MGMT 471 In-Class Quiz Questions
Methods of encouraging managers to act in shareholders' best interest include: 1. Threat of takeover 2. Proxy fights for control of the board of directors 3. Tying managers compensation to stock price performance
1, 2 and 3
Which of the following are true about dark pools? 1. they allow anonymity of trading 2. they often involve large blocks of stocks 3. trades made through them might not be reported
1, 2 and 3
A firm has a lower inventory turnover, a longer ACP, and a lower fixed-asset turnover than the industry averages. You should not be surprised to find that this firm has: 1. Lower Asset Turnover Ratio than the industry average 2. Lower Return on Assets Ratio than the industry average 3. Lower Return on Equity Ratio than the industry average
1, 2, and 3
Higher portfolio turnover: 1. results in greater tax liability for investors 2. results in greater trading costs for the fund, which investors have to pay for 3. Is a characteristic of asset allocation funds
1, 2, and 3
Which of the following are financial assets? 1) debt securities 2) equity securities 3) derivative securities
1, 2, and 3
The highest possible value for the interest-burden ratio is ____________, and this occurs when the firm ___________.
1; uses no interest-bearing debt
Rank the following fund categories from likely to most risky to likely least risky: 1. Equity growth fund 2. Balanced fund 3. Sector fund 4. Money market fund
3, 1, 2, 4
When computing the bank discount yield, you would use _________ days in the year
360
Which of the following statements is true concerning economic value added?
A growing number of firms tie managers' compensation to EVA.
Which of the following is not a true statement regarding municipal bonds?
A municipal bond is a debt obligation issued by the federal government
Which of the following is an example of an agency problem? a) Managers engage in empire building b) Mangers protect their jobs by avoiding risky projects c) Managers overconsume luxuries such as corporate jets d) all of the options are examples of agency problems
All of the options are example of agency problems
Financial markets allow for all but which of the following?
Allow most participants to routinely earn high interest returns with low risk
Which of the following is used to back international sales of goods and services?
Bankers' Acceptance
Which of the following assets is most liquid?
Cash equivalents
____________ are partnerships of investors with portfolios that are larger than most individual investors but are still too small to warrant managing on a separate basis
Commingled funds
Which of the following is a true statement?
Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock
The process of decomposing ROE into a series of component ratios is called
DuPont Analysis
Which one of the following ratios is used to calculate the times-interest-earned ratio?
EBIT/Interest Rate
Operating ROA is calculated as __________, while ROE is calculated as _________.
EBIT/total assets; net profit/equity
Advantages of investment companies to investors include all but which one of the following?
Guaranteed rates of return
Which of the following statements about IPOs is not true?
IPOs generally provide superior long-term performance as compared to other stocks
A high price-to-book ratio may indicate which one of the following?
Investors may believe that this firm will earn a rate of return greater than the market capitalization rate
Which one of the following is a true statement regarding the Dow Jones Industrial Average?
It is a price-weighted average of 30 large industrial stocks
__________ is the amount of money per common share that could be realized by breaking up the firm, selling its assets, repaying its debt, and distributing the remainder to shareholders.
Liquidation value per share
Which one of the following provides the best example of relatively recent securitization?
Mortgage pass-through securitization
Which of the following is not an example of a brokered market?
NASDAQ
New-economy companies generally have higher _______ than old-economy companies.
P/E multiples
Which one of the following is a false statement regarding NYSE specialists?
Specialists cannot trade for their own accounts
Which of the following is a false statement regarding open-end mutual funds?
They offer investors a guaranteed rate of return
Which one of the following invests in a portfolio that is fixed for the life of the fund?
