Fin 410 FINAL Multiple choice

Rank the following from highest average historical return to lowest average historical return from 1926 to 2017. Small Stocks Long-Term bonds Large stocks T-Bills III, I, II, IV I, II, III, IV III, IV, II, I I, III, II, IV

I, III, II, IV

Which of the following are financial assets? Debt securities Equity Securities Derivative securities I only I and II only II and III only I,II, and III

II and III only

Trading activity and average returns in brokerage accounts tend to be _________. positively correlated negatively correlated positively correlated for women and negatively correlated for men Uncorrelated

negatively correlated

Duration is a concept that is useful in assessing a bond's _________. liquidity risk credit risk price volatility convexity risk

price volatility

A __________ bond gives the bondholder the right to cash in the bond before maturity at a specific price after a specific date. coupon callable Treasury puttable

puttable

Exchange-rate risk cannot be eliminated. results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and cannot be eliminated. results from changes in the exchange rates between the currency of the investor and the country in which the investment is made. results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and can be hedged by using a forward or futures contract in foreign exchange. can be hedged by using a forward or futures contract in foreign exchange.

results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and can be hedged by using a forward or futures contract in foreign exchange.

The term quality of earnings refers to ________. how well reported earnings conform to GAAP the realism and sustainability of reported earnings whether actual earnings matched expected earnings how well reported earnings fit a trend line of earnings growth

the realism and sustainability of reported earnings

If a stock is correctly priced, then you know that ____________. the present value of growth opportunities is equal to the value of assets in place the stock's required return is equal to the growth rate in earnings and dividends the sum of the stock's expected capital gain and dividend yield is equal to the stock's required rate of return the dividend payout ratio is optimal

the sum of the stock's expected capital gain and dividend yield is equal to the stock's required rate of return

Common-size balance sheets are prepared by dividing all quantities by ____________. shareholders' equity fixed assets total liabilities total assets

total assets

Most professionally managed equity funds generally underperform the S&P 500 Index on both raw and risk-adjusted return measures. outperform the S&P 500 Index on both raw and risk-adjusted return measures. outperform the S&P 500 Index on raw return measures and underperform the S&P 500 Index on risk-adjusted return measures. underperform the S&P 500 Index on raw return measures and outperform the S&P 500 Index on risk-adjusted return measures. match the performance of the S&P 500 Index on both raw and risk-adjusted return measures.

underperform the S&P 500 Index on both raw and risk-adjusted return measures.

To earn a high rating from the bond rating agencies, a company would want to have: A low times-interest-earned ratio A low debt-to-equity ratio A high quick ratio I, II, and III I and III only II and III only I only

I and III only

Debt Securities Promise: A fixed stream of income A stream of income that is determined according to a specific formula A share in the profits of the issuing entity I only I or II only I and III only II or III only

I or II only

Active trading in markets and competition among securities analysts helps ensures that: Security prices approach informational efficiency Riskier securities are priced to offer higher potential returns Investors are unlikely to be able to consistently find under or overvalued securities I only I and II only II and III only I, II, and III

I, II, and III

___ is not a derivative security A share of common stock A call option A futures contract None of the options (all are derivative securities)

A share of common stock

Shares of several foreign firms are traded in the U.S. markets in the form of ADRs. All of the options are correct. single-country funds. ECUs. None of the options are correct.

ADRs.

___ are examples of financial intermediaries Commercial banks Insurance companies Investment companies All of the above

All of the above

The performance of an internationally-diversified portfolio may be affected by None of the options are correct. country selection. All of the options are correct. stock selection. currency selection.

All of the options are correct.

Bill, Jim, and Shelly are all interested in buying the same stock that pays dividends. Bill plans on holding the stock for 1 year. Jim plans on holding the stock for 3 years. Shelly plans on holding the stock until she retires in 10 years. Which one of the following statements is correct? Jim should be willing to pay three times as much for the stock as Bill will pay because his expected holding period is three times as long as Bill's. Shelly should be willing to pay the most for the stock because she will hold it the longest and hence will get the most dividends. All three should be willing to pay the same amount for the stock regardless of their holding period. Bill will be willing to pay the most for the stock because he will get his money back in 1 year when he sells.

