FC 26555

subject Type Homework Help
subject Pages 24
subject Words 4852
subject Authors Geoffrey Hirt, Stanley Block

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page-pf1
The bond market is dominated by institutional investors.
No one in a limited partnership arrangement has unlimited liability.
Divergence between advances and declines on the New York Stock Exchange and the
Dow Jones Industrial Average may signal a reversing trend in the market.
page-pf2
Long-term equity anticipation securities (LEAPS) are nothing more than a long-term
option.
High mutual fund cash positions would represent withdrawal from the market and thus
a possible future market decline.
page-pf3
One of the biggest risks when investing in a foreign security market is the risk of
currency exchange fluctuations.
The presence of cash dividends increases the ability of some institutional investors to
invest in companies.
Interest on federally-sponsored credit agency issues (such as the Federal Home Loan
Bank) is not tax-free to the recipient.
page-pf4
The change in real GDP is often inversely related to inflation.
Positive abnormal returns on stocks may represent a measurement error.
page-pf5
Under most dividend valuation models, a stock with an expected level dividend (zero
dividend growth) would have no value.
The last step to the top-down approach is to analyze the overall health of the economy.
The combined earnings and dividend model considers the present value of dividends,
plus the present value of a future P/E ratio times future projected earnings.
page-pf6
Current yield is the annual interest divided by the current price of the bond.
A call option selling for $8 with a $45 strike price on stock with a market price of $40
has a speculative premium of $3.
Rare paintings and baseball cards may be considered as forms of investment.
page-pf7
Dividend valuation models are best suited for firms in the expansion or maturity phase
of their life cycle.
Most law suits against fund managers are for poor performance in terms of return.
Large, prestigious investment banking houses generally provide lower initial returns to
investors on new issues underwritten.
page-pf8
You can write off up to $5,000 in investment losses in any one year.
The Value Line Average contains stocks from several exchanges or markets.
page-pf9
The life cycle curve in Chapter 6 is graphed so that the steeper the slope of the line, the
faster the growth rate of the industry.
Shelf registration is more popular with new bond offerings than with new stock
offerings.
Novice investors should consider using full-service brokers.
page-pfa
The Standard & Poor's Midcap Index is composed of 500 middle-sized firms.
Foreign exchange risk is not a major concern to international investors because there
have been fewer wide swings in currency values in recent years.
The valuation process begins with an industry analysis.
page-pfb
Inflationary expectations have no effect on bond prices.
Each of the major stock index futures markets has a corresponding stock index options
market.
page-pfc
All things being equal, the less debt that a firm has, the more likely it is to be highly
valued in the marketplace.
A portfolio manager with a beta less than one should be expected to provide higher
returns than the market.
page-pfd
Specialists are now able to keep their limit orders in the Electronic Book rather than the
old manual "specialist's book."
Technical analysis is based on all of the following assumptions except:
A.that market value is determined by the interaction of demand and supply.
B.that stocks with strong earnings gains will outperform the market.
C.the assumption that, though there are minor fluctuations in the market, stock prices
tend to move in trends that persist for long periods of time.
D.that shifts in demand and supply can be detected sooner or later.
E.that reversals of trends are caused by shifts in demand and supply.
page-pfe
The International Securities Exchange:
A. is an electronic communication network dealing in options.
B. has taken significant market share from the Chicago Board Options Exchange.
C. started trading options in 2000.
D. All of the above are true
The statement of cash inflows and outflows shows all of the following, except:
A.how the firm's balance sheet changed from one period to another.
B.how funds from operations were used to finance the company's assets.
C.how the firm has matched short-term and long-term sources of funds with short-term
and long-term uses of funds.
D.the firm's cost of new borrowing.
page-pff
The duration on an 8%, 25-year bond is ______ the duration on a 9%, 30-year bond.
A.greater than
B.less than
C.equal to
D.there is not enough information to tell
Stock index futures represent an efficient approach to:
A.only taking on unsystematic risk.
B.only taking on systematic risk.
C.taking on zero risk, because the index is fully diversified.
D.taking on lots of risk, due to the fact that the indexes are usually composed of lots of
stocks, not just a few.
page-pf10
Which of the following statements explains the premium paid over the intrinsic value of
a warrant?
A.The higher the price volatility of the common stock, the greater the premium
B.The market value may fall below the intrinsic value because of the downside risk
C.The greater the time period over which the option may be exercised, the higher the
premium
D.More than one of the above are true
The type of ratio that allows the analyst to measure the ability of the firm to earn an
adequate return on sales, total assets, and invested capital is:
A.liquidity ratios.
B.profitability ratios.
C.asset-utilization ratios.
D.debt-utilization ratios.
E.price ratios.
page-pf11
Which of the following is not a goal of the federal government economic policy as
established by the Employment Act of 1946?
A.Low inflation
B.High levels of employment
C.Balanced federal budgets
D.Economic growth
Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period.
What will be the price of the Treasury bill?
A.$940
B.$970
C.$980
D.$985
E.$990
page-pf12
When ranking the riskiness of securities using the standard deviation, the highest risk
security to the lowest risk security is as follows:
A.Small stocks, large stocks, long-term government bonds, U.S. treasury bills.
B.Long-term government bonds, small stocks, large stocks, U.S. treasury bills.
C.Large stocks, small stocks, long-term government bonds, U.S. treasury bills.
D.Small stocks, long-term government bonds, large stocks, U.S. treasury bills.
E.U.S. treasury bills, long-term government bonds, large stocks, small stocks.
The higher the mutual fund cash position,
A.the more likely the market is to go down.
page-pf13
B.the more likely the market is to go up.
C.the more likely the market is to stay relatively unchanged.
D.the higher mutual fund redemptions will be in the future.
The National Bureau of Economic Research revised its definition of a recession in 2001
to read as follows: A recession is
A.two or more quarters of negative GDP growth.
B.a significant decline in economic activity spread across the economy and lasting more
than a few months.
C.a decline in industrial production lasting more than one year.
D.a decline in the growth rate of real GDP by more than 2% in any one quarter.
page-pf14
In general, the P/E ratio of a stock _______________ as inflation _____________.
A. increases; decreases
B. increases; increases
C. decreases; decreases
D. none of the above
Which is not an advantage of exchange-traded funds (ETFs)?
A.Their expense ratios are lower than mutual funds
B.Because they imitate an index, there are no real research costs
C.They can be bought and sold all day long at a price that is almost exactly the net asset
value of the stocks in the index
D.The assets in the portfolio are marked to market continuously
E.They are open-ended funds that have reasonably low sales expenses
page-pf15
What is market capitalization?
A.The total owners' equity in a firm
B.The total marketable assets of a firm
C.Shares outstanding multiplied by the market value of the stock
D.None of the above
Which of the following is a good example of changes in accounting principles?
A.A change in earnings per share, due to an increase in the number of shares of
common stock
B.A change in income, due to a change for post-retirement benefits
C.A change in earnings before taxes, because of a change in internal rates on debt
D.None of the above
page-pf16
Between year-end 2002 and 2005, the value of the United States equity markets as a
percentage of the total world equity markets has:
A.increased 100%.
B.increased from 35% to 42% of the total developed market.
C.decreased from 53% to 33% of the total developed market.
D.decreased slightly, from about 51% to 48% of total developed market.
The largest category of institutional investors is:
A.foundations.
B.personal trusts.
C.mutual savings banks.
D.pension funds.
page-pf17
The value of common stock can be viewed as:
A. a dividend stream, plus a market price at the end of the dividend stream.
B. a present value of a dividend stream, plus a market price at the end of the dividend
stream.
C. the terminal value of the dividend stream.
D. the sum of the dividend stream, taken to infinity.
Patents are important to the pharmaceutical industry because they:
A.protect companies from low-cost generic drugs.
B.keep other drug companies from developing competitive drugs for the same disease.
C.allow the companies to earn a high enough rate of return in the early years of a drug
to continue research and development efforts on new drugs.
D.A and C
page-pf18
Which of the following allow the individual to invest in gold without actually owning
gold?
A.Gold stock
B.Gold futures
C.Options on gold futures
D.All of the above
________ have a fixed supply of shares, which often trade at a discount from the
market value of assets held.
A.Stock funds
B.Bond funds
C.Closed-end funds
D.Open-end funds
page-pf19
All of the following are reasons why an investment banker may under-price a new stock
issue, except:
A.to stimulate demand for the issue.
B.to reduce unwanted inventory.
C.to insure adequate demand in the secondary market.
D.None of the above
P/E ratios are influenced by a company's
A. growth rate.
B. risk.
page-pf1a
C. capital structure.
D. management.
E. All of the above and more
The pure, short-term earnings model:
A. ignores present value analysis and its long-term forecasts of dividends and earnings
per share.
B. uses the past three months to estimate earnings per share.
C. disregards the long-term growth forecasts for earnings per share.
D. uses the payout ratio and return on equity to derive the P/E ratio.
Any change in the value of a company due to an event can create an opportunity to
page-pf1b
profit. What fund takes advantage of this fact?
A.Event-driven fund
B.No-bias fund
C.Long/short equity fund
D.Distressed fund
For two investments with a correlation coefficient (rij) less than +1, the portfolio
standard deviation will be __________ the weighted average of the individual
investments' standard deviation.
A.more than
B.less than
C.equal to
D.zero compared to
The use of many valuation models provides the analyst with
page-pf1c
A. one model that gives the right answer.
B. multiple models of how the market might value the firm's stock price.
C. a confusing array of answers.
D. the ability to choose the best model that matches his or her previous judgment.
The process of measuring the effect of a shift in market interest rates on the value of an
investment is called:
A.duration analysis.
B.immunization.
C.terminal wealth analysis.
D.None of the above
page-pf1d
As opposed to a farmer, a miller (processor of wheat) is likely to go __________ in the
futures market.
A.long
B.short
C.long and short
D.around in circles
Beta measures:
A. the relationship of the P/E ratio to the earnings growth rate.
B. individual company stock price risk, relative to the market.
C. the risk within a portfolio than cannot be diversified away.
D. the stock price growth of one company compared to that of a second company.
page-pf1e
ECNs provide several advantages to investors. Which of the following is not an
advantage?
A.They lower the cost of trading compared to organized exchanges with floor trading
B.They let everyone know who is making the trade and at what price
C.They provide the ability to trade after hours when the exchanges are closed
D.They provide more price transparency than organized exchanges

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