Bloomberg Concept Questions
Company X was expected to have earnings per share of $0.52 for the upcoming quarter. On the day of the results, the company reported earnings per share of $0.83. What happened to the share price when the stock market opened?
There is not enough information to tell.
What is the main reason that investment banks create estimates of economic indicators?
To know when specific economic data points are a positive or negative surprise
Why would Jack Welch suggest putting all company plants on barges?
To respond quickly to changes in the currency markets.
Which of these headlines could move a currency pair?
U.S. Stocks rally on Fed's Surprise reduction of Interest Rate.
What quality of U.S. government bonds causes investors to buy them when market volatility rises?
US Government bonds are considered low risk
Which of the following statements is true?
When you buy an equity, the most you can lose is 100% and your potential gain is unlimited.
Why is the release of GDP statistics less interesting to investors than the release of other economic indicators?
because GPD statistics are released well after other economic indicators
How do investors compare bonds?
by comparing the yields of single bonds
Which of the following assigns the same relative weightings to short-term and long-term outcomes as the absolute valuation process?
A fishery exceeding fishing quotas
The purchase of which of the following products is most affected by interest rates?
A house
A wedding planning company has a high fixed-cost base and a lot of debt. Who would you rather be?
A shareholder in a booming economy.
What may be a problem of comparing the P/E of a stock to the P/E of the overall market?
A stock's P/E ratio can remain above or below market average for extended periods.
Which driver weakened the Swiss franc?
A surprise change in inflation expectations
What impact will a tightening of the corporate spread most likely have on a company?`
A tendency to expand the borrowing capacity of the company.
Why does the yield curve tend to invert shortly before a recession?
An inverted yield curve means that bond traders are predicting interest rate cuts, and interest rate cuts happen in response to a recession.
Which one of the following actors benefits when interest rates go up?
An investor who is about to buy bonds.
What is the primary driver of the left-hand end of the yield curve?
Central bank interest rates
What does one yellow bar depict in this debt distribution diagram?
Coupon repayment
Why are equities volatile?
Due to the residual nature of earnings
A rise in which of the following inputs will increase an absolute valuation?
Earnings estimates
How is enterprise value calculated?
Enterprise value = market cap - cash + debt
What is a reason one discounts future cash flows as part of the absolute valuation process?
Future profits are uncertain.
By what mechanism do interest rates affect currency values?
Global investors are attracted by higher bond yields in high interest rate countries.
What is the prime reason that Jenny's discretionary income is more volatile than her salary?
Her mortgage payments and necessities are fixed
Which of the following is not an example of a failed peg?
Hong Kong dollar against the U.S. dollar in 1997.
Why do companies do IPOs?
IPOs incentivize entrepreneurs to innovate as IPOs provide a way for entrepreneurs to monetize their work
When investors doubt the creditworthiness of a borrower, how do they alter their calculation of the bond yield to take into account these doubts?
Investors do not after the calculation
What role does beta play in absolute valuation?
It determines how risky a stock is in comparison to the overall stock market
Which country is the fourth biggest importer and exporter?
Japan
You are building a financial model of a bifocal lens manufacturer. Which of the following is the best driver to use?
Median age of society
What typically happens to nonfarm payrolls, the PMI indicator, and housing starts at the onset of a recession in the United States?
Nonfarm payrolls go down, the PMI indicator goes DOWN, the housing starts goes down.
What input do both absolute valuation and relative valuation typically require?
Short-term forecasts
At its peak at the end of 1999, Microsoft had a market cap of $600B, It was the apple of its day as PC sales were booming and most ran Microsoft software. Revenue was growing 30% per year. The P/E ratio peaked at 70.0x. Looking at this chart, what happen in the subsequent 15years?
The P/E ratio drifted downwards, and this more than offset earnings growth, meaning that the shares went down
What generally happens when a central bank unexpectedly increases interest rates?
The currency strengthens.
