Buy And Hold test questions and answers | Get Access To Buy And Hold Flashcards and exam tests

Q: Which of the following portfolio construction methods starts with asset allocation? Top-down Bottom-up Middle-out Buy and hold Asset allocation

A More test answers on https://studyhippo.com/fina126-quiz-questions/

Q: Each of the following is a common revenue recognition device to manage earnings except: Multiple deliverables Channel stuffing Buy and hold Round tripping

Buy and hold More test answers on https://studyhippo.com/chapter-7-acct-320/

Home Page Social Science Economics Finance Buy And Hold

We've found 5 Buy And Hold tests

Business Management Buy And Hold Dow Jones Industrial Average Finance

Chapter 2 – Writing Answers – Flashcards 11 terms

Pat Coker

11 terms

Preview

Chapter 2 – Writing Answers – Flashcards

question

Physical assets include all but which one of the following? Land Buildings Consumer durables Common stock

answer

Common stock

question

Which of the following are financial assets? I. Debt securities II. Equity securities III. Derivative securities

answer

Correct I, II and III Debt, Equity, Derivative Securities

question

Which of the following is not a money market instrument? Preferred stock Treasury bill Commercial paper Correct Preferred stock Banker's acceptance

answer

Preferred stock

question

Money market securities are sometimes referred to as "cash equivalent" because _____. they are safe and marketable they are not liquid they are high risk they are low denomination

answer

they are safe and marketable

question

An investor in a T-bill earns interest by _________. receiving interest payments every 90 days receiving dividend payments every 30 days converting the T-bill at maturity into a higher valued T-note buying the bill at a discount from the face value received at maturity

answer

buying the bill at a discount from the face value received at maturity

question

Which of the following is not a true statement regarding municipal bonds? A municipal bond is a debt obligation issued by state or local governments. A municipal bond is a debt obligation issued by the Federal Government. The interest income from a municipal bond is exempt from federal income taxation. The interest income from a municipal bond is exempt from state and local taxation in the issuing state.

answer

A municipal bond is a debt obligation issued by the Federal Government.

question

Which of the following is not a characteristic of a money market instrument? Liquidity Marketability Low risk Maturity greater than one year

answer

Maturity greater than one year

question

Commercial paper is a short-term security issued by __________ to raise funds. the Federal Reserve credit union banks large well-known companies the New York Stock Exchange

answer

large well-known companies

question

Which one of the following is a true statement regarding corporate bonds? A corporate callable bond gives its holder the right to exchange it for a specified number of the company's common shares A corporate debenture is a secured bond A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares Holders of corporate bonds have voting rights in the company

answer

A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares

question

TIPS are ______. Treasury bonds that pay a variable rate of interest U.K. bonds that protect investors from default risk securities that trade on the Toronto stock index Treasury bonds that protect investors from inflation

answer

Treasury bonds that protect investors from inflation

question

Preferred stock is like long-term debt in that ___________. it gives the holder voting power regarding the firm's management it promises to pay to its holder a fixed stream of income each year the preferred dividend is a tax-deductible expense for the firm in the event of bankruptcy preferred stock has equal status with debt

answer

it promises to pay to its holder a fixed stream of income each year

STUDY

Buy And Hold Exchange Traded Funds Finance Net Asset Value New York Stock Exchange

Personal Finance 101 Exam 3 Ball State University – Flashcards 30 terms

Ember Wagner

30 terms

Preview

Personal Finance 101 Exam 3 Ball State University – Flashcards

question

Which of the following is a federal loan program that offers the best interest rates of all the federal loan programs?

answer

Perkins Loans

question

Which of the following is not correct about investment planning and management?

answer

Asset allocation is the process of allotting your portfolio among four major asset classes: stocks, credit cards, dividends, and exchange traded funds.

question

FAFSA is

answer

Free Application for Federal Student Aid

question

Which of the following is not correct about college financing?

answer

Perkins loans are federal loan program for parents. They will let them borrow up to the total cost of college minus the aid the student receives and do not have to be repaid.

question

The advantages of 529 college savings plans include:

answer

- Tax-deferred investment growth and federal tax-free withdrawals for qualified higher Ed expenses - Change beneficiaries if student changes mind - Out-of-state relatives can invest and Indiana taxpayers are eligible for a state income tax credit of 20%

question

Which of the following is correct about ETFs?

answer

Exchange Traded Funds are a type of security that looks very much like an index mutual fund, but it is traded like a stock on the open market.

question

Which of the following is the suggested asset allocation for the investors whose ages are between 20 and 30?

answer

Stock: 80-90% Bonds: 0-5% Cash: 10-15%

question

All of the following are the strategies for making good financial decisions, except:

answer

Filing Personal Bankruptcy

question

Which of the following order of investment is correct from most risky to least risky?

answer

Stocks Mutual Funds Real Estate Bonds

question

If you buy 100 shares of XYZ stock at $20 per share and pay $15 commission for your transaction, the total cost/amount of your investment is?

answer

$2,015

question

Net Asset Value is

answer

The daily value of a mutual fund that includes all the assets minus the fund's liabilities converted to a per-share price.

question

Which of the following mutual fund type has the lowest expense ratio?

answer

Index Funds

question

Are these all correct? -Three ways to make money with mutual funds: 1. Interest, dividends, capital gains from holdings of the fund; 2. Capital Gains from sale of profitable investments; 3. Appreciation in NAV. -Index funds are passively managed - Capital gains result when an asset is sold for a profit

answer

All of the above are correct

question

The reduction of risk by spreading investment dollars over numerous stocks and or bonds to minimize the impact should one of the investments turn bad is called

answer

Diversification

question

Reinvesting earnings from a mutual fund account is

answer

A process that automatically buys more shares of the fund.

question

A fee charged to defray the costs of advertising and marketing for a mutual fund is called a ____ fee.

answer

12b-1

question

The dollar market value of a fund which is calculated by multiplying all of the company's outstanding shares by the current price per share is called

answer

Market Capitalization

question

Expense ratio

answer

Captures all the operating expenses of the fund and is expressed as a percentage of the fund's assets

question

Many mutual funds charge a commission or sales fee every time they are purchased by investors. These are called

answer

Load funds

question

A legal document required by the Securities and Exchange Commission that details all the information investors need to know about an investment, including the risk of losing money is called

answer

Prospectus

question

If you bought a stock on June 15, 2010, and sold it on July 15, 2011, you would likely be classified as a(n)

answer

Investor

question

Which type of stocks have following properties? They represent mature, stable companies that pay consistent dividends. Companies that have these stocks often issue a special type of stock, called preferred stock.

answer

Income stocks

question

Which of the following is not an important date of dividend payments?

answer

Release date

question

Which of the following is correct about investing in stocks? -The Security and Exchange Commission is the main regulatory agency responsible for monitoring the stock markets and securities industry. -The Down Jones Industrial Average, The S&P 500 and The Nasdaq Composite are three major market indexes. -ADR -American Depository Receipts are a way for US investors to own foreign stocks without investing directly in a foreign exchange.

answer

All of the above

question

The major stock exchanges that handle most of the transactions during the trading day in the US are

answer

The New York Stock Exchange and the NASDAQ

question

Which of the following is not kind of mistake that can be made while buying and selling stocks? - Forgetting trading cost - Poor diversification - Speculating and giving up too soon

answer

All of them are mistakes

question

Buy-and-hold investors

answer

Look for quality companies that have products and market position that will make them good investments for years to come

question

ou bought 5 shares of stock at a price of $100 per share. Later you sold your 5 stock shares at a price of $95. What was the total return on your investment (gain or loss) assuming no transaction costs?

