
What was the method we discussed in the lecture that allowed an analyst to determine that Corning Glass stock was being underpriced by the market in 2012?
Detailed analysis of the company's business strategy Detailed analysis of the company's key financial ratios Detailed analysis of the company's supply chain and customers -Detailed analysis of the company's future expected free cash flows
The concept that companies may set their dividend policy to attract certain types of investors is known as:
Dividend stability Stock dividends -Dividend catering or clientele effect Institutionalized dividends Dividend reinvestment plans (DRIPs)
Which one of the following statements concerning standard coupon bonds is true?
Each coupon payment is a mix of interest and principal, just like a home mortgage If interest rates go DOWN, bond prices will not change Prices on shorter maturity bonds fluctuate more than long-term bonds as interest rates change -If interest rates go UP, bond prices go DOWN
Which of the following is the best description of fintech, based on material from lectures in the past two weeks?
Fintech is the term used to describe the advanced algorithms use by firms like Facebook and Twitter that attempt to anticipate demand for stocks based on customer postings and responses. Fintech was used to describe the merger a few years ago of Silicon Valley data specialist San Jose Datalytics with San Francisco's commercial bank, Wells Fargo. -Fintech consists of firms that apply advanced technologies to deliver financial services in innovative, convenient, and often lower cost ways compared to traditional financial services. Fintech is the term that describes the increasingly popular partnerships of companies like Facebook and Wells Fargo. These partnerships allow for customers to utilize various financial services, such as mortgages and stock purchases, directly through their Facebook or Twitter news feeds.
A bond denominated in a currency other than that of the country in which it is issued is in what type of bond market?
Foreign bond market Domestic market -Eurobond market Euro-denominated bond market
A bond denominated in a currency other than that of the country in which it is issued is in what type of bond market?
Foreign bond market Domestic market Euro-denominated bond market -Eurobond market
The US Treasury hired BlackRock in 2009-2010 to accomplish what?
Help the Federal Reserve analyze the securities it had purchased during and after the financial crisis. To advise the Treasury on how to avoid further financial crises resulting from faulty equity analysis. -Analyze, evaluate, and break apart mortgage backed securities the Treasury obtained during the financial crisis. Followed by establishing risk and valuation so that the Treasury could then sell off those MBSs. Create exchange traded funds (ETFs) that US citizens could purchase instead of Treasury bills, notes, and bonds.
In class, we discussed average betas for selected industries. Which of the following industries had the highest beta listed?
Household and Personal Products -Energy Transportation Food and Staples Retailing
Which of the following investment banks either failed or were acquired during the 2007/08 financial crisis? I. Bear-Sterns II. Lehman Brothers III. Goldman Sachs IV. Morgan Stanley V. Merrill-Lynch
I, II and III only I, II and IV only -I, II and V only I, II, IV & V only
Which of the following are possible inputs used in time value of money calculations? I. Number of Periods II. Interest Rate per Period III. Present Value of Cash Flow IV. Future Value of Cash Flow V. Payment per Period
I, II and III only II, III and IV only I, II, III, IV only -I, II, III, IV and V
Which of the following are considered to be important factors in determining a company's optimal capital structure? I. The company's operating risks II. Its immediate and expected long-term financing needs III. Relative costs of debt and equity at the time funds must be raised IV. Attitude of the board and senior management towards risk-taking V. Impact on the firm's credit rating
I, II and III only II, III, IV and V only I, III and V only -I, II, III, IV and V
Which of the following investment vehicles are typically traded on stock exchanges? I. Mutual Funds II. Closed-End Funds III. Exchange-Traded Funds IV. Unit Investment Trusts
II, III & IV Only -II & III Only I & IV Only I, II & III Only
The division of an investment bank that is closely aligned with Private Wealth Management would be?
Institutional Sales None of the above adequately completes this sentence. Research Capital Markets -Asset Management
If you were interested in a career working with individuals and helping them with their investment and financial needs, which workshop would be best for you?
Investment Management -Wealth Management Consulting Investment Banking Capital Markets and Banking
Which area of Goldman Sachs contains their Mergers and Acquisitions (M&A) activities?
Investment Management Investing and Lending Institutional Client Services -Investment Banking Division
All of the following statements concerning the importance of cash flows in valuation are true, EXCEPT:
Investors are primarily looking for cash returns Debt investors want interest payments -Growth investors want dividends Valuation is all about discounted cash flows
According to lecture, valuing target companies for acquisition is pretty much like valuing any kind of asset.
It is simply a matter of adding the market capitalization of the acquiring firm to the market capitalization of the target firm. There are three basic approaches: discounted cash flow analysis, multiples, and application of the BCG growth matrix. The analyst must identify and isolate synergies and then value those synergies separately. -There are two very basic approaches: evaluating relative to comparable firms and using discounted cash flow analysis.
Bank of America's commercial banking operations includes a division known as B of A Private Bank. What is this, according to lecture?
It is very much like a secret banking organization within B of A, as lecture indicated. Its services are reserved for large shareholders of the bank. It is Bank of America's private equity division. -It is a small bank that offers many usual commercial banking services to select clients. Usually, these are high net worth clients who desire customized services and attention. It is an internal bank providing services for large shareholders of Bank of America.
What would be the primary reason for using the DuPont framework for analyzing a company?
It primarily focuses on leverage. -It takes into account profitability, productivity and leverage. It primarily focuses on profitability. It primarily focuses on productivity.
What type of financial institution tend to underwrite most of the "plain-vanilla" bonds?
Large Investment banks Hedge funds Credit unions -Commercial banks
Which approach for estimating a terminal value in a valuation model is typically used by venture capital firms?
Liquidation Value -Multiple Approach Stable Growth Model Contingent Claim Approach
All of the following are major objectives of treasury management, EXCEPT:
Maintain access to financing -Minimize cash resources Maintain liquidity Manage investments Manage risk
According to the discussion on Goldman Sachs, which of the following goals is related to helping markets remain efficient and liquid to help investors and companies meet their needs.
Manage Invest -Support Transact
All of the following are considered to be challenges of corporate governance, EXCEPT:
Management perks Agency problems -Regulators Separation of ownership and control
Bonds that of non-investment grade and are typically issued by companies with lower credit ratings of BB+ or below, are generally referred to as what?
Mezzanine finance -High-yield debt Covered bonds Perpetual debt
A US Treasury issue that issued at discount for periods of less than 1 year are known as what?
Munis Treasury Bonds Treasury Notes -Treasury Bills
All of the following would be considered on the "buy side" of finance, EXCEPT:
Mutual Fund Pension Fund -All of the above Endowments Insurance Company
The discount rate at which the present value of all cash inflows is equal to the present value of all cash outflows is typically referred to as the:
Net Present Value Payback Period -Internal Rate of Return Risk-Adjusted Discount Rate
Which of the following measures captures all the cash consequences of a business and ensures that the underlying flows are available to the capital providers?
Net Profits -Free Cash Flow Operating Cash Flow EBITDA Revenues
Which of the following items is NOT considered a common measure of cash flow?
Operating cash flow - Cash on the balance sheet EBITDA Free cash flow
Assume you have a call option on a stock that allows you purchase that stock at a price of $100 per share, the premium you paid was $2 per share, and the current actual price is $102 per share. What is the status of this option?
Out of the money Cannot determine from the information provided -In the money At the money
All of the following are characteristics of a defined benefit plan, EXCEPT:
Pension payment is generally based on your income and years of service with the employer. Traditional pension plan where the employer takes responsibility for investments. Is typically offered today through governments, military or unions. -Employees are the main source of funding and make the asset allocation decisions.
For equity investments, which of the following items is a major factor in the determination of the stock's intrinsic value?
Perceived investor cash flows -True investor cash flows Perceived risk None of the above
Which one of the following major mistakes in capital allocation usually results in a company overlooking positive NPV project?
Preferring to reinvest cash to build a larger business. Trying to create value through share buybacks. -Excessive distribution of cash to satisfy short-term shareholders. Delaying decision making.