All three should be willing to pay the same amount for the stock regardless of their holding period.

___ portfolio construction starts with selecting attractively priced securities Bottom-up Top-down Upside-down Side-to-side

Bottom-up

You find a 5-year AA Xerox bond priced to yield 6%. You find a similar-risk 5-year Canon bond priced to yield 6.5%. If you expect interest rates to rise, which of the following should you do? Buy the Canon bond, and short the Xerox bond. Short the Canon bond, and buy the Xerox bond. Short both the Canon bond and the Xerox bond. Buy both the Canon bond and the Xerox bond.

Buy the Canon bond, and short the Xerox bond.

Security Selection refers to the ___ Allocation of the investment portfolio across broad asset classes Analysis of the value of securities Choice of specific securities within each asset class Top - down method of investing

Choice of specific securities within each asset class

Real Assets in the economy include all but which of the following? Land Buildings Consumer durables Common stock

Common Stock

A real asset (select all that apply) Could be tangible Has productive capacity Must be tangible Is equivalent to a financial asset

Could be tangible Has productive capacity

A floating-rate bond, promising payment, depends on: Current interest rates Future interest rates Management's decisions Company dividend levels

Current interest rates

The process of decomposing ROE into a series of component ratios is called ______________. comparative analysis DuPont analysis liquidity analysis technical analysis

DuPont analysis

The __________ index is a widely used index of non-U.S. stocks. None of the options are correct. EAFE CBOE Dow Jones All of the options are correct.

EAFE

Which one of the following ratios is used to calculate the times-interest-earned ratio? Net profit/Interest expense Pretax profit/EBIT EBIT/Interest expense EBIT/Sales

EBIT/Interest expense

Suppose that in a wave of pessimism, housing prices fall by 10% across the entire economy. Has the stock of real assets of the economy changed Yes No Are individuals less wealthy? Yes No

No Yes

Investors gravitate toward the latest hot stock even though it has never paid a dividend. Even though net income is projected to fall over the current and next several years, the price of the stock continues to rise. What behavioral concept may explain this price pattern? Overconfidence Mental accounting Calendar bias Loss aversion

Overconfidence

___ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis Active Momentum Passive Market-timing

Passive

__________ refers to the possibility of expropriation of assets, changes in tax policy, and the possibility of restrictions on foreign exchange transactions. Foreign exchange risk Default risk None of the options are correct. Market risk Political risk

Political risk

__________ assets generate net income to the economy, and __________ assets define allocation of income among investors. Financial, financial Financial, real Real, real Real, financial

Real, financial

__________ are examples of synthetically created zero-coupon bonds. ARMs COLTS OPOSSMS STRIPS

STRIPS

Asset allocation refers to: The allocation of the investment portfolio across broad asset classes The analysis of the value of securities The choice of specific assets within each asset class None of the options

The allocation of the investment portfolio across broad asset classes

The holding period return on a stock is equal to _________. The current yield plus the dividend yield The dividend yield plus the risk premium The capital gain yield over the period plus the inflation rate The capital gain yield over the period plus the dividend yield

The capital gain yield over the period plus the dividend yield

___ portfolio construction starts with asset allocation Bottom-up Top-down Upside-down Side-to-side

Top-down

When a stock price breaks through the moving average from below, this is considered to be ______. none of these options a bullish signal a bearish signal the starting point for a new moving average

a bullish signal

A support level is ___________________. the peak of a market wave or cycle an equilibrium price level justified by characteristics such as earnings and cash flows a level below which the market is unlikely to fall a level beyond which the market is unlikely to rise

a level below which the market is unlikely to fall

Which of the following will result in an increase in cash to the firm? a delay in collecting on accounts receivable net new investments dividends paid an increase in accounts payable

an increase in accounts payable

What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets? quick ratio asset turnover current ratio liquidity ratio

