Essentials of Investments, 11e (Bodie)
1) A top-down analysis of a firm’s prospects starts with an analysis of the ________.
A) firm’s position in its industry
B) U.S. economy or even the global economy
C) industry
D) specific firm under consideration
2) In 1980 the dollar-yen exchange rate was about $.0045. In 2017 the yen-dollar exchange rate
was about 91 yen per dollar. A Japanese producer would have had to increase the dollar price of
a good sold in the United States by approximately ________ to maintain the same yen price in
2017.
A) 144%
B) 79.5%
C) 265.4%
D) 36%
3) An increase in the value of the yen against the U.S. dollar can cause the Japanese automaker
Toyota to either ________ on its U.S. sales.
A) lose market share or reduce its profit margin
B) gain market share or reduce its profit margin
C) lose market share or increase its profit margin
D) gain market share or increase its profit margin
4) You estimate that the present value of a firm’s cash flow is valued at $15 million. The break
up value of the firm if you were to sell the major assets and divisions separately would be $20
million. This is an example of what Peter Lynch would call ________.
A) a stalwart
B) slow growth
C) a star
D) an asset play
5) If interest rates increase, business investment expenditures are likely to ________ and
consumer durable expenditures are likely to ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
6) If you believe the economy is about to go into a recession, you might change your asset
allocation by selling ________ and buying ________.
A) growth stocks; long-term bonds
B) long-term bonds; growth stocks
C) defensive stocks; growth stocks
D) defensive stocks; long-term bonds
7) The yield curve spread between the 10-year T-bond yield and the federal funds rate is a
________ economic indicator.
A) leading
B) lagging
C) coincident
D) mixed
8) The Conference Board’s Consumer Confidence Index is released ________.
A) daily
B) weekly
C) monthly
D) quarterly
9) You can earn abnormal returns on your investments via macro forecasting ________.
A) if you can forecast the economy at all
B) if you can forecast the economy as well as the average forecaster
C) if you can forecast the economy better than the average forecaster
D) only if you can forecast the economy with perfect accuracy
10) Which of the following industries would most analysts classify as mature?
A) internet service providers
B) biotechnology
C) wireless communication
D) auto manufacturing
11) Which one of the following stocks represents industries with below-average sensitivity to the
state of the economy?
A) financials
B) technology
C) food and beverage
D) cyclicals
12) The most widely used monetary policy tool is ________.
A) altering the discount rate
B) altering reserve requirements
C) open market operations
D) increasing the budget deficit
13) According to ________ economists, the growth of the U.S. economy in the 1980s can be
attributed to lower marginal tax rates, which improved the incentives for people to work.
A) Keynesian
B) monetarist
C) supply-side
D) demand-side
14) The market value of all final goods and services produced during a given time period is
called ________.
A) GDP
B) industrial production
C) capacity utilization
D) factory orders
15) A big increase in government spending is an example of a ________.
A) positive demand shock
B) positive supply shock
C) negative demand shock
D) negative supply shock
16) GDP refers to ________.
A) the amount of personal disposable income in the economy
B) the difference between government spending and government revenues
C) the total manufacturing output in the economy
D) the total production of goods and services in the economy
17) Portfolio manager Peter Lynch would classify Coca-Cola as ________.
A) an asset play
B) a slow grower
C) a stalwart
D) a turnaround
18) Attempting to forecast future earnings and dividends is consistent with which of the
following approaches to securities analysis?
A) technical analysis
B) fundamental analysis
C) both technical analysis and fundamental analysis
D) indexing
19) The analysis of the determinants of firm value is called ________.
A) fundamental analysis
B) technical analysis
C) momentum analysis
D) indexing
20) Which of the following companies is the best example of a turnaround?
A) Coca-Cola
B) Microsoft
C) ExxonMobil
D) Chrysler
21) Inflation is caused by ________.
A) unions
B) rapid growth of the money supply
C) excess supply
D) low rates of capacity utilization
22) Everything else equal, if you expect a larger interest rate increase than other market
participants, you should ________.
A) buy long-term bonds
B) buy short-term bonds
C) buy common stocks
D) buy preferred stocks
23) To obtain an approximate estimate of the real interest rate, one must ________ the ________
the nominal risk-free rate.
A) add; default premium to
B) subtract; default premium from
C) add; expected inflation to
D) subtract; expected inflation from
24) Which of the following would not be considered a supply shock?
A) a change in the price of imported oil
B) frost damage to the orange crop
C) a change in the level of education of the average worker
D) an increase in the level of government spending
25) If economic conditions are such that very slow growth is expected in the foreseeable future,
one would want to invest in industries with ________ sensitivity to economic conditions.
A) below-average
B) average
C) above-average
D) Since growth is expected to be slow, sensitivity to economic conditions is not an issue.
26) Which of the following is not an example of fiscal policy?
A) Social Security spending
B) Medicare spending
C) Fed purchases of Treasury securities
D) changes in the tax rate
27) Supply-side economics tends to focus on ________.
A) government spending
B) price controls
C) monetary policy
D) increasing productive capacity
28) Which one of the following describes the amount by which government spending exceeds
government revenues?
