Wall Street Exam
A company's ____ are potentially the most effective instrument of good corporate governance.
board of directors
So they order their agent to
buy a ton of orange juice futures right before the data is officially announced, on the premise that the freeze will cause a shortage of oranges and the value of the contracts to surge
Trade between two countries
can make both countries better off
Which one of the following is the rate at which a stock's price is expected to appreciate?
capital gains yield
What are the securities which are created by splitting the cash flows from mortgage pools according to specific allocation rules called?
collateralized mortgage obligations
Differences in the amounts and quality of education and training
combine with difference in mental, physical, and aesthetic talents to produce income inequality
Mortimer and Randolph Duke, the two corrupt, septuagenarian brothers who run a
commodities brokerage house
The following are examples of real assets except
common stock
Limited liability is an important feature of
corporation
An agent who maintains an inventory from which he or she buys and sells securities is called a
dealer
Which of the following does not help explain growing income inequality since 1969?
declining returns to education as college graduates have trouble finding jobs increased immigration
One cause of income inequality in the US is
differences in preferences for market work relative to non market activities as well as differences in preferences for types of work
What is the model called that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?
dividend growth
The main disadvantage of organizing a business as a corporation in the US is
double taxation
Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities. Which one of the following terms best defines that market?
efficient capital market
The report the Dukes receive indicates
extensive damage to the Florida orange crop, due to a hard freeze
Which of the following groups has the highest poverty rate?
female-headed families
The decision functions of financial management can be broken down into the decisions
financing and investment
Which of the following best describes the two primary elements of compensation?
fixed and variable pay
Last year, T-bills returned 2 percent while your investment enlarge-company stocks earned an average of 5 percent. Which one of the following terms refers to the difference between these two rates of return?
geometric return
Selling a futures contract hoping to profit from declining prices is also known as
going short
Each of the following contributes to income inequality except
government agencies
An investor who shifts risk is referred to as which of the following?
hedger
An increase in which of the following will increase the current value of a stock according to the dividend growth model? i: dividend amount ii: number of future dividends, provided the current number is less that infinite iii: discount rate iv: dividend growth rate
i, ii, and iv only
The dividend growth model i: assumes that dividends increase at a constant rate forever. ii: can be used to compute a stock price at any given point in time iii: can be use to value zero-growth stocks. iv: requires the growth rate to be less than the required return
i, ii, iii, and iv
The basic argument for income inequality is that
income is essential to maintain incentives to produce
Which of the following best describes the two primary elements of benefits programs?
income protection and pay for time not worked
If you opt to purchase shares of stock on margin rather than with cash, you will
increase your maximum potential rate of return
The entrance of large numbers of "baby boomers" into the labor force in the 1970s and 1980s
increased income inequality
The market price of a share of common stock is determined by
individuals buying and selling the stock
The following are advantages of separating or ownership and management of corporation except
insure agency costs
Income
is a flow concept
Corporations, potentially, have infinite life because
it is a legal entity
All kinds of speculative arbitrage rely in techniques that magnify risk and reward for the investor. This is known as:
leveraging
You are a baker and need to purchase a substantial amount of wheat flour three months from now in preparation for your busy season. Your concern is that the price of wheat will increase substantially before you make your purchase. Which of the following positions in wheat would be an effective hedge for you?
long position in futures market
The following are examples of intangible assets except
machinery
Individuals who continually monitor the financial markets seeking misplaced securities
make the markets increasingly more efficient
Income mobility
makes lifetime income inequality among income receiver in the US less than income inequality in any single year
Which of the following groups has the lowest poverty rate?
married-couple families
The financial goal of a corporation is to
maximize the value of the firm for the shareholders
The long-run objective of financial management is to
maximize the value of the firm's common stock
What element of risk is entailed in simple interest>
none whatsoever
A corporation in which you are a shareholder has just gone bankrupt. Its liabilities are far in excess of its assets. You will be called on to pay
nothing
Some economists have criticized government figures on income inequality, arguing that these data
overestimate the degree of income inequality by failing to include non cash transfers as income
The following are examples of financial assets except
patents
Mortgage back securities are defined as securities whose investment returns are based on which of the following?
pool of mortgages
National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past fifteen years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firms stock is
priced the same as a $1 perpetuity
In a market economy, economic activity is guided by
prices are incentives to both buyers and sellers
True diversification means
putting a significant portion of your investment dollars into several mutual funds
Benefits from trade would NOT include
reduced competition
Diversification is investing in a variety of assets with which one of the following as the primary goal?