answer

$25 loss

question

A service that lets you build your position in the company by reinvesting your dividends in more company stock is called

answer

A dividend reinvestment program.

question

You told your broker to execute a sell order when the price of a stock drops to a specified level. The broker should use a

answer

Stop order or Stop-loss order

STUDY

Buy And Hold Dow Jones Industrial Average Finance Mortgage Backed Securities Net Asset Value

FINA126 Quiz Questions 119 terms

David Dunn

119 terms

Preview

FINA126 Quiz Questions

question

The net wealth of the aggregate economy is equal to the sum of all real assets all financial assets all physical assets all real and financial asset none of the above.

answer

question

The Sarbanes-Oxley Act ____________. requires corporations to have more independent directors requires the firm's CFO to personally vouch for the firm's accounting statements prohibits auditing firms from providing other services to clients A and B are correct. A, B, and C are correct

answer

question

A bond issue is broken up so that some investors will receive only interest payments while others will receive only principal payments, which is an example of ________. bundling credit enhancement unbundling financial engineering C and D

answer

question

The value of a derivative security _______. depends on the value of the related primitive security can only cause increased risk. is unrelated to the value of the related primitive security has been enhanced due the recent misuse and negative publicity regarding these instruments E. is worthless today

answer

question

Firms that specialize in helping companies raise capital by selling securities are called ________. commercial banks investment banks savings banks credit unions all of the above.

answer

question

Investment bankers perform the following role(s) ___________. market new stock and bond issues for firms provide advice to the firms as to market conditions, price, etc design securities with desirable properties all of the above none of the above

answer

question

Which of the following financial assets made up the greatest proportion of the financial assets held by U.S. households? pension reserves life insurance reserves mutual fund shares debt securities personal trusts

answer

question

An ETF limits the diversification potential of investors who hold it. may be traded only in the primary market. is linked directly to the value of a composite index of futures contracts. must be earned as a performance bonus within a corporation rather than purchased. tracks the performance of an index of share returns for a particular country or industry sector.

answer

question

Money market securities ____________. are short term pay a fixed income are highly marketable generally very low risk all of the above

answer

question

Which of the following portfolio construction methods starts with asset allocation? Top-down Bottom-up Middle-out Buy and hold Asset allocation

answer

question

Which of the following is not a money market instrument? Treasury bill Commercial paper Preferred stock Banker's acceptance

answer

question

A trader who takes a long position in a corn futures contract has _______________ to ______________ a specified quantity of corn on the delivery date, at an agreed upon price. an obligation; buy an obligation; sell the right; sell the right; buy

answer

question

A bond that has no collateral is called a _______________. debenture zero-coupon bond callable bond convertible bond

answer

question

Money market securities are sometimes referred to as \"cash equivalent\" because _____. they are safe and marketable they are not liquid they are high risk they are low denomination

answer

question

Which one of the following is a true statement? Dividends on preferred stocks are tax-deductible to individual investors but not to corporate investors Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock Preferred stockholders have voting power Investors can sue managers for nonpayment of preferred dividends

answer

question

Deposits of commercial banks at the Federal Reserve are called _____. bankers acceptances federal funds repurchase agreements time deposits

answer

question

answer

question

The maximum maturity on commercial paper is 270 days 180 days 90 days 30 days

answer

question

A bond that has no collateral is called _________. a callable bond a debenture a junk bond a mortgage

answer

question

A __________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date. call option futures contract put option interest rate swap

answer

A Which of the following statements is true about initial public offering? An IPO is a secondary market transaction in the stock of a company that was formerly privately owned. Explicit costs of an IPO tend to be roughly 2% of the funds raised. IPOs have been shown to be poor long-term investments. Almost all IPOs turn out to be underpriced. C

question

You sold short 200 shares of XYZ common stock at $40 per share. The initial margin requirement was 60%. Your initial investment was _______________. $3,200 $4,800 $6,000 $8,000

answer

question

Advantages of ECNs over traditional markets include all but which one of the following? A. Lower transactions costs Anonymity of the participants Small amount of time needed to execute and order Ability to handle very large orders

answer

question

Initial public offerings (IPOs) are usually ___________ relative to the levels at which their prices stabilize after they begin trading in the secondary market. over priced correctly priced under priced mispriced but without any particular bias

answer

question

The inside quotes on a limit order book would be comprised of the ______. highest bid price and the lowest ask price lowest bid price and the lowest ask price lowest bid price and the highest ask price highest bid price and the highest ask price

answer

question

The _________ price is the price at which a dealer is willing to purchase a security. bid ask clearing settlement price

answer

question

A red herring becomes a prospectus when ____. the preliminary registration statement is approved by the SEC the IPO is complete the offering is seasoned the lockup period expires

answer

question

Rank the following types of markets from least integrated and organized to most integrated and organized. I. Brokered markets II. Continuous auction markets III. Dealer markets IV. Direct search markets IV, II, I, III I, III, IV, II II, III, IV, I IV, I, III, II

answer

question

Purchases of new issues of stock take place _________. at the desk of the Fed in the primary market in the secondary market in the money markets

answer

question

An order to buy or sell a security at the current price is a ______________. limit order market order stop loss order stop buy order

answer

question

The controlling legal authority for a hedge fund is ________. Regulation T Rule 144A Glass-Steagall Act of 1933 Rule 12b-1 None of the above

answer

question

A closed-end fund has a portfolio currently worth $350 million. The fund has liabilities of $5 million and 17 million shares outstanding. What is the net asset value of the fund? $20.88 $20.29 $20.59 $29.17

answer

question

Which of the following result in a taxable event for investors? Short-term capital gains distributions from the fund II. Dividend distributions from the fund III. Long-term capital gains distributions from the fund I only II only I and II only I, II and III

answer

question

Assume that you have just purchased some shares in an investment company reporting $500 million in assets, $50 million in liabilities, and 50 million shares outstanding. What is the Net Asset Value (NAV) of these shares? $12.00 $9.00 $10.00 $1.00

answer

question

Which of the following is not a type of managed investment company? Unit investment trusts Closed-end funds Open-end funds Hedge funds

answer

question

Investors who wish to liquidate their holdings in a unit investment trust may ___________________. sell their shares back to the trustee at a discount sell their shares back to the trustee at net asset value sell their shares on the open market sell their shares at a premium to net asset value

answer

question

______________________ are often called mutual funds. Unit investment trusts Open-end investment companies Closed-end investment companies REITs

answer

question

Mutual funds that vary the proportions of funds invested in particular market sectors according to the fund manager's forecast of the performance of that market sector, are called ____________________. asset allocation funds balanced funds index funds income funds

answer

question

Under SEC rules, the managers of certain funds are allowed to deduct charges for advertising, brokerage commissions, and other sales expenses, directly from the fund assets rather than billing investors. These fees are known as ____________. direct operating expenses back-end loads 12b-1 charges front-end loads

answer

question

A mutual fund could spend its soft dollars without penalty on brokerage costs research to beat the market the bid-ask spread pillows for a manager's home.

answer

question

Speculation is undertaken despite the risk because: speculation inevitably provides for recovery of losses. speculators enjoy taking risks. speculators see a risk-return trade-off. speculation always gives a positive return.