A) balance of trade
B) budget deficit
C) gross domestic product
D) output gap
29) Which one of the following is probably the most direct and immediate way to stimulate or
slow the economy, although it is not very useful for fine-tuning economic performance?
A) fiscal policy
B) monetary policy
C) supply-side policy
D) rising minimum wages
30) In macroeconomic terms, an increase in the price of imported oil or a decrease in the
availability of oil is an example of a ________.
A) demand shock
B) supply shock
C) monetary shock
D) refinery shock
31) ________ in interest rates are associated with stock market declines.
A) Anticipated increases
B) Unanticipated increases
C) Anticipated decreases
D) Unanticipated decreases
32) The average duration of unemployment is ________.
A) a leading economic indicator
B) a coincidental economic indicator
C) a lagging economic indicator
D) both a coincidental indicator and a lagging indicator
33) The ratio of the purchasing power of two economies is termed the ________.
A) balance of trade
B) real exchange rate
C) real interest rate
D) nominal exchange rate
34) Everything else equal, an increase in the government budget deficit would:
I. Increase the government’s demand for funds
II. Shift the demand curve for funds to the left
III. Increase the interest rate in the economy
A) II only
B) I and II only
C) I and III only
D) I, II, and III
35) Which of the following affects a firm’s sensitivity of its earnings to the business cycle?
I. Financial leverage
II. Operating leverage
III. Type of product
A) II only
B) I and II only
C) I and III only
D) I, II, and III
36) Which of the following describes the rate at which your ability to purchase grows while you
hold an interest-earning investment?
A) the nominal exchange rate
B) the nominal interest rate
C) the real exchange rate
D) the real interest rate
37) An example of a highly cyclical industry is the ________.
A) automobile industry
B) tobacco industry
C) pharmaceutical industry
D) utility industry
38) The stock price index and contracts and orders for nondefense capital goods are ________.
A) leading economic indicators
B) coincidental economic indicators
C) lagging economic indicators
D) leading and coincidental indicators, respectively
39) Which one of the following is not a demand shock?
A) increase in government spending
B) increases in the money supply
C) reductions in consumer spending
D) improvements in education of U.S. workers
40) Which one of the following is not a U.S. supply shock?
A) unions force an increase in national wage rates.
B) the oil supply from the Middle East drops 30%.
C) extended droughts reduce U.S. food production 25%.
D) chinese purchases of U.S. exports increase.
41) Pharmaceuticals, food, and other necessities would be good performers during the ________
stage of the business cycle.
A) peak
B) contraction
C) trough
D) expansion
42) Capital goods industries such as industrial equipment, transportation, and construction would
be good investments during the ________ stage of the business cycle.
A) peak
B) contraction
C) trough
D) expansion
43) If you are going to earn abnormal returns based on your macroeconomic analysis, it will
most likely have to be because ________.
A) you have more information than others
B) you are a better analyst than others
C) you have the same information as others
D) you are an equally good analyst as others
44) If the economy is going into a recession, a good industry to invest in would be the ________
industry.
A) automobile
B) banking
C) construction
D) medical services
45) Members of the Board of Governors of the Federal Reserve System are appointed by
________ to serve ________ terms.
A) the Senate; 10-year
B) the House of Representatives; 8-year
C) the President; 14-year
D) the Secretary of the Treasury; 6-year
46) A firm in the early stages of its industry life cycle will likely have ________.
A) low dividend payout rates
B) low rates of investment
C) low rates of return on investment
D) low R&D spending
47) Which of the following describes the percentage of the total labor force that has yet to find
work?
A) the capacity utilization rate
B) the participation rate
C) the unemployment rate
D) the natural rate
48) Which of the following is the rate at which the general level of prices for goods and services
is rising?
A) the exchange rate
B) the gross domestic product growth rate
C) the inflation rate
D) the real interest rate
49) An analyst starts by examining the broad economic environment and then considers the
implications of the economy on the industry in which the firm operates. Finally, the firm’s
position within the industry is examined. This is called ________ analysis.
A) bottom-up
B) outside-inside
C) top-down
D) upside-down
50) Assume that the Federal Reserve increases the money supply. This will cause:
I. Interest rates to decrease
II. Consumption and investment to decrease
III. Inflation to fall
A) I only
B) I and II only
C) II and III only
D) I, II, and III
51) The discount rate is the ________.
A) interest rate banks charge each other for overnight loans of deposits on reserve at the Fed
B) interest rate the Fed charges commercial banks on short-term loans
C) interest rate that the U.S. Treasury pays on its bills
D) interest rate that banks charge their best corporate customers
52) If the currency of your country is depreciating, this should ________ exports and ________
imports.
A) stimulate; stimulate
B) stimulate; discourage
C) discourage; stimulate
D) discourage; discourage
53) If interest rates increase, business investment expenditures are likely to ________ and
consumer durable expenditures are likely to ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
54) Increases in the money supply will cause demand for investment and consumption goods to
________ in the short run and may cause prices to ________ in the long run.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease