Economic Factors & Business Information
If a publicly traded corporation was going to sell a wholly-owned subsidiary, the information would be made available through the filing of a Form A) 13-F B) 10-K C) 10-Q D) 8-K
8-K The Form 8-K is filed with the SEC within 4 business days of any one of a number of significant actions, including the sale of a significant asset such as a wholly-owned subsidiary.
Interest rates are declining. An analyst would be most likely to state that the business cycle is in which stage? A) Peak B) Expansion C) Contraction D) Trough
Contraction It is during periods of economic contraction that interest rates tend to decline. They tend to rise during expansions.
Which of the following would probably not be an attractive investment during periods of rising inflation? A) Gold B) Real estate C) Corporate bonds D) Oil stocks
Corporate bonds Interest rates tend to increase with inflation. Rising interest rates cause the values of all fixed-income securities to decline. That is why bonds are not an attractive investment during periods of inflation. Values of real estate, gold, and natural resources tend to rise with inflation.
Dividend payments are not a part of the computation for which of the following risk measurement tools? A) Dividend discount model B) Dividend growth model C) Net present value D) Correlation coefficient
Correlation coefficient The correlation coefficient measures the degree to which 2 securities or portfolios move in concert with each other.
Which of the following best describe the balance sheet formula? Assets minus liabilities equals net worth. Sales minus expenses equals operating income. Liabilities plus equity equals assets. Dividends plus retained earnings equals net income. A) II and IV B) I and III C) II and III D) I and IV
I and III A balance sheet basically lists what is owned (assets) and what is owed (liabilities). The difference between these 2 is the net worth or equity. Sales, expenses, and dividends are all found on the income statement.
If the Consumer Price Index (CPI) is down but consumer demand is up, the economy is likely in which stage of the business cycle? A) Recovery to trough B) Recovery to expansion C) Peak to contraction D) Contraction to trough
Recovery to expansion As prices trend downward and consumer demand increases, the economy is moving from recovery to expansion. As demand continues to increase, assuming supply remains constant, upward pressure will be put on prices through the expansion to the peak.
Stock market indices have a variety of uses. Which of the following is least accurate regarding the use of stock market indices? A) They act as the basis of ETFs. B) They are a lagging indicator of an economy's corporate performance. C) They help in portfolio performance measurement. D) They act as a market barometer.
They are a lagging indicator of an economy's corporate performance. The stock market and market indices are leading indicators of the economy's corporate and financial performance
The owners' equity portion of a corporation's balance sheet would contain all of the following EXCEPT A) treasury stock B) net income C) paid-in capital D) preferred stock
net income Net income is only found on the income statement. The other 3 are part of stockholders' equity (net worth). Treasury stock is company stock that has been issued to the public and then reacquired by the issuer (the company). It is shown as a negative number, so it reduces the net worth.
If the U.S. dollar is devalued relative to other world currencies, which of the following will occur with respect to the prices of goods? U.S. exports will be more price-competitive overseas. U.S. exports will be less price-competitive overseas. Foreign imported goods will be more price-competitive with ours. Foreign imported goods will be less price-competitive with ours. A) I and III B) II and III C) I and IV D) II and IV
I and IV If the dollar goes down in relation to foreign currencies, then foreigners can buy more U.S. goods with the same amount of their currency, making U.S. goods more competitive in foreign markets. This same movement in the dollar means it takes more dollars to buy the same amount of foreign goods in domestic markets, making foreign goods less competitive with U.S. goods.
Investment risk may broadly be categorized as either unsystematic or systematic risk; both types of risk together constitute total, or absolute, risk. Total risk is measured by A) opportunity cost. B) correlation coefficient. C) standard deviation D) beta coefficient.
standard deviation Unlike beta, which only measures systematic risk, standard deviation reflects both systematic and unsystematic risk, revealing the total risk of the investment.
A corporate executive decides that it is in the company's best interest to purchase a yacht. Over the years, the company has built up substantial retained earnings and will use accumulated funds to make the purchase. An analyst interested in how this purchase will affect the company's debt-to-asset ratio would examine A) the seaworthiness of the ship. B) the statement of cash flows. C) the balance sheet. D) the income statement
the balance sheet. Where do we find a company's assets, liabilities, and retained earnings? On the balance sheet.
Assume Frank has a portfolio with an actual return of 10.50% for the past year. The portfolio beta equals 1.25, the return on the market equals 9.75%, and the risk-free rate of return equals 3%. Based on this information, what is the alpha for Frank's portfolio and did it out outperform or underperform the market? A) +3.3750%, outperform B) −0.9375%, underperform C) −1.6875%, underperform D) +9.1875%, outperform
−0.9375%, underperform The formula for alpha: alpha = (actual return − risk-free rate) - (beta × [market return − RF])]. If we plug in the numbers, we get (10.5% - 3%) - (1.25 × [9.75% − 3%]) = 7.5% - (1.25 x 6.75) = 7.5% - 8.4375 = -.9375 The alpha for Frank's portfolio equals −0.9375%, indicating that his portfolio underperformed the market based on the level of assumed investment risk.