answer

question

The geometric average rate of return is ____________. also called the time-weighted average return also called the dollar-weighted average return equivalent to the internal rate of return an uncompounded rate of return

answer

question

Suppose you buy a three-month Treasury bill with a $10,000 face value. The holding period rate of return for that three-month period will be two percent. What is the APR? 2.00% 6.00% $200 8.00%

answer

question

A risky portfolio has an expected rate of return of 15% and a standard deviation of 20%. The Treasury bill rate is 4%. What is the Sharpe measure for the portfolio? 0.55 0.75 0.80 0.95

answer

question

What is the real rate of return for an investment that has an expected nominal rate of return of 15% while the expected rate of inflation is 9%? 5.5% 6.0% 9.5% 10.0%

answer

question

You purchased 100 shares of ABC stock for $20 per share. One year later you received cash dividends of $1 per share and sold the stock for $22 per share. Your holding-period return was _______________. 5% 10% 15% 20%

answer

question

Compute the geometric average of the following rates of return: 10%, -20%, -10%, and 20%: A) 0% -4.96% -1.26% 0.95%

answer

question

The face value of the Treasury bill maturing in one month is $20,000. You can buy it with a holding period return of one percent. The EAR for this investment is: 12.82% 12.68% 12.50% 12.00%

answer

question

9 Compute the sample mean and standard deviation of the following historical rates of return: 18%, -15%, -10% and 30% 23%; 5.75% 23%; 21.7% 5.75%; 21.7% 5.75%; 37.6%

answer

question

An investment has a 10% probability of earning a 20% rate of return, a 60% probability of earning a 10% rate of return and a 30% probability of losing 5%. What is the expected rate of return for this investment? -7.0% 9.5% 8.3% 6.5%

answer

question

Portfolio diversification (i.e., each asset's weight is positive) provides benefits (i.e., portfolio minimum variance is less than any asset's variance) ______________. exist only when security returns are negatively correlated are always available, regardless of securities' correlation coefficients exist whenever security returns are less than perfectly positively correlated are greater for positively correlated security returns than for negatively correlated security returns.

answer

question

Katherine expects the market rate of return this year to be 12%. The expected rate on a stock with a beta of 1.2 is currently 14%. If the market return this year turns 10%, what is the revised expected rate of return on the stock? 16.4% 11.6% 40.4% 12%

answer

question

Two portfolio managers work for competing investment management houses. Each employs security analysts to prepare input data for the construction of the optimal portfolio. When all is completed, Manager A publishes an efficient frontier that dominates that of Manager B, in that A's optimal risky portfolio lies northwest of B's. Is Manager A's more attractive efficient frontier A evidence that she really employs better security analysts? Yes. The facts speak for themselves. Yes, but only because the results are published. Maybe. It depends on the name of the investment house. No. This is only advertising, not fact. No. Security analysts don't know anything.

answer

question

Given: For this problem, let Ri indicate a holding period excess return—i.e., deduct the riskless rate. E(RXYZ) = 11.97% (alt. 7.55%) = the expected excess rate of return on asset XYZ. V(RXYZ) = 0.1590 = the variance of excess return on asset XYZ. E(RM) = 13.82% (alt. 9.40%) Var(RM) = 0.0602 Cov(RXYZ, RM) = 0.0357 What is XYZ's alpha? What is XYZ's beta? What is XYZ's characteristic line? 3.77%; 0.593; E(RXYZ | RM) = 0.0377 + 0.593 RM (alt. answer for alt. assumptions: 1.98%; 0.593; E(RXYZ | RM) = 0.0198 + 0.593 RM) 0.02; 0.593; E(RXYZ | RM) = 0.593 + 0.02 RM 0.593; 1.97%: E(RXYZ | RM) = 0.0197 + 0.593 RM 0.593; 0.0197; E(RXYZ | RM) = 0.593 + 0.02 RM

answer

question

5. To eliminate the bias in calculating the variance and covariance of returns from historical data the average squared deviation must be multiplied by _________. n / (n - 1) n ∙ (n - 1) (n - 1) / n (n - 1) ∙ n

answer

question

You put half of your money in a stock portfolio that has an expected return of 14% and a standard deviation of 24%. You put the rest of you money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 12%. The stock and bond portfolio have a correlation 0.55. The standard deviation of the resulting portfolio will be ________________. more than 18% but less than 24% equal to 18% more than 6% but less than 18% equal to 6% less than 6%

answer

question

Investors cannot eliminate these types of risks: _________, __________, & __________ A. active portfolio B. alpha C. beta D. delta E. diversifiable risk F. efficient frontier G. excess return H. firm-specific risk I. index model J. information ratio K. investment opportunity set L. market risk M. non diversifiable risk N. nonsystematic risk O. optimal risky portfolio P. residual risk Q. security characteristic line R. separation property S. systematic risk T. unique risk U. none of the above

answer

L M and S

question

The _________ type of portfolio has a positive Alpha A. active portfolio B. alpha C. beta D. delta E. diversifiable risk F. efficient frontier G. excess return H. firm-specific risk I. index model J. information ratio K. investment opportunity set L. market risk M. non diversifiable risk N. nonsystematic risk O. optimal risky portfolio P. residual risk Q. security characteristic line R. separation property S. systematic risk T. unique risk U. none of the above

answer

question

The __________ slope equals _________. A. active portfolio B. alpha C. beta D. delta E. diversifiable risk F. efficient frontier G. excess return H. firm-specific risk I. index model J. information ratio K. investment opportunity set L. market risk M. non diversifiable risk N. nonsystematic risk O. optimal risky portfolio P. residual risk Q. security characteristic line R. separation property S. systematic risk T. unique risk U. none of the above

answer

Q and C Iggy Marx, an investment manager, discovered that his managed portfolio returns were perfectly negatively correlated with the returns on gold. The means and standard deviations are, as follows: portfolio E(Rp) σ(Rp) Managed 0.40 0.20 Gold 0.10 0.10 What fraction of his portfolio value should be in gold to minimize the variance of return on his portfolio? 2⁄3 ; $100 million 1⁄3 ; $50 million 1⁄2 ; $75 million 1⁄4; $22.5 million None of the above A

question

For a portfolio, assume that E(rP)=25%, rf=5%, and E(rM)=15%. What is the beta of this portfolio? 2 1.5 1.9 2.9

answer

question

Which of the following observation is true of the Security Market Line? It graphs the risk premiums of efficient portfolios. It is not valid for individual assets. It is also called the regression line Its slope is the risk premium of the market portfolio.

answer

question

Which of the following statements is relevant to the Arbitrage Pricing Theory? It assumes that arbitrage opportunities exist in abundance in well-functioning markets. The controversial assumption concerning how individual investors form their portfolios used in the CAPM is central to this theory also. A violation of its pricing relationships will cause extremely strong pressure to restore them only when a large number of investors become aware of the disequilibrium. Its central insight emerges by considering highly diversified portfolios for which residual risk may be effectively ignored.

answer

question

The difference between the theoretical equilibrium and actually average rate of return on a stock is called the stock's _____. alpha beta gamma delta

answer

question

The expected return on a stock with a beta of 1.25 is 18%. If the expected risk-free return is 3%, what should be the market risk premium? 16% 8% 12% 15%

answer

question

All of the following are areas in which the capital asset pricing model (CAPM) can be used, except: investment management capital budgeting decisions in which the CAPM can provide the return the project needs to yield to be acceptable to investors utility rate-making cases predicting actual returns on a stock

answer

question

Find the risk-free rate, given that the expected return on stock is 17.88%, the expected return on the market portfolios is 16%, and the beta for stock is 1.2. 3.83% 4.99% 5.72% 6.6%

answer

question

You invest $8,000 in stock A with a beta of 1.4 and $12,000 in stock B with a beta of 0.8. The beta of this formed portfolio is ______________. Investors have homogeneous expectations. Investors pay taxes on returns and incur transaction costs on trades in securities All investors form portfolios from a common universe of publicly traded financial assets. All investors plan for one identical holding period.

