question

People who are "risk averse" usually don't invest their money in anything.

answer

False

question

Financial risk can be defined as the uncertainty around an expected outcome.

answer

True

question

Even the desire for money exhibits a declining marginal utility

answer

True

question

The correct way to find an average of a distribution of outcomes is to add up all the outcomes and divide by the number of outcomes.

answer

False

question

The expected value of a distribution is also the weighted mean.

answer

True

question

The risk of an investment is best measured by its expected return.

answer

False

question

Standard variation equals the Square root of variance

answer

True

question

In the normal distribution, approximately 68% (two-thirds) of the outcomes will fall within one standard deviation of the mean.

answer

True

question

The correlation coefficient ranges from -1.0 to +1.0.

answer

True

question

All else being equal, risk averse investors prefer wider, flatter distribution of returns around the mean.

answer

False

question

If two assets are perfectly positively correlated, we can put them together into a portfolio and completely eliminate risk.

answer

lse

question

We would expect the correlation coefficient between the number of days of sunshine and umbrella sales to be positive.

answer

True

question

) The idea of diversification is to maintain a level of return and decrease your risk.

answer

True

question

We can obtain the maximum benefits of diversification by holding approximately 25-30 assets in a portfolio.

answer

True

question

Beta measures the total risk of an investment.

answer

False, Beta measures assets systematic risk relative to market portfolio

question

Unsystematic risk can be diversified away in a portfolio.

answer

True

question

The Capital Asset Pricing Model is used to predict the required return on an investment.

answer

True

question

The best definition of "risk" is

answer

uncertainty about an outcome.

question

The "expected value" is

answer

the weighted average and mean

question

The bell curve is a graphical representation of

answer

the normal distribution.

question

A share of stock has an expected return of 12 percent and a standard deviation of 24 percent. Therefore, its coefficient of variation is

answer

2.0

question

To be "diversified" means to hold

answer

different assets to minimize risk.

question

If two assets have returns that move together perfectly, their correlation coefficient is

answer

+1.0.

question

The best reason to hold the market portfolio is it

answer

is the most efficient.

question

Beta is a measure of:

answer

systematic risk.

question

If a stock has a beta greater than 1.0, then its expected return

answer

is greater than the market portfolio.

question

The three major decisions in financial management involve investing, financing, and the payment of dividends.

answer

True

question

Financial management cannot be related to other functional areas of management such as marketing.

answer

False

question

The most common form of business organization in the United States is the sole proprietorship.

answer

True

question

Common stock is a security that has the features of both debt and equity.

answer

False, Its just equity

question

The goal of hospitality financial management is to maximize the wealth of the owners.

answer

TRUE

question

A good example of an agency relationship in a hotel is the relationship between a bartender and a server.

answer

False

question

Maximizing revenue will always maximize the wealth of the owners.

answer

False

question

Value is created if a project's

answer

incremental benefits exceed incremental costs

question

Which of the following is the disadvantage of the corporate form of organization?

answer

the tax treatment of dividends

question

Which of the following makes preferred stock different from common stock?

answer

Common stockholders can vote for the board of directors

question

The three factors that determine the value of future dividends are

answer

size, timing, and risk.

question

The goal of wealth maximization for the owners makes sense for the firm because

answer

if we have satisfied the owners, we have satisfied all other parties as well.

question

Agency problems arise because

answer

people usually act in their own best interest

question

You are the owner of a Comfort Inn and would like to hire a new general manager. In terms of preventing possible agency problems, what should you include in your offer?

answer

profit sharing

question

Financial management is the process of classifying financial information.

answer

Financial management is the process of classifying financial information.

question

The shareholders of a corporation have unlimited liability

answer

False

question

The balance sheet equation is: assets + liability = owners equity

answer

False it is assets = liability +owners equity

question

Shirking is considered an agency problem

answer

True

question

A Subchapter S Corporation has double taxation.

answer

False

question

With the sole proprietorship type of organization, it is easy to increase capital.

answer

False, It is very hard

question

The income statement indicates firm performance between two balance sheet dates.

answer

True

question

The uniform system of accounts helps managers organize the statement of cash flows.

answer

False

question

The detail of a hotel income statement will vary depending on the needs of the user.

answer

True

question

Cash is found in the owner's equity account.

answer

False

question

Assets are held by the firm to generate revenues and cash flows.

answer

True

question

The statement of cash flows has three major components.

answer

True Operating investion and Financing activities

question

Liquidity ratios measure the amount of long-term debt held by the firm

answer

False Short term

question

Owners would like to have a higher current ratio than lenders

answer

False

question

A current ratio of less than 1.0 for a hospitality company is always bad

answer

False

question

Which of the following is a "snapshot" of the hospitality operation?

answer

Balance sheet

question

Securities held by the firm for more than are year are classified as

answer

Long term invenstments

question

For current liabilities, "current" means

answer

payable within a year.

question

Assets relate to revenue as liabilities relate to

answer

expenses.

question

Over the long term, successful companies generate positive cash flows from

answer

operating activities.

question

The impact of the Enron accounting scandal was

answer

ncreased investor scrutiny regarding financial statements and the audit process.

question

Which of the following is a limitation of ratio analysis?

answer

Ratios indicates there is a problems but it does not indicate what is the problem

question

The number of times interest earned is a

answer

solvency ratio.

question

If current liabilities exceed current assets, then the:

answer

current ratio will be less than one

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