reducing some risks
A 30-year bond issued by Gary's Plaid Pants Warehouse, Inc., in 1997 would now trade in the
secondary capital market
How are financial markets designed to discourage arbitrage?
securities are priced evenly in all trading arenas
When referring to stocks, what does the term market capitalization mean?
total dollar value of a company's outstanding stock
In economics, efficiency refers to the property of society getting the most it can from its scarce resources
true
The Dukes intend to "corner the markets"
true
The lifetime distribution of income is more equal that the annual distribution. This statement is
true, because there is considerable income mobility over time
A financial instrument on which a futures contract is based is called which one of the following?
underlying assets
standard deviation is a measure of which one of the following?
volatility
You cannot attend the shareholder's meeting for Alph United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called?
voting by proxy
People's incomes are relatively low when they are young, reach a peak in middle age, and then decline. This fact helps explain
why the lifetime distribution of income is more equal that the distribution in any given year
What other major factor must come in to play when you are allocating your investment dollars?
your stage in life
What are the earnings per share or a company that earned $100,000 last year in after-ta profits, has 200,000 common shares outstanding and $1.2 million in retained earnings at the year end?
$0.50
Who was Enron's CFO
Andrew Fastow
The following are examples of foreign-based corporations except
General Electric
Which of the following is NOT an example of a financial intermediary?
International Business Machines, Inc. (IBM)
A market economy allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
True
Inflation is an increase in the overall level of prices in the economy and is usually caused by growth in the quantity of money
True
The Dukes arrange to get an advice copy of the
USDA's monthly orange crop report
The following are examples of the US based corporations expect
Unilever
Costs associated with the conflicts of interest between the bondholders and a shareholders of a corporation is called
agency costs
Agent costs are incurred by a corporation because
all of the above
Finance, generally, deals with
all of the above
If you have along cash position and do not hedge it, you are
all of the above
The following cities are also important financial center of the world
all of the above
The purpose of financial markets is to:
allocate savings efficiently
The value of cost of a good or service that is given up by choosing one alternative over another is called
an opportunity cost
Businesses can be organized as
any of the above
Standard Census data on the distribution of income:
are before taxes in that they do not account for personal income and payroll taxes
If you open a margin account with your broker, you can buy twice as much stock as you actually have the cash to purchase.
Fact
Adam Smith argues that when the government prevents prices from adjusting naturally to supply and demand, it aids the invisible hand's ability to coordinate the millions of households and firms that make up the economy
False
Which of the following best describes the business strategy?
a broad plan for competitively positioning products supporting the mission
Scarcity arises because of
a finite amount of resources
The basic economic argument for greater income equality is that
a more equal distribution of a given amount of income will increase the total utility of consumers
Which of the following would likely reduce income inequality
a reduction in the number of high school dropouts
Sarbanes-Oxley Act of 2002 (SOX) was largely a response to
a series of corporate scandals involving Enron, WorldCom, Global Crossing, Tyco and numerous others
Which one of the following is an underlying assumption of the dividend growth model?
a stock's value is equal to the discount present value of the future cash flows which it generates
A ___ would be an example of a principal, while a ____ would be an example of an agent
shareholder; manager
Generally, a corporation is owned by the
shareholders
Insider trading occurs when
someone has information not available to the public which they use to profit from trading in stocks
An investor who accepts the risk of a loss in exchange for the chance to earn a profit is referred to as which of the following?
speculator
To reduce risk as much as possible, you should combine assets which have one of the following correlation relationships?
strongly negative
Hedging involves
taking a futures position opposite to one's cash market position
Stacy purchased a stock last year and sold it today for $3 a share more than her purchase price. She received a total of $0.75 in dividends. Which one of the following statements is correct in relation to this investment?
the capital gains yield is positive
The focal point of financial management in a firm is
the creation of value for shareholders
How are funds allocated efficiently in a market economy
the economic unit is willing to pay the highest expected return receives the fund
Which of the following groups does not bear a disproportionate burden of poverty?
the elderly
Which of the following a major factor influencing the growth and change of employee benefits?
the government
"Shareholder wealth" in a firm is represented by
the market price per share of the firm's common stock
Efficient financial markets fluctuate continuously because
the markets are continually reacting to new information