Unit investment trust
A fund that invests in securities worldwide, including the United States of America, is called __________.
a global fund
Advantages of ECNs over traditional markets include all but which one of the following?
ability to handle very large complex orders
_________ are examples of financial intermediaries a) commercial banks b) all of the choices are correct c) insurance companies d) investment companies
all of the choices are correct
What ratio will definitely increase when a firm increase when a firm increases its annual sales with on corresponding increase in assets?
asset turnover
A contingent deferred sales load is commonly called a
back-end load
The process of polling potential investors regarding their interest in a forthcoming initial public offering (IPO) is called
book building
The accounting measure of a firm's equity value generated by applying accounting principles to asset and liability acquisitions is called
book value
All of the following ratios are related to efficiency except
cash ratio
security selection refers to
choice of specific securities within each asset class
Real assets in the economy include all but which of the following?
common stock
Which of the following is not a money market security
common stock
A bond that has no collateral is called a
debenture
Generally speaking, as a firm progresses through the industry life cycle, you would expect the PVGO to ________ as a percentage of share price
decrease
All major stock markets today are effectively
electronic trading systems
The greatest percentage of mutual fund assets are invested in
equity funds
The term "residual claimant" refers to :
equity/shareholders
A dollar-denominated deposit at a London bank is called
eurodollars
Deposits of commercial banks at the Federal Reserve are called
federal funds
Which of the following funds invest specifically in stocks of fast-growing companies?
growth equity funds
The value of internet companies is based primarily on
growth opportunities
The constant-growth dividend discount model can be used only when the
growth rate is less than the required return
A __________ is a private investment pool open to only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.
hedge fund
Purchases of new issues of stock take place
in the primary market
___________ funds stand ready to redeem or issue shares at their net asset value.
index
Which of the following is NOT a liquidity ratio
inventory turnover ratio
The two principal types of REITs are equity trusts, which __________, and mortgage trusts, which __________.
invest directly in real estate; invest in mortgage and construction loans
Underwriting is one of the services provided by
investment bankers
Everything else equal, which variable is negatively related to the intrinsic value of a company?
k
Commercial paper is a short term security issued by ____________ to raise funds
large well-known companies
The quick ratio is a measure of a firm's
liquidity
Which one of the following is a common term for the market consensus value of the required return on a stock?
market capitalization rate
An order to buy or sell a security at the current price is a
market order
Net asset value is defined as
market value of assets minus liabilities divided by shares outstanding
Which one of the following statements about market and book value is correct?
most firms have a market to book ratio above 1, but not all
When choosing a benchmark, it is best to use
numerous firms in the same industry
Which of the following is not a money market instrument?
preferred stock
Which of the following valuation measures is often used to compare firms that have no earnings?
price-to-sales ratio
The material wealth of society is determined by the economy's __________, which is a function of the economy's _____________.
productive capacity; real assets
_____________ assets generate net income to the economy, and ________ assets define allocation of income among investors.
real; financial
Transactions that do not involve the original issue of securities take place in
secondary markets
Investors who want to liquidate their holdings in a closed-end fund may
sell their shares on the open market
If an investor places a _________ order, the stock will be sold if its price falls to the stipulated level. If an investor places a ___________ order, the stock will be bought if its price rises above the stipulated level
stop-loss; buy-stop
Asset allocation refers to
the allocation of the investment portfolio across broad asset classes
The term inside quotes refers to
the difference between the highest bid price and the lowest ask price in the limit order
Economic value added (EVA) is:
the difference between the return on assets and the opportunity cost of capital times the capital base
Treasury bills are financial instruments issued by ___________ to raise funds
the federal government
If a stock is correctly priced, then you know that
the sum of the stock's expected capital gain and dividend yield is equal to the stock's required rate of return
Estimates of a stock's intrinsic value calculated with the free cash flow methodology depend most critically on __________.
the terminal value used
Money market securities are sometimes referred to as cash equivalents because
they are safe, marketable, and offer low returns
__________ portfolio construction starts with asset allocation
top-down
Common-size balance sheets are prepared by dividing all quantities by
total assets
The most marketable money market securities are
treasury bills
Initial public offerings are usually _________ relative to the levels at which their prices stabilize after they begin trading in the secondary market
underpriced
Under firm-commitment underwriting, the _______________ assumes the full risk that the shares cannot be sold to the public at the stipulated offering price
underwriter
In what industry are investors likely to use the dividend discount model and arrive at a price close to the observed market price?
utility
The Standard & Poor's 500 is a ________ weighted index
value
You want to earn a return of 11% on each of two stocks, A and B. Stock A is expected to pay a dividend of $3 in the upcoming year, while stock B is expected to pay a dividend of $2 in the upcoming year. The expected growth rate of dividends for both stocks is 4%. Using the constant-growth DDM, the intrinsic value of stock A
will be higher than the intrinsic value of stock B