answer

question

A stock has an estimated rate of return of 15.5% and a beta of 1.5. The market expected rate of return is 10% and the risk-free rate is 3%. The alpha of the stock is ___________ -2% 0% 2% 3%

answer

question

10. Which of the following is an empirical rule concerning betas? They appear to regress toward mean They are constant over time. They are always near zero. They are always positive.

answer

question

According to the CAPM, overvalued securities should have ______________. large betas positive alphas zero alphas negative alphas

answer

question

Which of the following is NOT an assumption in the development of the capital asset model? Investors have homogeneous expectations. Investors pay taxes on returns and incur transaction costs on trades in securities All investors form portfolios from a common universe of publicly traded financial assets. All investors plan for one identical holding period.

answer

question

The mutual fund theorem states that ________. the presence of mutual funds precludes arbitrage opportunities in well-functioning capital markets it is difficult for the actual returns of a mutual fund to closely mirror the initial investor expectations in any particular holding period all investors desire the same portfolio of risky assets and can be satisfied by a single mutual fund composed of that portfolio it is impossible to create a portfolio to represent all the relevant systematic factors in the economy.

answer

question

In Fama and French's three-factor model, ______________ and ______________ are added to the market index to explain average returns. firm size; firm revenues firm size; book value to market value ratio firm sales; market value to book value ratio firm sales; firm cost of capital

answer

question

Which of the following is a valid comparison between the CAPM and APT? The CAPM applies only to well-diversified portfolios. The CAPM dominates the APT and econometric concerns appear to favor it. The APT gets us to the expected return- beta relationship without requiring m the unrealistic assumptions of the CAPM. Both theories differ on the expected return- beta relationship.

answer

question

Suppose that the strong-form EMH were correct. A group of 1024 investment managers, picked at random, begin a competition. Each year, the investment managers who perform worse than the median manager drop out of the group. After five years of this, how many managers would remain in the group? 1 5 32 512 None of the above.

answer

question

Suppose that you work for an organization that creates nonpublic information about a particular industry. You have learned that your boss is makinglarge profits, trading on this information. Which of the following is true? This is a violation of weak-form market efficiency. This is a violation of strong-form market efficiency. If Bernie Madoff did it, this would be a violation of insider trading laws. If your U.S. Senator did it, this would be a violation of insider trading laws. A and B B and C C and D E and F F and G

answer

question

The ________ (pick one letter from above) occurs mainly within five or six weeks after ___________ (pick one letter from below). A. anomalies B. book-to-market effect C. efficient market hypothesis D. fundamental analysis E. index fund F. momentum effect G. neglected-firm effect H. passive investment strategy I. P/E effect J. random walk K. resistance level L. reversal effect M. semistrong form EMH N. small-firm effect O. strong-form EMH P. support level Q. technical analysis R. weak-form EMH II. A. Valentine's Day (February 14) B. St. Patrick's Day (March 17) C. The Fourth of July D. Labor Day (early in September) E. Thanksgiving (late November) F. Christmas (December 25)

answer

N and (E or F but more F)

question

If the ___________(pick one letter from above) were 100 and the ___________ (pick a letter from above) were 115, then you might observe a market price equal to ____________ (pick one letter from below). A. anomalies B. book-to-market effect C. efficient market hypothesis D. fundamental analysis E. index fund F. momentum effect G. neglected-firm effect H. passive investment strategy I. P/E effect J. random walk K. resistance level L. reversal effect M. semistrong form EMH N. small-firm effect O. strong-form EMH P. support level Q. technical analysis R. weak-form EMH A. 85 B. 100 C. 108 D. 115 E. 127

answer

P K & C

question

The _____, _____, _____, and ____ are ________ that discourage investing in an _______ . (Pick letters from above.) A. anomalies B. book-to-market effect C. efficient market hypothesis D. fundamental analysis E. index fund F. momentum effect G. neglected-firm effect H. passive investment strategy I. P/E effect J. random walk K. resistance level L. reversal effect M. semistrong form EMH N. small-firm effect O. strong-form EMH P. support level Q. technical analysis R. weak-form EMH

answer

B F G I or N (any 4/5 for the first 4) and then A and E

question

Suppose that the term structure is flat at a yield of six percent per annum, compounded semiannually. What is the value now of $1, received in three years? $1 / 1.063 = $0.8396 $1 / 1.036 = $0.8375 $1 / 1.029 = $0.8368 $1 / 1.092 = $0.8417 all of the above none of the above

answer

question

Suppose that the term structure is flat at a yield of six percent per annum, compounded semiannually. What is the value now of a perpetuity of $1, paid every six months, starting in half a year?

answer

$1 / 0.06 = $16.6667 $1 / 0.03 = $33.3333 $1 / 0.02 = $50.0000 $1 / 0.09 = $11.1111 all of the above none of the above B

question

Suppose that the term structure is flat at a yield of six percent per annum, compounded semiannually. What is the value now of an annuity of $1, paid every six months, starting in 3.5 years? ($1 / 0.06) (1 / 1.063) = $13.9937 ($1 / 0.03) (1 / 1.063) = $27.9873 ($1 / 0.06) (1 / 1.036) = $13.9581 ($1 / 0.03) (1 / 1.036) = $27.9161 all of the above none of the above

answer

question

Based on your answers to questions 1-3, what is the value of a three-year bond, with [par value of $1,000 and] a semiannual coupon at the rate of 4% per annum? (1,000 Par Value) _____________

answer

???

question

What is the value of a 30-year bond with a 5% coupon and face value of $10,000 if the yield is zero? ______________

answer

$25,000

question

If the U.S. had hyperinflation of 100% per day, what would be the price of the bond in question five to the nearest dollar? Explain in one sentence. _____________

answer

0.00 - at such a high interest rate, the value of the first payment would be not even a penny. The whole bond is practically worth nothing

question

Which of the following bonds would have the largest price change when interest rates increase? Assume that the bonds each have the same yield to maturity. 10-year maturity, 8% coupon rate 10-year maturity, 5% coupon rate 15-year maturity, 8% coupon rate 15-year maturity, 5% coupon rate

answer

question

The estimated percentage change in the value of a bond derived from the duration rule is _____________. less than the actual price change when the yield decreases less than the actual price change when the yield increases greater than the actual price change when the yield decreases always greater than the actual price change

answer

question

The sensitivity of a coupon bond's price to a change in its yield ____________. is directly related to the bond's yield to maturity is inversely related to the bond's yield to maturity is greater for increases in yield to maturity than it is for decreases in yield to maturity is the same regardless of whether the yield to maturity increases or decreases

answer

question

An insurance company issues a guaranteed investment contract (GIC) with a ten-year maturity. The insurance company elects to fund this obligation with a coupon bond that also has a ten-year maturity. Therefore, the insurance company is subject to ____________ in the event that market interest rates increase and to ____________ in the event that market interest rates decrease. losses resulting from duration risk; losses resulting from price risk losses resulting from convexity risk; losses resulting from reinvestment rate risk losses resulting from reinvestment rate risk; losses resulting from price risk losses resulting from price risk; losses resulting from reinvestment rate risk

answer

question

Dedication strategy is best described as: matching cash flows from a fixed-income portfolio. price yield relationship of a bond. multi-period cash flow matching. exchange of one bond for similar identical bond.

answer

question

Rebalancing of an immunized bond portfolio is necessary ____________. only when market interest rates change because rebalancing incurs transaction costs because, as time passes, the duration of a liability can change at a different rate than the duration of an asset because, as time passes, the duration of liabilities generally decreases while the duration of assets generally increases

answer

question

For questions 1 and 2, S denotes the underlying price. Use the following letters to indicate the corresponding payoff functions: A) payoff = -max(50-S, 0) B) payoff = max(S-50, 0) C) payoff = max(50-S, 0) D) payoff = -max(S-50, 0) 1. The payoff function for a long call, struck at 50 is A. B. C. D. 2. The payoff function for selling a put, struck at 50 is A. B. C. D.

