unit 3

STOCK 50% 30% 10% 0% BONDS 50% 70% 90% 100% High return 39.4% 37.2% 34.3% 32.7% Low return 1.4% 6.5% 7.2% 8.5% Avg. return 15.8% 16.2% 15.5% 15.2% Std. Dev. 11.25 10.75 10.15 10.34 Which portfolio mix would you recommend to a client who is most concerned about projected near term volatility?

10%/90%

An analyst is viewing a subject company's financial statements. She notices that the company has current assets of $20 million, fixed assets of $50 million, and total liabilities of $45 million (of which $10 million is considered long-term). This company's debt to equity ratio is

28.6%

The Federal Reserve Board foresees the probability of an overheated economy and the resumption of double-digit inflation. Therefore, the FRB takes actions to slow down the economy, including increasing the discount rate. Which of the following are likely effects of these moves?

An increase in the prime rate, An increase in bond yields and an accompanying decrease in bond prices, A slowdown in corporate growth, A decrease in corporate earnings.

Publicly traded corporations are required to furnish their stockholders with financial information no less frequently than annually. This is usually accomplished by providing an annual report. In lieu of the annual report, this requirement may be met by the furnishing of a:

Form 10-K.

Which of the following analyze corporate financial statements and trends in sales and income?

Fundamentalists

Which of the following is a risk common to all fixed income securities?

Interest rate risk

An investor is considering the purchase of some bonds to diversify his portfolio. If he should decide to purchase Treasury STRIPS instead of Treasury Bonds, his major risk would be:

Interest rate risk.

One possible risk faced by investors is that of opportunity cost. Which of the following choices would be least likely to face that risk?

Investing in a diversified stock portfolio

KPT, Inc. is preparing to report its net income for the past year. An increase in which of the following causes a decrease in the reported net income?

Tax rate, Interest charged on bank loans.

The Federal Reserve Board has just taken action leading to an increase in interest rates. Which of the following industries is most likely to be affected adversely by this action?

Utilities.

What is the definition of inflation?

a decrease in the value of the monetary unit.

All of the following are leading indicators for economic growth

average weekly initial claims for state unemployment compensation. stock prices as measured by the S&P 500 index. orders for durable goods.

Working capital is:

current assets - current liabilities.

An investment strategy that is designed to minimize risk and preserve the investor's principal is a(n):

defensive investment strategy.

The net asset value of an international bond fund can be expected to increase if:

interest rates fall abroad, the U.S. dollar weakens.

One of the most significant risks taken by bond investors is interest rate risk. All of these steps could be used to mitigate the effects of this risk:

laddering the portfolio, buying bonds with short-term maturities, holding bonds to maturity

The financial ratio that shows the relationship between the price of a company's stock and the company's net worth (stockholders' equity) is the:

price-to-book value ratio.

When an analyst subtracts the inventory from a company's current assets and divides the remainder by the current liabilities, the result is the:

quick ratio.