What type of risk is typically NOT an issue with U.S. Government Treasuries (Bills, Notes and Bonds)?
Price Risk -Default Risk Interest Risk Maturity Risk
What is the key role of the product-line specialists at an investment bank?
Provide advice on the full spectrum of the bank's product. Develop new methods for doing mergers and acquisitions (M&A). Prepare guidelines for corporate takeover defense. -Help the relationship managers to determine the best product/services for their customers.
Which of the following was not mentioned in lecture as a feature of real estate investment trusts (REITS)?
REITS allow for investors with small amounts of funds to participate in the real estate market. REITS support very good cash flow, since IRS rules typically require about 90% of net income to be distributed in the form of dividends. REITS are like mutual finds. -REITS receive favorable tax treatment amounting to about 2/3 of the typical capital gains tax that applies to other kinds of investments.
Which of the following parties would most likely use financial statement analysis to make decisions about purchasing and/or selling corporate debt and equity securities?
Rating Agencies Trading Partners Suppliers None of the above -Investors
The trading desk operators that act as a counterparty for clients, keeping an inventory of securities, and making money on the bid-ask spread are know as:
Salespeople -Market Makers Structurers Brokers
What is significant, relative to F255 these past two weeks, about Jane Fraser?
She recently stepped down as Director of Relationship Management at Goldman Sachs, stating that it was time for her to put her family and health first. She was recently appointed CEO of Bank of America, making her only the second woman to lead a major Wall Street bank. -She was recently appointed CEO of Citigroup, making her the first woman to lead a major Wall Street bank. She was the first woman to take charge of lending operations at a major commercial bank, Bank of America.
Which of the following investments would generally be higher on the yield curve?
Short-Term US Treasury Long-Term US Treasury Long-Term AAA Corporate -Long-Term CCC Corporate
We shouldn't be surprised to find that some people cringe at the idea of maximizing value to shareholders...
Since most people really don't like the idea of companies making profits. -Since many of them might view this idea as condoning unethical or illegal business practices. since shareholders are already very wealthy individuals and don't really need to receive more value. since most people understand that in the future, we will some day have a world where money doesn't exist, as Captain Picard noted in the Star Trek film, First Contact.
For investors, the three basic choices for investments are Stocks, Cash and Bonds. What is the proper order of ranking of these investments from lowest risk to highest risk?
Stocks, Cash, Bonds Bonds, Cash, Stocks -Cash, Bonds, Stocks Cash, Stocks, Bonds
Why is it so difficult to get synergy in a merger or acquisition?
Synergy is often used as a "plug" value in acquisitions. The costs of actually delivering the synergies are not often considered. Underestimating the difficulty of getting two organizations to work together. -All of the above are correct
Which of the items below is most often used as a discount rate for business decisions in a company?
T-Bill Rate -Weighted Average Cost of Capital Inflation Rate LIBOR
According to Grant's "Basics of Apprenticeship", people who are long-term investors in relationships and care more for others than they do themselves are known as:
Takers -Givers Matchers Losers
One of the sources mentioned in lecture that has quite a bit of educational content is...
The New York Times LearnFinanceByYourself.com Morning Brief -Investopedia
Which of the pairs listed below are media sources available to you at no charge via the IU Library system?
The New York Times and The Washington Post The Wall Street Journal and The Economist -The Wall Street Journal and The New York Times Motley Fool and The Washington Post
All of the following statements about the Cash Conversion Cycle are correct; EXCEPT:
The cash conversion cycle is calculated as days of inventory plus days of receivables minus days of payables. -The cash conversion cycle can never be negative. Days of receivables reflects the time it takes to collect money from credit sales. Days of inventory measures how long it takes to convert raw materials into a sale of finished goods.
According to the World of Finance Charts we discussed in class; all of the following statements are correct; EXCEPT:
The corporate side (real-estate firms, corporations, etc) are primarily the ones who need the funds or capital. The buy-side (mutual funds, hedge funds and other investors are primarily provider of funds to the "corporate" side. -The primary purpose of the Chinese Wall is to increase investment bank profits One of the primary role of investment banks is help with the flow of funds from the buy-side to the corporate side.
Which of the following statements concerning the cost of capital is FALSE?
The cost of capital is typically calculated as WACC. -As long as asset returns are less than the cost of capital, the company will create shareholder value. The dividend decision will impact the cost of capital, as dividends will reduce the level of retained earnings. The overall cost of capital for a company is a function of the mix of capital components used and the individual costs of the components. The relevant costs for the primary sources of capital (debt and equity) are their after-tax, marginal costs.
Which of the following statements is considered a PLUS or Advantage of a DCF Valuation?
The hands of a sloppy analyst, DCF can be manipulated to generate estimates of value that have no relationship to intrinsic value. A significant amount of data may be needed for DCF analysis. -It is inherently contrarian, looking at the fundamentals that drive value rather than what market perceptions are. It may not be accurate if an entire market segment is overvalued.
Which of the following statements is most correct concerning investment risk?
The only important type of investment risk is stand-alone risk Investment risk is related to the probability of earning a return of greater than the expected value -The greater the change of lower than expected or negative returns, the riskier the investment The lower the chance of lower than expected or negative returns, the riskier the investment
A stock that has a beta of greater than 1 would indicate that the stock has:
The same risk as the overall market. Lower risk than the overall market. -Higher risk than the overall market Cannot determine relative market risk from just the beta.
All of the following are considered to be advantages or reasons for using multiples, EXCEPT:
The use of multiples is less time and resource intensive when compared to DCF valuations. Multiple valuations are easier to defend (not as many assumptions). They are more likely to reflect the mood of the market. -Multiples valuation are easy to manipulate and incorporate biases.
What of the following is more descriptive of an investment bank rather than a commercial bank?
They accept demand deposits. They make commercial loans. -They underwrite issues of common stock. They "lend" money rather than "raise" it.
What of the following is more descriptive of an investment bank rather than a commercial bank?
They accept demand deposits. They make commercial loans. -They underwrite issues of common stock. They "lend" money rather than "raise" it.
All of the following statements concerning investment banks are correct, EXCEPT: -They can only work on the sell side of a transaction.
They act as an intermediary between buyers and sellers. They act as an intermediary between investors and issuers. They can act in an advisory capacity for their clients.
Which of the following investment bank revenue mix categories based on a percentage of the transaction value processed?
Underwriting -Commissions Trading Income Asset Management
What IPO mechanism offers the greatest flexibility in the offering process and is used by most of the issuers in foreign IPOs?
Uniform-Price Auction Fixed-Price Offering -Book Building Dutch Auction
The capital market/trading function where investors can analyze their asset holdings as a function of their perception of the risk and return of the assets traded in the market is:
Wealth Transfer Risk Management Price Determination -Portfolio Optimization
What is the proper cost of capital to use when doing a DCF analysis using Free Cash Flows to Equity (FCFE)?
Weighted Average Cost of Capital (WACC) -Cost of Equity (Ke) Before Tax Cost of Debt (Kd) After-Tax Cost of Debt [Kd * (1-t)]
All of the following statements concerning Credit Default Swaps (CDSs) are correct, EXCEPT:
When the housing bubble popped, AIG (American International Group) was one of the primary providers of CDSs to the market. CDS contracts contributed significantly to the 2007-08 crisis because they fueled the MBS pipeline. Many banks who held large portfolios of MBSs protected by CDSs were allowed to treat those assets in the same class as Treasuries. -The government decided to NOT prop up AIG and let it fail, causing the financial crisis to worsen.
Microsoft's acquisition of Nokia's handset business in 2013, according to lecture, was likely...
a failure from the start because of Microsoft's previous failure with the Zune music player. an example of using M&A to reduce excess capacity in the mobile phone space. -an example of using M&A for product line extension and R&D. an example of the skilled-advice hypothesis.