What is one possible weakness of this peer approach to valuation
The estimated growth can be dramatically wrong.
What is the primary reason for U.S. government bond yields to ripple through the bond market?
The large government bond market competes for investors attention via yields
If the earnings per share of a company is $1 and the earnings yield is 2%, What is the price per share?
$50
Widget Co has a market capitalization of $100 million. it does a 10-for-1 stock split. it then does a 1-for-16 reverse stock split. Finally, it does a 35-for-1 stock split. Nothing else changes. what's the new market cap?
$100M
What is the median estimate for the number of Japanese yen per euro for calendar year 2020?
126
Why do company manager-owners smile when they ring the stock exchange bell at their IPO
An IPO crystalizes the value of the manager-owners stake
Which of the following is most likely to be the most challenging part of this first step of the absolute valuation process?
Making the assumptions upon which the project future performance
What does the Big Mac index show?
how currencies may be overvalued or undervalued
What is the most common target inflation rate for an advanced economy?
2%
What is the difference between Norma and RBC's estimate for the Japanese yen/euro currency pair for the end of Q1 2018?
40 yen
Engines are the most expensive, heavy component on an aircraft and are designed with detailed specifications. Which of the following would likely be the best theme for a Rolls-Royce analyst research note to help a portfolio manager decide between investing in Rolls-Royce or United Technologies?
A comparison of the commercial prospects of new aircraft models
What is the Federal Reserve's favorite inflation gauge?
Core PCE
Why did the corporate spread significantly widen during the 2008 market crash?
Corporate bond issuers go bankrupt more frequently then governments, as they do no have a tax base to fall back on in hard times
What are the three main transmission mechanisms by which the yield curve affects the economy?
Corporate impact, global impact, consumer impact.
A rise in which of the following measures would typically send a government bond price up?
Creditworthiness
When an analyst is looking at a company for the first time, which of the following four activities does he do first?
Defines the industry or industries in which the company operates.
Which of the following important US economic indicators is only available on a quarterly basis?
GDP
Which of the following lines is the best leading economic indicator?
PMI
How do earnings yields differ from bond yields?
The cash flow from equities can continue indefinitely while the cash flow from most bonds comes to an end.
Which of the following is the biggest pitfall of economic indicators?
They do not consistently presage turning points
What is one reason why foreign governments lend to the U.S. government?
To build liquid FX reserves
Why does the yield curve naturally slope upwards?
To compensate leaders for the greater risk of long-term loans compared to short-term loans
Why does the United States have a strong reputation for creditworthiness?
because it has the right to tax the wealthiest population on earth.
How accurately do GDP statistics portray the economy and why?
inaccurately because the scope of GDP measurements can change
How have economic forecasts for this country (US) evolved?
minimal change
Why is fixed income called Fixed income?
Because the repayment amounts and timings are fixed for ordinary bonds
What does the release of earnings announcements have in common with the release of economic indicators?
Both are estimated in advance by analysts.
What is true of both the U.K. and the U.S.?
Both countries are highly creditworthy.
Investors who fear rising inflation may buy Treasury Inflation Protected Securities (TIPS). How do TIPS shield lenders from inflation?
By compensating investors for inflation
Which of the following options is the best way for investors to manage currency risk?
By locking in forward rates for known foreign payments.
Were the two oil crises in the 1970s linked to deflation or inflation?
inflation
Which economic indicator is most directly linked to unemployment?
nonfarm payrolls
Here is the vicious deflationary cycle. What step connects the lower left gray arrow to the upper right blue arrow?
prices decline
Which of the following are short-term drivers of currency valuation?
surprise changes in interest rates, inflation, and trade
As a general rule, what percentage of debt to GDP will make a government's bond yields spike?
there is no general rule
Which of the following qualities of economic indicators do investors prize the most?
timeliness of release
What was the primary goal of Abenomics?
to halt the vicious cycle of deflation
Which of the following is the strongest driver of inflation?
wartime activities
