Series 65 - Economics and Analysis

The following is the balance sheet of a company: Cash. $40,000 Inventory. $30,000 AR. $70,000 Long Term assets $100,000 Trade payables. $25,000 Long term payables $50,000 Long term debt. $60,000 What is the Net working capital of the company?

$115,000 NWC = CA- CL CA is 40k + 30K + 70K CL is only 25k

What is the formula for the Quick Ratio

(Current assets - assets not readily convertible to cash)/ current liabilities

In 2020, a customer buys 5 ABCD 10% debentures, M '49, at 85. The interest payment dates are Feb 1 and Aug 1. The bonds are callable in 2025 at 103. The current yield on the bond is:

11.76% Current yield = Annual interest/ bond market price 100/850 = 11.76%

A corporation shows the following capital structure: Long term debt $20 M Preferred Stock. $20 M Common at par $10 M cap excess of par $50 M Retained earnings $20 M The corporations debt to equity ratio is:

1:5 20 M / 100 M = 1:5

A customer invests $1000 on an investment that is expected to generate $100 Year 1, $150 year 2, and $350 year 3 at which time the original $1000 investment will be returned. What is the return on investment (ROI)?

20% 100 + 150 + 350 = 600 600/ 3 years = 200 Per year 200/ 1000 investment = 20 %

If an investment yields 6% at the same time as inflation as measured by the CPI increases by 2%, the inflation adjusted rate of return is:

4% 6% - 2%= 4%

An investment advisor representative has been reviewing the likelihood that an equity investment will produce the desired return. He has determined that the mean return on the investment is 20% with a standard deviation of 15% and a 95% probability of occurrence. He would expect the range of returns to be approximately:

5% - 35%

An investment generates the following annual returns: Year 1: 6% Year 2: 4% Year 3: 2% Year 4: 6% Year 5: 8% The MODE Return is:

6%

A municipal bond deal or quotes a 7 year, 5% term revenue bond at 94. The yield to maturity is:

6.04% YTM = (Annual income + Annual capital gain)/average book value [50 + ( 60/7yrs)]/(940 + 1000)/2 50 + 8.75/970 6.04%

A customer invests $50,000. 10 years later the investment is worth $100,000. The customers annual compound rate of return is:

7.20% This if found using the rule of 72. Divide 72/7.2 = 10 years to double investment

Time weighted return will be the same as dollar weighted return for an individual customer that has a mutual fund holding if:

Actual cash deposits into the mutual fund and actual withdrawals out of the mutual fund are ignored

An Investment advisor that uses a "top down" approach to portfolio management will:

Analyze the entire economic outlook to sort out the areas for higher growth potential

The yield to maturity on a bond is more than the yield to call. The bond is trading:

At a premium

A technical analyst would be least concerned with:

Book value per share

An analyst evaluates a company's market prospects, sales growth, product line, profitability, cash flow, capital structure, P/E ratio, and dividend yield and then compares them to other companies that are in the same economic sector to decide which company is the superior investment. This is an example of:

Bottom up investment approach

If the dollar falls against foreign currencies, all of the following statements are true EXCEPT: A. US goods are cheaper to foreign countries B. US Exports are likely to rise C. Foreign currencies buy fewer dollars D. Foreign imports are likely to fall

C. Foreign currencies buy fewer dollars

A 20 year, 6% bond is quoted by the deal or on a 5% basis. The bond is callable in 10 years at par. To calculate the dollar price for the bond, the deal or would use the:

Call date to find the years over which the premium would be lost

If the CPI rises by 3% over a year, this means the:

Cost of goods and services in the United States has increased by 3%

The formula for Net Working Capital is:

Current assets - current liabilities

All of the following risks are essentially equivalent for long term corporate bonds EXCEPT:

Default Risk

The "present value" of a fixed income security is based on the:

Discounting of all expected future payments to be made by the issuer of the security

Technical analysis of a company would include all of the following EXCEPT:

Dividend history

All of the following are included in the footnotes to a corporations financial statements EXCEPT:

Estimated unrealized losses on investments

A married couple that is in the maximum tax bracket has 1 child, age 8. They are looking to start a 529 plan to fund the child's college education. They have $75,000 to invest. The child will enter college 10 years from now at age 18. The couple will need $200,000 for college to pay for a private, 4 year college. To calculate whether the 75,000 investment is adequate, all of the following are required to find the future value EXCEPT:

Expected inflation rate

CAPM is used to calculate the

Expected rate of return

The rate of return that considers compounding of returns of the time horizon of an investment is:

