Series 7: Unit 15 (Portfolio/Account Analysis) (Qbank)

Which of the following describes additional paid-in capital? A) The difference between the total dollar amount received from the issuance of common stock and the stock's aggregate par value B) Total of all residual claims that stockholders have against the corporation's assets C) May also be called earned surplus D) Total of all earnings since a corporation was formed, less dividends

A) The difference between the total dollar amount received from the issuance of common stock and the stock's aggregate par value

If a municipal firm purchases a block of municipal bonds in anticipation of a price increase, the firm is engaged in A) position trading. B) arbitrage. C) hedging. D) short selling.

A) position trading.

From the viewpoint of a fundamental analyst, which of the following has little, if any, significance? A) A company's CEO resigning B) A company's stock reaching new highs or lows C) A company reporting higher or lower earnings D) A company reporting higher or lower sales

B) A company's stock reaching new highs or lows A fundamental analyst looks at the company's internals. That includes management changes, earnings or sales reports, but not anything to do with the trading of the company's stock. That is the purview of the technical analyst.

Which of the following analyze corporate financial statements and trends in sales and income? A) Chartists B) Fundamentalists C) Market timers D) Technicians

B) Fundamentalists Fundamental analysts obtain information from corporate financial statements as well as other relevant sources. Technical analysts review market charts, while fundamental analysts are concerned with the earnings ability of corporations derived from corporate financial statements.

A company's changing from straight line to accelerated depreciation will I. increase income in the early years. II. decrease income in the early years. III. increase income in the later years. IV. decrease income in the later years. A) II and IV B) II and III C) I and IV D) I and III

B) II and III

Which of the following choices best describes the formula to determine earnings per share? A) Retained earnings divided by the number of shares of common issued and outstanding B) (Net income − preferred dividends) divided by the number of shares of common authorized C) [EBIT − (interest + taxes)] − preferred dividends] divided by the number of shares of common outstanding D) (Net income + preferred dividends) divided by (the number of shares of common issued − the number of shares of treasury stock)

C. [EBIT − (interest + taxes)] − preferred dividends] divided by the number of shares of common outstanding

A fundamental analyst is reviewing GEMCO's financial statements. The company has a current ratio of 4:1, a price-to-earnings (P/E) ratio of 12:1, $10 million in 5% debentures, and net income after preferred dividends of $4 million. If the current market price of GEMCO stock is $60 and the company pays dividends at a rate of $0.75 quarterly, the dividend payout ratio is A) 40%. B) 20%. C) 5%. D) 60%.

D) 60%. We see that $0.75 in quarterly dividends are paid. That is equal to $3 per year. The next key is determining the earnings. With a market price of $60 per share and a price-to-earnings ratio of 12:1, the earnings per share must be $5. The dividend payout ratio should be thought of as "dividends paid out of earnings made." The dividends paid are $3; the earnings made are $5. That is a 3 to 5 ratio, or, as usually expressed in percentage form, 60%.

A technical analyst would consider which of the following indicators to be bullish? A) A stock reaching its resistance level B) A stock trading below its 50-day moving average C) A head and shoulders top formation D) An increase to the short interest

D) An increase to the short interest Although it seems counterintuitive, as the number of outstanding shares sold short increases, technical analysts consider that to be a bullish sign. One day, those short positions will have to be covered and that high demand for the stock will push the price up.

In analyzing the ability of a company to meet its debt obligations, but not wanting to chance that certain accounting decisions or practices will cloud the picture, one measure that you might look at is the firm's A) cash flow from financing activities. B) net worth found on the firm's balance sheet. C) price-to-earnings (P/E) ratio. D) earnings before interest and taxes (EBIT) as calculated from the firm's income statement.

D) earnings before interest and taxes (EBIT) as calculated from the firm's income statement.

According to the Dow theory, reversal of a primary bullish trend must be confirmed by A) the duration of the secondary movements. B) five consecutive days of upward price trends. C) the advance/decline line. D) the Dow Jones Industrial Average and Transportation Average.

D) the Dow Jones Industrial Average and Transportation Average.

If a father makes a gift of securities to his 10-year-old daughter, gift taxes would be based on A) the market value of the securities as of April 15 of the year in which the gift is made. B) the market value of the securities as of December 31 of the year in which the gift is made. C) the cost of the securities. D) the market value of the securities on the date of gift.

D) the market value of the securities on the date of gift. gift = tax paid by donor, based on date of gift