According to the reading, about how long did it take leaders to agree on the DaimlerBenz Chrysler merger?
about 18 months -about five months about nine months about one year
Both the finance and real estate majors...
are open to both Kelley and Non-Kelley students. -are 24 credits. lead to your obtaining not only a BS degree but also either the CFP or CFA credential. officially begin the semester just prior to taking I-Core. This question covering finance and real estate majors was promised not to be on the quiz.
The personality traits of multitasking, self confidence, efficiency and social competence are examples of which of the key attributes of a great finance professional?
business though process opportunistic -behavioral academic
According to lecture, a sell-side equity analyst probably....
conducts analysis targeting the company's. M&A specialists. works for the client of an IM firm. conducts analysis on a large variety of companies and their stocks. -works for an IM firm.
Compared to other financial institutions we have looked at, investment management careers appear to involve more...
deal making. relationship management. communication and teamwork skills. -research and analysis.
Which of the following was not discussed in lecture as a key function of commercial real estate professionals?
design valuation sales and marketing property management -equity analysis research
According to material from lecture, Simon Property Group attempts to...
differentiate its shopping malls through advertising that promotes its midwestern roots in Indianapolis. grow its business by diversifying into management of mid-level strip malls in addition to the traditional shopping mall properties. grow its business by encouraging all of its shopping mall tenants to move more of their business online. -differentiate its shopping malls by focusing on providing a premium experience through design, architecture, and careful selection of retail brands.
Which of the following is added back to EBITDA in order to get a better cash flow measure?
dividends paid to common shareholders -stock-based compensation taxes long-term investments
If you combine all cash flows distributed back to shareholders with a good measure of capital gains on the stock, then you probably have a measure of...
earnings per share (EPS). gross profit margin. -total shareholder return. return on free cash flow.
Say you take an exam and the results are not very good. It was a difficult assessment, but you also didn't study as much as you probably should have. You speak with the instructor, explain how disappointed you are, hint a little bit that you thought the questions were "too picky," and ask for some relief. Surprisingly, the instructor says you can take a makeup exam. Great. You're happy. The instructor seems okay, too. One consequence of the instructor's decision, however - a consequence related to F255 lectures over the past weeks - is that she...
has ignored all of the other work you have scheduled during the time that you will now have to study and take the exam again. did not get your name after the discussion and so does not know for whom to set up the makeup exam. -probably created a moral hazard. may charge your Bursar account for the costs of the extra time to create a makeup exam.
According to lecture, a local government-sponsored program to help bring investment to undeveloped properties in their jurisdiction is called...
industrial enterprise zones. -tax increment financing. new investment REITS. permit-free development zones.
According to the reading, Renault-Nissan worked better than Daimler-Chrysler in part because...
it was arranged for the more conservative Nissan to receive a higher ownership stake in the alliance. Renault's strengths were in the European and North American markets while Nissan's strengths were in Japanese and wider Asian markets. -it was established as an alliance of equals and the leadership emphasized the important of collaboration, such as using cross company teams. the cultures of the two companies were nearly identical.
Those of you interested in becoming part of the Kelley Honors Program should...
maintain at least a 3.5 GPA. -make plans to apply for the program between December 1 and March 1 of your freshman year. plan to spend two semesters in a study abroad program. seek help from Professor Erik Benrund, who is the director of Kelley Honors.
As noted in class, the Investment Management Workshop is a huge boost to your chances of landing a position in that industry. But also...
many students who choose the commercial real estate workshop also obtain investment management job offers. -many students who do not participate in workshops can obtain jobs in IM. It will still require good grades, good hard skills, and extra effort at networking. most students who participate in workshops later change their minds about what kind of career they want. you could always participate in multiple workshops in order to raise the chances you get the job you want.
Say you take an exam and the results are not very good. It was a difficult assessment, but you also didn't study as much as you probably should have. You speak with the instructor, explain how disappointed you are, hint a little bit that you thought the questions were "too picky," and ask for some relief. Surprisingly, the instructor says you can take a makeup exam. Great. You're happy. The instructor seems okay, too. One consequence of the instructor's decision, however - a consequence related to F255 lectures over the past weeks - is that she
may charge your Bursar account for the costs of the extra time to create a makeup exam. has ignored all of the other work you have scheduled during the time that you will now have to study and take the exam again. did not get your name after the discussion and so does not know for whom to set up the makeup exam. -probably created a moral hazard.