answer

B, A

question

A graph in the shape of an inverted hockey stick with the bottom (which is on top) pointing toward right of page and at level 0 is the payoff function for a: long call struck at 50 long put struck at 50 short call struck at 50 short put struck at 50

answer

question

A graph in the shape of a V with the point at level of 0 is the payoff function for a: long strip long strap long straddle long strangle short strip short strap short straddle short strangle

answer

question

If you anticipated that a jury would decide a major lawsuit, either for or against GM by the middle of next March, and the forward price for GM on that March 25 were 50, you would want to buy with expiration at the end of next March. Payoff function: in shape of hockey stick with the bottom pointing towards left of page and at level 0 Payoff function: shape of an inverted hockey stick with the bottom (which is on top) pointing toward right of page and at level 0 in the shape of a V with the point at level of 0 none of the above

answer

question

A __________is the name for a combination of a long position in shares and a short call option position in those same shares, and a __________ is the name for a long position in shares and a long put option position on those same shares. A. American option B. at-the-money C. call option D. collar E. covered call F. European option G. exercise price H. in-the-money I. out-of-the money J. premium K. protective put L. put option M. risk management N. spread O. straddle P. strike price Q. warrant

answer

E K

question

The hedge ratio of an at-the-money call option on Delta Corp is 0.80. The hedge ratio of an at-the-money put option is -0.70. What is the hedge ratio of an at-the- money straddle position on Delta Corp? 0.1 -0.1 0.5 -0.5

answer

question

In the Black-Scholes model if an option is likely to be exercised, both N(d1) and N(d2) will be close to ______. If the option is unlikely to be exercised N(d1) and N(d2) will be close to ______. 1; 0 0; 1 -1; 1 1; -1

answer

question

Suppose that ABCD Corp.'s share price is $90.00, today. The riskless nominal rate of interest is 12.00%, compounded monthly. For simplicity the stock price moves just once a month, according to a binomial tree, and it could go in one month up to $99.00 or down to $81.82. A call option with a strike price of $90.41 expires in one month, and would be worth __________ if the underlying price went up, and $0.00 if the underlying price went down. The delta for that option would be __________. If you sold short that many shares and bought the call option on one share, in one month that position would have a net value of $___________ if the stock price rose and $______ if the stock price fell. The option would be worth $________, today.

answer

99.00-90.41, 1/2, -40.91, -40.91, 4.50

question

You are sitting at your Bloomberg, looking at the market for options on Zeta Corp. Zeta is a young company that pays no dividend, because, management says, \"Zeta has great growth opportunities for years.\" The last trade for Zeta shares was $50.48, one minute ago. You focus on the options with a strike price of K that expire in three months. You see that the call sells for $7.00 and the put sells for $9.00. The rate of interest is 4%, compounded quarterly. What is K, the common strike price of the call and put? $53 $52 $51 $50 $49

answer

question

_____________ is a financial product that promises _____________ protection against price movement of an investment. _____________ is a tool for computing the sum of ______ plus _________. Fill each blank with a letter from below. A. The Black-Scholes pricing formula B. Intrinsic value C. Portfolio insurance D. Option elasticity E. time value F. inside G. downside H. outside I. upside-down J. inside-out K. downside L. intrinsic value

answer

C, G, A, B, E

question

The gain or loss to the short side of futures contract that is entered at t and exited at T is _____ and the trader who is short receives that money at _____. F(T) - F(t) F(t) - F(T) S(T) - F(t) F(t) - S(T) T 0 various times t

answer

question

A pension fund is has nearly matched its pension benefit obligations with its investments. What remains is $10 million of bond exposure with a modified duration of nine years. The managers are concerned that interest rates might rise enough that the asset value would no longer exceed the PBO. They are considering hedging away risk with a position in Treasury bond futures contracts. A Treasury bond futures contract has a notional amount of $100,000 principal, but taking a long or short position requires no investment, simply requiring margin that can earn interest. The bond futures price is $75 per $100 face value of the notional amount. The modified duration for the bond futures contract is ten years. The PV01 of the bond exposure is _____. A. $9000 B. $900 C.$90000 D. $90 The PV01 of the bond futures contract is _____. The size in contracts of the bond futures hedge that eliminates the fund's exposure to a parallel shift in the yield curve is _____.

answer

A, 75, 120

question

Suppose a bond's exposure were half as large, but its modified duration were twice as much. Calculate the number of futures contracts long (short) to hedge that exposure.

answer

Nothing changes

question

Suppose the risk-free rate is 3.6% per annum, compounded monthly. The dividend yield on the stock index is 0.2% per month. The stock index is at S = 8000. The futures price on a contract with delivery in three months is approximately $8084.1 $8048.1 $8014.8 $8108.4

answer

???

question

________ differs from _________, in the way that acting in a community theater production differs from watching television. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

A L

question

You can be reasonably sure that transactions costs are larger for _____, than for_____. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

A L

question

A______ is a portfolio rate of return, against which someone measures the performance of a portfolio manager. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

question

Money-market instruments are usually better investments than actual ______, because money-market instruments pay interest. However, money market instruments also have the risk of default. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

question

If a ______ invests only in mutual funds of the same style, it is likely just a waste of money for the investor, because style explains about 97% of investment performance. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

question

At its best, a______ is an excellent benchmark, against which to compare the rate of return on a manager‟s portfolio. At its worst, it is a misleading bit of marketing material. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

question

The _______ is the set of portfolio managers with the same investment styles, against which we may measure the performance of a given portfolio manager. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

question

Hedge funds engage in ______, while index funds engage in _______. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

A L According to Brinson‟s and Sharpe‟s research on the importance of investment styles, the _________ is a good tool for discovering the relative strength of an investment manager. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure F

question

A tracking portfolio, composed of T- bills and the S&P 500 index portfolio is a ______that some pension consultants use to evaluate the performance of a pension fund manager. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

question

Bankers acceptances and commercial papers are examples of what investment managers sometimes call______. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

question

A _______ is a mutual fund that invests in other mutual funds or a hedge fund that invest in other hedge funds. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

question

The ________ is another name for \"alpha\", and is the amount by which an investment‟s average rate of return exceeds the average return on the SML for the same beta. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

question

The ________ of investment performance is theoretically appropriate for any asset, not just for a portfolio. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

question

The ________ of investment performance is appropriate only for an investor‟s entire portfolio, or a close approximation to that. A. active management B. alpha capture C. alpha transfer (alpha transport) D. bogey E. cash F. comparison universe G. fund of funds H. information ratio I. Jensen measure J. M-square (M2) K. market timing L. passive management M. Sharpe measure N. Treynor measure

answer

question

A graph in shape of hockey stick with the bottom pointing towards left of page and at level 0 is the payoff function for a: long call struck at 50 long put struck at 50 short call struck at 50 short put struck at 50

answer

STUDY

Buy And Hold Finance Performance Over Time Physical Fitness Testing

Investment Final Ch 8 – Flashcards 55 terms

Adam Howard

55 terms

Preview

Investment Final Ch 8 – Flashcards

question

Which of the following beliefs would not preclude charting as a method of portfolio management?

answer

D. Stock prices follow recurring patterns.

question

The weak form of the EMH states that ________ must be reflected in the current stock price

answer

A. all past information, including security price and volume data

question

The semistrong form of the EMH states that ________ must be reflected in the current stock price

answer

B. all publicly available information

question

The strong form of the EMH states that ________ must be reflected in the current stock price

answer

C. all information, including inside information

question

Evidence suggests that there may be _______ momentum and ________ reversal patterns in stock price behavior

answer

D. short-run; long run

question

Proponents of the EMH typically advocate __________.

