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