The news this week that Duncan Brands may be seeking a sale to Inspire Brands was used in lecture as an example...
of a potential acquisition justified as an attempt to extend product lines. of target firm managers recognizing they don't have any new ideas about their business. -of a potential acquisition justified as an attempt to manage the target firm better. of a potential acquisition justified as an attempt to reduce excess capacity in the industry.
Firms that appear to need more cash than is easily available to support their fast growth...
probably need help understanding depreciation and amortization. -probably need help with understanding working capital management. probably need help with understanding long-term capital investments. are not making good use of their bank.
At Guggenheim, professionals are looking hard at how to generate greater returns on their fixed income portfolios. That's tough in today's environment when market interest rates are so low. But their thinking focuses on four ways to manage yields, or returns. These are...
ratings, duration, yields, and country of origin. price, yields, time to maturity, and country of origin. -ratings, duration, structure, and complexity. price, interest rates, country of origin, and effects of inflation.
According to lecture, if a firm is performing well in terms of sales and profits - both growing at nice rates - then this will be...
reflected in high profitability ratios and, eventually, lower costs of obtaining new capital. -reflected in added value to shareholders and a rising stock price. rewarded with large bonuses to company executives. rewarded with a sustainable increase in customer demand.
According to lecture, Bain & Company builds effective consulting teams by...
requiring new associates to participate in a six-month Teams+ program. -utilizing something called the home office strategy. intentionally mixing professionals from across regional and global offices in order to diversify team composition. utilizing what it calls the Bain collaborative experience (BCE).
According to the Zoom poll in class, when thinking about careers most students in the class were primarily concerned about... -money and personal fulfillment. only money. only personal fulfillment. having time for friends, families, and hobbies. buying a Chevy Corvette. Good news is that the proportion of women in leadership roles in the financial services industry has doubled since 2003. Not good news, according to lecture, is...
that the proportion is still just 20.0%. that the proportion of leaders who are African American or Latino remains stuck at about 20.0%. that number of young women choosing careers in financial services continues to drop each years since 2014. that a recent study by Harvard business scholars revealed that most women in leadership roles in financial services are very unhappy with their jobs.
One reason why business firms are willing to spend quite a lot of money on recruiting, hiring, and training college graduates is...
that they understand hiring graduates of the top business schools will give their firms greater name recognition. -that they are convinced those new hires will add more value than the expenses they require. that they expect most new hires to serve their company's interests for at least five years. that they are not usually focused on profits. Instead, these firms are interested in developing savvy business professionals regardless of the initial costs.
If your investment bank is facing a buy side push situation, then...
the bank is responding to a request by a client who is an acquiring firm. -the bank is initiating an M&A deal with an existing client or a potential new client as an acquiring firm. the bank is initiating an M&A deal with a potential target firm. the bank is responding to a request by a client who is a target firm.
The typical concerns of student teams analyzing the loan application from Fake Company Kappa included...
the company's proposal to use as collateral an office building that is in disrepair. the company's default on one of its recent loans. its low profit ratio relative to competitors, its high debt ratio relative to competitors, and its growing accounts payable, indicating the company cannot pay its bills on time. -recent late payments and what seemed like a high debt ratio.
For the investment management side of their business, Vanguard looks at potential talent to become part of...
their financial advisory services and commercial lending operations. -fund management, technology management, data analytics, investment research, and risk management. their equity analysis and commercial lending operations. fund management, technology management, data analytics, and mutual fund marketing.
One of the objectives of applying the BCG growth matrix is...
to turn dogs into cash cows. to invest more capital into products or services categorized as dogs so that they become stars. -to move products or services with question markets into the stars quadrant. to turn cash cows into dogs.
Which of the following is not a typical function of an investment management firm?
wealth management relationship management -home mortgages risk management research asset management advisory services equity analysis