answer

C. a passive investment strategy

question

The tendency when the ______ performing stocks in one period are the best performers in the next and the current ________ performers are lagging the market later is called the reversal effect.

answer

A. worst; best

question

Which of the following is not a method employed by followers of technical analysis?

answer

C. Earnings forecasting

question

Which of the following is not a method employed by fundamental analysts?

answer

B. Relative strength analysis

question

The primary objective of fundamental analysis is to identify __________.

answer

C. mispriced stocks

question

If you believe in the __________ form of the EMH, you believe that stock prices reflect all publicly available information but not information that is available only to insiders

answer

A. semistrong

question

If you believe in the __________ form of the EMH, you believe that stock prices reflect all relevant information, including information that is available only to insiders

answer

B. strong

question

You believe that stock prices reflect all information that can be derived by examining market trading data such as the history of past stock prices, trading volume, or short interest, but you do not believe stock prices reflect all publicly available and inside information. You are a proponent of the ____________ form of the EMH.

answer

C. weak

question

A mutual fund that attempts to hold quantities of shares in proportion to their representation in the market is called a __________ fund

answer

B. index

question

Choosing stocks by searching for predictable patterns in stock prices is called ________.

answer

B. technical analysis

question

Which of the following is not an issue that is central to the debate regarding market efficiency?

answer

The tax-loss selling issue

question

Small firms have tended to earn abnormal returns primarily in __________.

answer

A. the month of January

question

Fama and French have suggested that many market anomalies can be explained as manifestations of ____________.

answer

D. varying risk premiums

question

Proponents of the EMH think technical analysts __________.

answer

D. are wasting their time

question

Evidence supporting semistrong-form market efficiency suggests that investors should _________________________.

answer

C. use a passive trading strategy such as purchasing an index fund or an ETF

question

"Buy a stock if its price moves up by 2% more than the Dow Average" is an example of a _________________.

answer

A. trading rule

question

According to 1968 research by Ball and Brown, securities markets fully adjust to earnings announcements _______.

answer

D. gradually over time

question

When stock returns exhibit positive serial correlation, this means that __________ returns tend to follow ___________ returns.

answer

A. positive; positive

question

Basu found that firms with high P/E ratios __________.

answer

C. earned lower average returns than firms with low P/E ratios

question

Fundamental analysis is likely to yield best results for _______.

answer

B. neglected stocks

question

You are looking to invest in one of three stocks. All other things being equal, Stock A has high expected earnings growth, stock B has only modest expected earnings growth, and stock C is expected to generate poor earnings growth. According to LaPorta's 1996 study, which stock is likely to generate the greatest alpha for you?

answer

C. Stock C

question

Even if the markets are efficient, professional portfolio management is still important because it provides investors with: I. Low-cost diversification II. A portfolio with a specified risk level III. Better risk-adjusted returns than an index

answer

B. I and II only

question

Banz found that, on average, the risk-adjusted returns of small firms __________.

answer

A. were higher than the risk-adjusted returns of large firms

question

"Active investment management may at times generate additional returns of about .1%. However, the standard deviation of the typical well-diversified portfolio is about 20%, so it is very difficult to statistically identify any increase in performance." Even if true, this statement is an example of the _________ problem in deciding how efficient the markets are

answer

A. magnitude

question

DeBondt and Thaler (1985) found that the poorest-performing stocks in one time period experienced __________ performance in the following period and that the best-performing stocks in one time period experienced __________ performance in the following time period.

answer

B. good; poor

question

. M. Keyes put all his money in one stock, and the stock doubled in value in a matter of months. He did this three times in a row with three different stocks. J. M. got his picture on the front page of the Wall Street Journal. However, the paper never mentioned the thousands of investors who made similar bets on other stocks and lost most of their money. This is an example of the ________ problem in deciding how efficient the markets are.

answer

C. lucky event

question

Most tests of semistrong efficiency are _________.

answer

D. joint tests of market efficiency and the risk-adjustment measure

question

The broadest information set is included in the _____.

answer

C. strong-form efficiency argument

question

The Fama and French evidence that high book-to-market firms outperform low book-to-market firms even after adjusting for beta means that _________.

answer

C. either high book-to-market firms are underpriced or the book-to-market ratio is a proxy for a systematic risk factor

question

The term random walk is used in investments to refer to ______________.

answer

C. stock price changes that are random and unpredictable

question

Among the important characteristics of market efficiency is (are) that: I. There are no arbitrage opportunities. II. Security prices react quickly to new information. III. Active trading strategies will not consistently outperform passive strategies.

answer

D. I, II, and III

question

Stock market analysts have tended to be ___________ in their recommendations to investors

answer

B. overwhelmingly optimistic

question

Assume that a company announces unexpectedly high earnings in a particular quarter. In an efficient market one might expect _____________.

answer

A. an abnormal price change immediately after the announcement

question

Market anomaly refers to _______.

answer

D. price behavior that differs from the behavior predicted by the efficient market hypothesis

question

Which of the following contradicts the proposition that the stock market is weakly efficient?

answer

C. Every January, the stock market earns above-normal returns.

question

Which of the following stock price observations would appear to contradict the weak form of the efficient market hypothesis?

answer

C. You could have consistently made superior returns by buying stock after a 10% rise in price and selling after a 10% fall.

question

The semistrong form of the efficient market hypothesis implies that ____________ generate abnormal returns and ____________ generate abnormal returns.

answer

D. technical analysis cannot; fundamental analysis cannot

question

An implication of the efficient market hypothesis is that __________.

answer

C. nonzero alphas will quickly disappear

question

One type of passive portfolio management is ________.

answer

A. investing in a well-diversified portfolio without attempting to search out mispriced securities

question

Value stocks usually exhibit ______ price-to-book ratios and ______ price-to-earnings ratios.

answer

A. low; low

question

Growth stocks usually exhibit ______ price-to-book ratios and ______ price-to-earnings

answer

D. high; high

question

A technical analyst is most likely to be affiliated with which investment philosophy?

answer

A. Active management

question

Someone who invests in the Vanguard Index 500 mutual fund could most accurately be described as using which approach

answer

D. Passive investment

question

Evidence by Blake, Elton, and Gruber indicates that, on average, actively managed bond funds ______.

answer

D. underperform passive fixed-income indexes by an amount equal to fund expenses

question

Insiders are able to profitably trade and earn abnormal returns prior to the announcement of positive news. This is a violation of which form of efficiency?

answer

C. Strong-form efficiency

question

In an efficient market and for an investor who believes in a passive approach to investing, what is the primary duty of a portfolio manager?

answer

B. Diversification

question

Which Fidelity Magellan portfolio manager is often referenced as an exception to the general conclusion of efficient markets

answer

B. Peter Lynch

question

The tendency of poorly performing stocks and well-performing stocks in one period to continue their performance into the next period is called the ________________.

answer

C. momentum effect

question

Fundamental analysis determines that the price of a firm's stock is too low, given its intrinsic value. The information used in the analysis is available to all market participants, yet the price does not seem to react. The stock does not trade on a major exchange. What concept might explain the ability to produce excess returns on this stock?

answer

B. Neglected-firm effect

question

When testing mutual fund performance over time, one must be careful of ___________, which means that a certain percentage of poorer-performing funds fail over time, making the performance of remaining funds seem more consistent over time.

answer

A. survivorship bias

STUDY

Accounting Business Ethics Buy And Hold Chocolate Chip Cookies Companies To Invest In

