The normality of a distribution
Skewness is a measure of _______.
A) How fat the tails of a distribution are
B) The downside risk of a distribution
C) The normality of a distribution
D) The dividend yield of the distribution
E) A and C
Standard deviation overestimates risk
When a distribution is positively skewed, _________.
A) Standard deviation overestimates risk
B) Standard deviation correctly estimates risk
C) Standard deviation underestimates risk
D) The tails are fatter than in a normal distribution
E) none of the abo
3% (6 - 3)
A year ago, you invested $2,000 in a savings account that pays an annual interest rate of 6%. What is your approximate annual real rate of return if the rate of inflation was 3% over the year?
A) 4%
B) 10%
C) 7%
D) 3%
E) None of the above
50% ((29 + 1 - 20)/20)
You purchased a share of stock for $20. One year later you received $1 as dividend and sold the share for $29. What was your holding period return?
A) 45%
B) 5%
C) 50%
D) 40%
E) None of the above
Does not guarantee the future purchasing power of its cash flows as it is insured by the U.S. Treasury
A risk-free intermediate or long-term investment
A) Is free of all types of risk
B) Does guarantee the future purchasing power of its cash flows
C) Does not guarantee the future purchasing power of its cash flows as it is insured by the U.S. Treasury
D) A
The nominal rate minus the inflation rate
In words, the real rate of interest is approximately equal to
A) The nominal rate times the inflation rate
B) The inflation rate minus the nominal rate
C) The nominal rate minus the inflation rate
D) The inflation rate divided by the nominal rate
E) The n
1.12% ((893 + 12 - 895)/895)
An investor purchased a bond 45 days ago for $895. He received $12 in interest and sold the bond for $893. What is the holding period return on his investment?
A) 1.52%
B) 0.50%
C) 1.12%
D) 0.08%
E) 0.01%
6.09% ((1.03)2 - 1)
An investment provides a 3% return semi-annually, its effective annual rate is
A) 3%
B) 6%
C) 6.06%
D) 6.09%
E) None of the above
Semistrong
If you believe in the ________ form of the EMH, you believe that stock prices reflect all relevant information including historical stock prices and current public information about the firm, but not information that is available only to insiders.
A) Semi
B and C
Proponents of the EMH typically advocate
A) an active trading strategy
B) investing in an index fund
C) a passive investment strategy
D) A and B
E) B and C
Technical analysts
_________ focus more on past price movements of a firm's stock than on the underlying determinants of future profitability.
A) Credit analysts
B) Fundamental analysts
C) Systems analysts
D) Technical analysts
E) All of the above
Resistance level is a value
________ above which it is difficult for the market to rise.
A) Book value is a value
B) Resistance level is a value
C) Support level is a value
D) A and B
E) A and C
All of the above
The debate over whether markets are efficient will probably never be resolved because of ________.
A) the lucky event issue
B) the magnitude issue
C) the selections bias issue
D) all of the above
E) none of the above
Earned higher average returns than firms with high P/E ratios
Basu (1977, 1983) found that firms with low P/E ratios
A) Earned higher average returns than firms with high P/E ratios
B) Earned the same average returns as firms with high P/E ratios
C) Earned lower average returns than firms with high P/E ratios
D) Had
Both A and B are true
Studies of positive earnings surprises have shown that there is
A) a positivie abnormal return on the day positive earnings surprises are announced
B) a positive drift in the stock price on the days following the earnings surprise announcement
C) a negati
A, B, and C
In an efficient market, __________.
A) security prices react quickly to new information
B) security prices are seldom far above or below their justified level
C) security analysts will not enable investors to realize superior returns consistently
D) one c
Good news about Google was announced yesterday
Google has a beta of 1.0. The annualized market return yesterday was 11%, and the risk-free rate is currently 5%. You observe that Google had an annualized return yesterday of 14%. Assuming that markets are efficient, this suggests that
A) Bad news about
Technical analysis
Chartists practice
A) Technical analysis
B) Fundamental analysis
C) Regression analysis
D) Insider analysis
E) Psychoanalysis
Liquidation Value Per Share
_______ is the amount of money per common share that could be realized by breaking up the firm, selling the assets, repaying the debt, and distributing the remainder to shareholders.
A) Book Value Per Share
B) Liquidation Value Per Share
C) Market Value P
Will be less than the intrinsic value of stock D
You wish to earn a return of 10% on each of two stocks, C and D. Each of the stocks is expected to pay a dividend of $2 in the upcoming year. The expected growth rate of dividends is 9% for stock C and 10% for stock D. The intrinsic value of stock C _____
8.25% (11% x 0.75)
A company has an expected ROE of 11%. The dividend growth rate will be _______ if the firm follows a policy of paying 25% of earnings in the form of dividends.
A) 3.0%
B) 4.8%
C) 8.25%
D) 9.0%
E) None of the above
Lower when inflation has been high
Historically, P/E ratios have tended to be
A) Lower when inflation has been high
B) Higher when inflation has been high
C) Uncorrelated with inflation rates but correlated with other macroeconomic variables
D) Uncorrelated with any macroeconomic variable
The level of uncertainty surrounding the forecast will always be quite high
One of the problems with attempting to forecast stock market values is that
A) There are no variables that seem to predict market return
B) The earnings multiplier approach can only be used at the firm level
C) Dividend payout ratios are highly variable
D
$25.00 ($2.50/0.10)
A preferred stock will pay a dividend of $2.50 in the upcoming year, and every year thereafter, i.e., dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth DDM to calculate the intrinsic value of this prefe
The amount of earnings retained by the firm does not affect market price or the P/E
If a firm has a required rate of return equal to the ROE
A) The amount of earnings retained by the firm does not affect market price or the P/E
B) The firm can increase market price and P/E by increasing the growth rate
C) The firm can increase market pri
Intrinsic value exceeds market price
The goal of fundamental analysts is to find securities whose ____________.
Gradually approach its intrinsic value over several years
Many stock analysts assume that a mispriced stock will
A) Immediately return to its intrinsic value
B) Gradually approach its intrinsic value over several years
C) Never return to its intrinsic value
D) Return to its intrinsic value within a few days
E) N
A and C
Because the DDM requires multiple estimates, investors should
A) Carefully examine inputs to the model
B) Not use this model without expert assistance
C) Perform sensitivity analysis on price estimates
D) Feel confident that DDM estimates are correct
E) A
Open market operations
The most widely used monetary tool is...
Board of Governors
Monetary policy is determined by the ____________ of the Federal Reserve System.
A and C
Fiscal policy is difficult to implement quickly because
A) It requires political negotiations
B) Increases in tax rates affect consumer spending gradually
C) Much of government spending is non-discretionary and cannot be changed
D) A and B
E) A and C
Tax rate
Supply-side economists wishing to stimulate the economy are most likely to recommend a decrease in the __________.
Fundamental analysis
The process of estimating the dividends and earnings that can be expected from the firm based on determinants of value is called ________.
Consolidation
During which stage of the industry cycle would a firm experience stable growth in sales?
Increase and increase
If interest rates decrease, business investment expenditures are likely to ______ and consumer durable expenditures are likely to _________.
Smaller profits
If the economy is growing, firms with low operating leverage will experience __________ than firms with high operating leverage.
Pressure from Substitute Products
According to Michael Porter, there are five determinants of competition. An example of _____ is when the availability limits the prices that can be charged to customers.
Global Economy
A top down analysis of a firm starts with the __________.
Are rational: may not be rational
Conventional theories presume that investors ________ and behavioral finance presumes that they __________.
Overconfidence
__________ may be responsible for the prevalence of active versus passive investments management.
Forecasting
If a person gives too much weight to recent information compared to prior beliefs, they would make _______ errors.
Mental Accounting
Statman argues that _______ is consistent with some investors' irrational preference for stocks with high cash dividends and with a tendency to hold losing positions too long.
I, II, and III
Arbitrageurs may be unable to exploit behavioral biases due to ___________.
I) fundamental risk
II) implementation costs
III) model risk
IV) conservatism
V) regret avoidance
Charles Dow
__________ was the grandfather of technical analysis.
Primary trend
A long-term movement of prices, lasting from several months to years is called a _________.
Bullish or bearish
The put/call ratio is used to compute the number of outstanding put options divided by outstanding call options and higher values are considered __________ signals.
Households
Factor influencing supply....
Businesses
Factor influencing demand.....
Federal Reserve
Factor influencing government's net supply and/or demand....
Nominal
This type of interest rate is the growth rate of your money.
Real
This type of interest rate is the growth of your purchasing power.
Equilibrium Real Rate of Interest
This is determined by supply, demand, government actions, and expected rate of inflation.
Weak, semi-strong, strong
The three versions of efficient market hypothesis are.....
Technical Analysis
This uses prices and volume information to predict future prices.
Fundamental Analysis
This uses economic and accounting information to predict stock prices.
Active
Security Analysis and timing are traits of this type of management..
Passive
Buying and holding along with index funds are traits of this type of management..
Equity Valuation
Balance Sheet Models, Dividend Discount Models, and Price/Earnings Ratios are three different models of _________.
Required return
If the stock is priced correctly this should equal the expected return.
Buy
Intrinsic Value > Market Price = ?
Sell (or short sell)
Intrinsic Value < Market Price = ?
Hold (or fairly priced)
Intrinsic Value = Market Price = ?
Price/Earnings Ratio
This is a function of two factors: Required rates of return and expected growth in dividends. This is used in relative valuation and extensive use in industry.
Free cash flow
After tax EBIT, Depreciation, Capital Expenditures, and Increase in net working capital are components of _______.
Demand Shock
This is an event that affects demand for goods and services in the economy.
Supply Shock
This is an event that influences production capacity or production costs.
Leading
This is a type of indicator that tends to rise and fall in advance of the economy. Examples of this: average weekly hours of production workers and stock prices.
Coincident
This is a type of indicator that tends to change directly with the economy. Examples of this: industrial productions and manufacturing and trade sales.
Lagging
This is a type of indicator that tends to follow the lag economic performance. Examples of this: ratio of trade investors to sales and ratio of consumer installment credit outstanding to personal income.
Rapid
In the industry start-up life cycle sales growth is ________.
Stable
In the industry consolidation life cycle sales growth is _______.
Slowing
In the industry maturity life cycle sales growth is __________.
Minimal
In the industry relative decline life cycle sales growth is ________.