Geometric rate of return

A cyclical stock would be characterized by: I. Earnings variability due to changes in economic growth II. No earnings variability due to changes in economic growth III. A stock price that Tempe's to move in the same direction of the market as a whole IV. A stock price that tends to move in the opposite direction of the market as a whole

I and III

During prolonged periods of economic recession: I. Interest rates can be expected to fall II. Interest rates can be expected to rise III. The Fed will begin to loosen credit IV. The Fed will begin to tighten credit

I and III

Mutual fund performance charts show: I. Time weighted average return II. Dollar weighted average return III. A return that is affected by investor cash inflows and outflows IV. A return that is not affected by investor cash inflows and outflows

I and IV

Federal reserve actions can directly influence which of the following: I. Discount rates II. Federal funds rate III. Money multiplier IV. Money velocity

I, II, III, IV

Which of the following statements are provided to shareholders in the annual report of registered corporations? I. Income statement II. Balance sheet III. Statement of changes in stockholder equity IV. Sources and uses of cash statement

I, II, III, IV

Which of the following are components of their capital asset pricing model I. risk free rate of return II. Alpha III. Beta IV. Expected market rate of return

I, III, IV

In a deflationary period, which of the following statements are TRUE? I. Interest rates will rise II. Interest rates will fall III. As a defensive investment, investor would purchase equity securities IV. As a defensive investment, investor would purchase Fixed income securities

II and IV

Under supply side theory, which of the following will stimulate the economy? I increased gov spending II. Decreased gov spending III. Tax rate increases IV. Tax rate reductions

II and IV

During periods of falling unemployment claims, rising consumer spending, and increased business spending, the Federal Reserve's actions would attempt to minimize the chances of:

Inflation

What is a benefit of investing in precious metals?

Inflation protection

The internal rate of return computation assumes that cash flows will be reinvested at the:

Internal rate of return

A customer who is retired and wants to select an investment that is marketable, and provides the highest rate of return. The BEST choice would be to recommend:

Investment Grade preferred stock

Growth Companies are characterized by:

Low dividend payout ratios and high price/earnings ratios

During a period of high unemployment, interest rates would be:

Lower, indicating that there is a weak demand for loans

When looking at price/book value ratio of a corporation, "Book value" is best described as:

Net accounting value

What is the MOST important measure when analyzing a companies income statement?

Net operating profit margin ratio

The real interest rate is the:

Nominal rate - Inflation rate

An investor that buys securities issued by companies based in Third World countries would be MOST concerned with:

Political Risk

Duration is a measure of a bonds:

Price Volatility

The Efficient Market Theory states that securities markets are efficient if:

Prices instantaneously and fully reflect all relevant and available information

The disadvantage of owning a mutual fund that invests in common stocks is the risk of loss of:

Principal

During the normal sequence of the economic cycle, after a period of recession, the economy will move in a period of:

Recovery

All of the following items are included on a company's income statement EXCEPT:

Reinvested dividends

If a stocks price breaks through a resistance level, it is expected that the price of the stock will:

Rise

If the Required rate of return on a security is less than the IRR, then the:

Security should be purchased for investment

Given the formula: (corporate yield %) x (1 - tax bracket %) = X X is equal to the:

Tax-free equivalent yield

Years ago, a bond issued at par wraith a 7% coupon. This year, new issue bonds of similar credit are being issued at 10%. Which statement is TRUE

The new bonds will be issued at a premium to the current price of the 7% bonds

Both Bond A and Bond B have an 8% coupon. Bond A matures in 2 years, while Bond B matures in 10 years. If market interest rates rise:

The price of Bond B will Fall faster than the price of Bond A

The method for computing return as shown in a mutual fund performance chart is:

Time weighted average return

The formula for Net Worth is:

Total Assets - Total Liabilities

An analysis of yield curves of US Gov and lower medium quality corporate bonds shows the yield spread to be widening over the last 4 months. Based upon investor expectations as evidenced by the widening of the yield spread, an appropriate investment is:

US Government Bonds

When the market is reaching an "oversold" condition, it is expected that the next market move will be:

Upwards

A customer is considering buying a new $30,000 car and will put $6,000 down and will borrow the remaining $24,000 from the automobile finance company. Assume that this customer has a $24,000 in the bank earning 4% interest, but does not wish to use this money pay for the new car. The loan terms offered are: 12 month loan: 0% 36 month loan: 2% 48 month loan: 6% to determine the cost of the loan the customer should:

Use Net present value

Which form of efficient market theory states that one cannot detect mispriced assets And consistently outperform the market through technical analysis of past prices?

Weak form