Mintz Chpt 7 HW – Flashcards 50 terms

Lesly Nixon

50 terms

Preview

Mintz Chpt 7 HW – Flashcards

question

"Cookie jar reserves" can best be described as: Buying a lot of chocolate chip cookies, storing them for when you have a hunger attack, and then releasing them into your stomach Overstating or understating allowances and reversing amounts in the future to smooth out net income over time Accelerating the recording of revenues into an earlier year than is warranted Delaying the recording of expenses to a later year to boost income in the current year

answer

Overstating or understating allowances and reversing amounts in the future to smooth out net income over time

question

The North Face case deals with materiality and how auditors employ that metric in an audit. The following are all true except: North Face accounted for barter transactions with full normal margin recognized Crawford devised the 1997 barter transaction so that it was just beneath the materiality threshold Crawford followed the GAAP methods that Deloitte suggested Deloitte proposed an adjusting entry for the 1997 barter transaction, but "passed" on it as immaterial

answer

Crawford followed the GAAP methods that Deloitte suggested

question

Which of the following is NOT one of the techniques used by Gemstar TV Guide International in its accounting fraud? Created cookie jar reserves of advertising revenue to smooth net income Engaged in round trip transactions Used channel stuffing to accelerate the recording of revenue into earlier periods Inflated advertising revenue from nonmonetary and barter transactions

answer

Used channel stuffing to accelerate the recording of revenue into earlier periods

question

Which of the following earnings management techniques were not used in the Lucent Technologies, Inc.'s case? Shifting current revenue to a later period Boosting income with one-time gains Recording revenue too soon or of questionable quality Shifting current expenses to a later or earlier period

answer

Shifting current revenue to a later period

question

The concept that earnings management might align with conservative versus aggressive reporting is known as the: Earnings judgment Earnings accruals Earnings continuum Earnings manipulations

answer

Earnings continuum

question

Which of the following authors(s) focus(es) on "management's intent to deceive the stakeholders by using accounting devices to positively influence reported earnings?" Dechow and Skinner Healy and Wahlen Schipper Thomas E. McKee

answer

Healy and Wahlen

question

The best definition of a financial restatement is: A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information for the current period An adjustment of financial information due to an error correction All are part of the definition

answer

A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported

question

Accruals that are based on estimated changes in fundamental economic performance of the firm are: Discretionary accruals Nondiscretionary accrual Operating accruals Cookie jar accruals

answer

Nondiscretionary accrual

question

Your professor asks you to consider whether earnings management can be justified by arguing that the net benefits of managing earnings exceeds any harms that may occur. The professor is asking you to apply what reasoning methods to make the analysis? Egoism Act utilitarianism Rule utilitarianism Virtue

answer

Act utilitarianism

question

Which of the following was not true according to the Enron case? Fastow developed the concept of buying up oil and gas companies to establish SPEs Fastow worked to structure ventures that met the conditions under GAAP to keep the partnership activities off Enron's books and on the separate books of the partnership Fastow created SPEs that borrowed money from banks and transferred it to Enron in a sale of an operating asset no longer need by Enron The SPE created by Fastow enabled Enron to keep debt off its books while benefiting from transfer and use of the cash borrowed by the SPE

answer

Fastow developed the concept of buying up oil and gas companies to establish SPEs

question

The SEC's complaint in its case against GE included a charge that the company: Used off-balance sheet entities to manipulate earnings Falsified inventory values to inflate earnings Used non-GAAP measures to meet EPS estimates Used EBITDA to obscure reported earnings

answer

Used non-GAAP measures to meet EPS estimates

question

The best way to characterize the role of Sherron Watkins in the downfall of Enron is: She directed the internal auditors to examine numerous transactions that led to the discovery of the fraud She gave in to the pressure of Andy Fastow to go along with materially misstated financial statements She was sent to jail even though she cooperated with the government in its case against Enron She tried to alert Ken Lay about the accounting scandal at Enron

answer

She tried to alert Ken Lay about the accounting scandal at Enron

question

Which of the following is NOT an earnings management technique? Failing to write down or write off impaired assets Releasing questionable reserves into income Failing to record expenses and related liabilities when future obligations remain Creating an allowance for uncollectible accounts and adjusting it at year end

answer

Creating an allowance for uncollectible accounts and adjusting it at year end

question

Which technique was used by both WorldCom and Waste Management to manage earnings? Manipulating asset net valuation amounts to minimize operating expenses for a period Accelerating the recording of revenue into an earlier period Delaying needed repairs to a later period All of the above were used

answer

Manipulating asset net valuation amounts to minimize operating expenses for a period

question

A common method used to smooth net income over time is: Accelerate revenue into earlier periods Delay expenses into later periods Using accrual of operating expenses and future adjustments Using nonrecurring items to increase earnings in one year and reduce it later on

answer

Using accrual of operating expenses and future adjustments

question

Which of the following partnerships that Enron created eventually lead to its demise? JEDI Cactus Chewco Ironman

answer

Chewco

question

Debbie and Steve are discussing a lecture given by their ethics professor after class one day. The professor said that misstatements of earnings are always unethical. Debbie agrees with this situation but Steve does not. What statement might Steve make to best support his point of view? It depends on whether the misstatements were made deliberately It depends on whether a user relied on the financial statements It depends on whether the statements lead to a modified or unmodified opinion All are valid statements for Steve to support his point of view

answer

It depends on whether the misstatements were made deliberately

question

In surveys of managers, which technique to manage earnings was considered most acceptable? Changing inventory valuation in order to influence earnings Accounting manipulation Manipulating operating decisions Establishing cookie jar reserves

answer

Manipulating operating decisions

question

In the Hertz fraud, the company tried to explain its use of non-GAAP financial measures by: Comparing them to aggressive but ethical measurements Comparing the validity of the amounts to pre-tax GAAP income Having a conference call with financial analysts to explain their position Correcting problems in internal controls

answer

Comparing the validity of the amounts to pre-tax GAAP income

question

The main difference between a discretionary and nondiscretionary accrual is: Discretionary accruals are items that management has full control over Discretionary accruals are based on changes in the fundamental performance of the firm Discretionary accruals arise from transactions considered normal for the firm Discretionary accruals always lead to an increase in earnings

answer

Discretionary accruals are items that management has full control over

question

Accruals are potentially troublesome because: They can lead to giving an unmodified audit opinion when it should have been modified They provide an opportunity to manage earnings through aggressive or more conservative estimations They always lead to fraud in financial statements They provide an opportunity to shift debt off the books by setting up an SPE

answer

They provide an opportunity to manage earnings through aggressive or more conservative estimations

question

All of the following are examples of "Recording revenue too soon or of questionable quality" except: Recording sales that lack economic substance Recording revenue when future services remain to be provided Recording revenue before shipment or before the customer's unconditional acceptance Recording revenue even though the customer is not obligated to pay

answer

Recording sales that lack economic substance

question

The SEC requires stealth restatements to be: Disclosed only in periodic reports Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A Increased to more 50% of restatements Disclosed in ten business days after determination of need for restatement

answer

Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A

question

The Sino-Forest case centered around the: Acceleration of revenue due to channel stuffing arrangements Use of cookie jar reserves to manage earnings Existence of assets Contingent liabilities due to forestry fires

answer

Existence of assets

question

Which of the following is NOT a qualitative factor when assessing materiality? A misstatement that changes a loss into income or vice versa The existence of statutory or regulator reporting requirements that affect materiality thresholds The potential effect of the misstatement on trends, especially trends in profitability The use of simplistic numerical thresholds and rules of thumb