asset turnover

A TRIN ratio of greater than 1 is considered a __________. bearish signal by some technical analysts and a bullish signal by other technical analysts trend reversal signal bullish signal bearish signal

bearish signal

A high amount of short interest is typically considered as a __________ signal, and contrarians may consider it as a _________ signal. bullish; bearish bullish; false bearish; bullish bearish; false

bearish; bullish

Models of financial markets that emphasize psychological factors affecting investor behavior are called _______. fundamental analysis data mining behavioral finance Charting

behavioral finance

The accounting measure of a firm's equity value generated by applying accounting principles to asset and liability acquisitions is called ________. Tobin's q book value liquidation value market value

book value

Which one of the following is equal to the ratio of common shareholders' equity to common shares outstanding? book value per share liquidation value per share Tobin's q market value per share

book value per share

When the market breaks through the moving average line from below, a technical analyst would probably suggest that it is a good time to ___________. hold the stock short the stock buy the stock sell the stock

buy the stock

The ratio of the average yield on 10 top-rated corporate bonds to the average yield on 10 intermediate-grade bonds is called the __________. relative strength index TRIN ratio bond price index confidence index

confidence index

If you are holding a premium bond, you must expect a _______ each year until maturity. If you are holding a discount bond, you must expect a _______ each year until maturity. (In each case assume that the yield to maturity remains stable over time.) capital loss; capital gain capital loss; capital loss capital gain; capital gain capital gain; capital loss

capital loss; capital gain

Which of the following assets is most liquid? receivables plant and equipment cash equivalents Inventories

cash equivalents

All of the following ratios are related to efficiency except _______. fixed-asset turnover average collection period cash ratio total asset turnover

cash ratio

Which of the following is not a money market security? US treasury bill 6- month maturity certificate of deposit Common stock All of the options

common stock

The primary difference between Treasury notes and bonds is ________. maturity at issue coupon rate default risk tax status

maturity at issue

If the interest rate on debt is higher than the ROA, then by using debt a firm's ROE will _________. increase decrease not change change but in an indeterminable manner

decrease

If you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions, you should calculate the __________. geometric average return arithmetic average return index return dollar-weighted return

dollar-weighted return

Technical analysis focuses on _____________________. changing prospects for earnings growth of particular firms or industries forecasting technical regulatory changes finding repeating trends and patterns in prices finding opportunities for risk-free investing

finding repeating trends and patterns in prices

An underpriced stock provides an expected return that is ____________ the required return based on the capital asset pricing model (CAPM). greater than or equal to less than greater than equal to

greater than

The constant-growth dividend discount model (DDM) can be used only when the ___________. growth rate is greater than or equal to the required return growth rate is less than or equal to the required return growth rate is greater than the required return growth rate is less than the required return

growth rate is less than the required return

P/E ratios tend to be _______ when inflation is ______. higher; lower they are unrelated lower; lower higher; higher

higher; lower

TIPS offer investors inflation protection by ______________ by the inflation rate each year. increasing both the par value and the coupon payment increasing only the par value increasing the promised yield to maturity increasing only the coupon rate

increasing both the par value and the coupon payment

Suppose two portfolios have the same average return and the same standard deviation of returns, but portfolio A has a higher beta than portfolio B. According to the Sharpe measure, the performance of portfolio A is poorer than the performance of portfolio B. cannot be measured as there are no data on the alpha of the portfolio. is the same as the performance of portfolio B. is better than the performance of portfolio B. None of the options are correct.

is the same as the performance of portfolio B.

All else equal, bond price volatility is greater for __________. lower coupon rates shorter maturity higher coupon rates lower default risk

lower coupon rates

The cumulative tally of the number of advancing stocks minus declining stocks is called the ______________. relative strength ratio market volume market breadth trin ratio

market breadth

When the stock price falls below a moving average, a possible conclusion is that _____. there is no regular pattern for this stock's market momentum market momentum has become positive market momentum has become negative professional analysts' opinions are invalid until the stock price rises again

market momentum has become negative