answer

The use of simplistic numerical thresholds and rules of thumb

question

You work for a company that always pushes the envelope with respect to reporting revenues and expenses. You often disagree with the company because its approach to reporting these amounts cannot be justified from a GAAP perspective. You are upset and are considering whether this is a company that has a culture you want to be part of. Which of the following best characterizes the ethical issues of concern? Rights Theory Moral blindness Ethical Dissonance Materiality

answer

Ethical Dissonance

question

Motivations to smooth net income over time include each of the following except: Maximize bonuses and stock option values Steady increase in earnings each year Minimize overall taxes Make it appear managers are doing better than they really are

answer

Minimize overall taxes

question

Kelly and Jordan are writing a term paper together on the concept of "faithful representation" in the financial statements. Kelly is assigned the task of defining it in the context of an amount being an estimate. Which of the following statements should NOT be used by Kelly in her description? Good faith attempt to gather evidence to support the amount Clear disclosure of an amount as an estimate The nature and limitations of the estimating process Error free procedures in selecting and applying an appropriate process for developing the estimate

answer

Good faith attempt to gather evidence to support the amount

question

The main accounting issues in the Nortel Networks case were: Premature revenue recognition and hidden cash reserves Capitalization of operating expenses and hidden cash reserves Premature revenue recognition and off-balance-sheet entities Capitalization of operating expenses and off-balance-sheet entities

answer

Premature revenue recognition and hidden cash reserves

question

Each of the following is a common revenue recognition device to manage earnings except: Multiple deliverables Channel stuffing Buy and hold Round tripping

answer

Buy and hold

question

Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox case? Xerox misled investors by polishing its reputation on Wall Street and to boost the company's stock price Xerox top management overrode the internal control to manipulate earnings Xerox failed to disclose GAAP violations that led to acceleration in the recognition of approximately $3 billion in equipment revenues Xerox recognized a greater amount of revenue on leases in early years than warranted and didn't break out revenues that should have been deferred and recognized in future years

answer

Xerox top management overrode the internal control to manipulate earnings

question

Which of the following was not an accounting issue in the Sunbeam case? Cookie jar reserves Channel stuffing Bill and hold sales Swap transactions

answer

Swap transactions

question

Which of the following has NOT been found to be a measure of a non-GAAP financial metric? Earnings before depreciation and amortization Operating income before certain non-recurring expense or revenue items EBITDA GAAP earnings

answer

Earnings before depreciation and amortization

question

Which of the following was NOT one of the schemes used by Beazer Homes to manipulate its earnings? Improper recording of revenue on sale-leaseback transactions Fraudulently increased land inventory expense accounts to reduce earnings Over-reserving of house cost-to-complete expenses to increase reported earnings in earlier periods Recording revenue from roundtrip transactions prematurely

answer

Recording revenue from roundtrip transactions prematurely

question

The Harrison Industries case deals with: Using non-GAAP measures of earnings Acceptability of recording unpaid severance accruals Using EBITDA to obscure earnings All of the above

answer

Acceptability of recording unpaid severance accruals

question

The auditors in the Tier One Bank case were investigated by the SEC because it: Failed to obtain sufficient competent evidential matter to support audit conclusions Failed to exercise the appropriate level of care in its audit Failed to exercise the proper degree of professional skepticism All of the above

answer

All of the above

question

In the CVS acquisition of Longs Drug, the SEC concluded that the purchase price accounting (PPA) was not in compliance with GAAP because: The amount did not reflect current use of Longs personal property at the acquisition date CVS used an overly-aggressive technique to value Longs CVS did not account for its use of Long's assets to generate revenue after the acquisition date All of the above

answer

CVS did not account for its use of Long's assets to generate revenue after the acquisition date

question

Which of the following author(s) define(s) earnings management as "reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results?" Dechow and Skinner Healy and Wahlen Schipper Thomas E. McKee

answer

Thomas E. McKee

question

Who linked earnings management to an excessive zeal to project smoother earnings from year to year that casts a pall over the quality of the underlying numbers? Warren Buffet Arthur Levitt Thomas E. McKee Lynn Turner

answer

Arthur Levitt

question

Who distinguished between earnings manipulation and earnings management? Hopwood et al. Thomas E. McKee Arthur Levitt Belverd Needles

answer

Hopwood et al.

question

Vorhies identities four perspectives to help CPAs identify key internal control exceptions under the Sarbanes Oxley Act (SOX) including: An internal control deficiency caused by accounting manipulations A large variance in an accounting estimate compared with the actual determined amount A misstatement that changes a loss into income or vice versa All were identified

answer

A large variance in an accounting estimate compared with the actual determined amount

question

Which of the following is NOT required of management under Section 302 of the SOX? Review their disclosure controls and procedures quarterly Identify key control exceptions and determine which are internal control deficiencies Assess each internal control deficiency's impact on the audit report Identify and report significant control deficiencies on material weaknesses to the audit committee and independent auditor

answer

Assess each internal control deficiency's impact on the audit report

question

In the Matrixx Initiatives v. Siracusano case, the Supreme Court adopted the position about materiality that: It should always be determined only through qualitative evaluations It should always be determined through quantitative evaluations It should always be determined by considering whether the amount affects past financial statements It should be determined by considering whether the total mix of information would be viewed by a reasonable investor as possibly accepting judgment

answer

It should be determined by considering whether the total mix of information would be viewed by a reasonable investor as possibly accepting judgment

question

What was the original motivation by FASB on SPEs? To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books To keep the large amount of debt off the books To sell non-producing assets to the SPE To select which assets to sell to the SPEs affecting the gain

answer

To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books

question

Which of the following authors(s) link earnings management to choices made in determining earnings that may comprise aggressive, but acceptable, accounting estimates and judgments, as compared to fraudulent practices that are clearly intended to deceive others? Dechow and Skinner Healy and Wahlen Schipper Thomas E. McKee

answer

Dechow and Skinner

question

One result of earnings management is: It brings into question the quality of earnings It uses a non-GAAP financial measure to manipulate earnings EBITDA does not reflect GAAP earnings It improves shareholder returns over time

answer

It brings into question the quality of earnings

question

There are several aspects of the Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true? SOX permitted the provision of internal audit service for audit clients Off-balance-sheet financing activities were prohibited for all companies Related-party transactions require disclosure in the notes Cookie jar reserves must be disclosed in the notes

answer

Related-party transactions require disclosure in the notes

question

Inherent risk refers to: The possibility that a material misstatement will occur within the reporting company's accounting information system The possibility that a material misstatement that has occurred will not be detected on a timely basis by the company's control system The possibility that a material misstatement that has occurred will not be caught be the independent auditor's testing The possibility that a material misstatement will occur in the financial statements

answer

The possibility that a material misstatement will occur within the reporting company's accounting information system

question

Each of the following is a finding of a survey of CFOs about their perceptions of earnings quality except: CFOs believe that earnings are high quality when they are sustainable and backed by actual cash flows CFOs believe that reporting discretion has declined over time, and that current standards somewhat restrain reporting high quality earnings CFOs estimate that roughly 20 percent of firms manage earnings and the typical misrepresentation for such firms is about 10 percent of reported EPS CFOs estimate that income increasing and income decreasing devices to manage earnings show a 50:50 split

answer

CFOs estimate that income increasing and income decreasing devices to manage earnings show a 50:50 split

question

Which of the following is NOT a motivation to manage earnings? Companies try to meet or beat Wall Street earnings projections in order to grow market capitalization and increase the value of stock options Avoid the consequences of violating debt covenants To smooth net income over time To maximize employee bonuses

answer

To maximize employee bonuses

STUDY

Buy And Hold Flashcards, test questions and answers

We've found 5 Buy And Hold tests

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards