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NEW QUESTION # 163
An investor seeking to capitalize on a strong market upswing reduces her money market holdings and greatly increases her holdings of stocks. This investor is primarily increasing:
- A. systematic risk.
- B. non-market risk.
- C. total risk.
Answer: A
Explanation:
Money market instruments are risk-free or of low risk while stocks have significantly systematic or market-related risk. Thus, increasing her stock position effectively increases her systematic risk exposure.
NEW QUESTION # 164
A researcher is studying the number of trees that contain a certain type of locust in the Smoky
Mountains each year. He has found an average of 25% of the trees contain the locust with a standard deviation of 4%. If 100 trees were randomly sampled, which of the following statement is incorrect?
- A. The shape of the sampling distribution is approximately normal, and the mean of the sampling distribution is approximately 25%.
1/2 - B. The standard deviation of the sampling distribution is o/n
- C. The standard deviation of the sample mean is approximately 4%.
Answer: C
NEW QUESTION # 165
The amount of one good that is just sufficient to compensate the consumer for the loss of some amount of another good is called
- A. the marginal rate of substitution.
- B. consumer surplus.
- C. the substitution effect.
Answer: A
Explanation:
The marginal rate of substitution is the slope of the indifference curve and represents the amount of good x that the consumer must be compensated with in order to reduce his or her consumption of good y by one unit.
NEW QUESTION # 166
What is the best way to avoid data-snooping bias?
- A. Examine fresh data, if available.
- B. Remove snooped data from your own analysis.
- C. Ignore the prior research of others until after you do your own study.
Answer: A
Explanation:
The best way to avoid data-snooping bias is to examine fresh data, if it is available. This can be difficult in investment research, as the historical record is well-documented and fresh data are only added at a slow rate.
NEW QUESTION # 167
Recent history has shown that the movements of more than 3% in the Dow Jones Industrial Average occur in 2% of the trading days. What is the probability that within the next 30 trading days there will be one or more days in which the average will move more than 3%?
- A. 0.2876
- B. 0.0836
- C. 0.4545
Answer: C
Explanation:
30
Explanation: 1 - 0.98 = 0.4545.
NEW QUESTION # 168
Which of the following are problems that an effective corporate governance system would mitigate or eliminate?
I). Proxy voting is not permitted.
II). Board Members are unable to conduct in-depth evaluations of the issues affecting the Company's business.
III). A company requires a simple two-thirds vote for passing a Shareowner resolution and a simple majority vote to pass Board-sponsored initiatives.
IV). The only way for Shareowners to submit resolutions to consider specific issues is at the Company's annual general meeting.
- A. I, II, III and IV.
- B. I, II and IV.
- C. I, III and IV.
Answer: A
Explanation:
They are all warning signs of weak corporate governance.
NEW QUESTION # 169
Internal liquidity ratios
- A. include the quick ratio, inventory turnover, and receivables turnover. The quick ratio is equal to cash plus marketable securities plus receivables, divided by current liabilities. Receivables turnover is equal to net annual sales divided by average receivables.
- B. indicate a firm's ability to meet its future short or medium-term financial obligations.
- C. include the current ratio, quick ratio, and cash ratio. The quick ratio is equal to cash plus marketable securities, divided by current liabilities. The cash ratio is equal to cash divided by current liabilities.
Answer: A
Explanation:
Internal liquidity ratios indicate a firm's ability to meat its future short-term financial obligations. Internal liquidity ratios include the current, quick, and cash ratios, receivables turnover, and inventory turnover. The current ratio is equal to current assets divided by current liabilities. The cash ratio is equal to cash plus marketable securities, divided by current liabilities. Return on equity (ROE) is an operating profitability ratio.
NEW QUESTION # 170
Which of these characteristics does not apply to the CML?
- A. The portfolios on the CML are positively correlated.
- B. It is dependent on beta.
- C. It is a straight line AND tangent to the efficient frontier.
Answer: B
Explanation:
The CML measures risk with total variability (variance or standard deviation). It is not dependent on beta, which is relevant in the Capital Asset Pricing Model.
NEW QUESTION # 171
Consider a bond that pays 10% semiannually and has 6 years to maturity. The market requires an interest rate of 12% on bonds of this risk. What is this bond's price?
- A. $91.62
- B. $91.77
- C. $95.08
Answer: A
Explanation:
N=12, I/Y=6, PMT=5, FV=100, PV=?=91.62
NEW QUESTION # 172
A project has an initial investment of $40,000 and cash inflows of $11,000 a year for 5 years given a required return of 11.649%. Compute the NPV for this project.
- A. the NPV is $0
- B. the NPV is -$1,205
- C. the NPV is $1,218
Answer: A
NEW QUESTION # 173
The price/earnings ratio valuation method values a company:
- A. on an absolute basis
- B. relative to other comparable companies based on the ratio of value to earnings
- C. based on historical earnings
Answer: B
Explanation:
relative to other comparable companies based on the ratio of value to earnings The P/E method estimates value by applying a relative ratio of price to earnings to a company's expected
1 2-month earnings.
NEW QUESTION # 174
If you are a bondholder for a firm, which of the following ratios would you be most interested in?
I). Times interest earned.
II). Total debt to total assets.
III). Return on equity.
IV). Quick ratio.
- A. I and II.
- B. I, II and IV.
- C. II and III.
Answer: A
Explanation:
Bondholders are interested in the debt utilization ratios which in this case are the times interest earned and total debt to total assets.
NEW QUESTION # 175
Which of the following is true for monopolistically competitive firms in long-run equilibrium?
- A. Price exceeds average total cost.
- B. Price exceeds marginal cost.
- C. Price equals the minimum average total cost.
Answer: B
Explanation:
Since the monopolistic competitor operates where P = ATC in the long run and MC ATC for the firm then it is true that P > MC
NEW QUESTION # 176
Which of the following items would have a tax consequence for financial accounting purposes?
I). Fines Paid for Law Violations
II). Product Warranty Liabilities
III). Life Insurance Proceeds Received (co. is beneficiary)
- A. II only.
- B. II and III.
- C. I and II.
Answer: A
Explanation:
Fines paid for law violations are never deductible for tax purposes, and life insurance proceeds where the company is the beneficiary are never taxed. Therefore, these are permanent differences and do not have tax consequences. Differences due to warranty expenses, however, will create temporary differences and do have tax consequences.
NEW QUESTION # 177
The obstacles to collusion include all of the following except:
I). small number of firms
II). low entry barriers
III). unstable market demand
IV). vigorous antitrust prosecution
- A. IV only.
- B. II and III.
- C. I only.
Answer: C
Explanation:
A small number of firms facilitate collusion by reducing the costs of both organizing and monitoring the cartel.
NEW QUESTION # 178
ABC Corp. is considering the following mutually exclusive projects:
Which of the following would represent the most optimal choice?
- A. Since Project A has an NPV of $23,997 and Project B has an NPV of $2,999, both should be chosen.
- B. Since Project A has an NPV of $23,997 and Project B has an NPV of $47,565, only project B should be chosen.
- C. Since Project A has an NPV of $23,997 and Project B has an NPV of $2,999, only project A should be chosen.
Answer: C
Explanation:
Find NPV of each project: Note: NPV= (PV of CF)-( Cost)Project A: Given: PMT=45,000; N =
5 ; I = 10% -> Find: PV = 173,997 -> NPV = 173,997-150,000 = 23,997Project B: Given: PMT=162,912; N
= 5; I = 13% -> Find: PV = 572,999 -> NPV = 572,999-570,000 = 2,999Since the projects are mutually exclusive, the optimal choice would be to choose the project with the higher NPV, Project A
NEW QUESTION # 179
Which of the following is/are true about a cyclical industry?
I). It produces discretionary products, the consumption of which is dependent on economic optimism.
II). Its earnings track and amplify the business cycle.
III). It achieves an above-average rate of return even if the economy is in a recession.
- A. I and II.
- B. I, II and III.
- C. II and III.
Answer: A
NEW QUESTION # 180
According to the FASB, which of the following measures do financial statement users find most useful in predicting future cash flows?
- A. Cash inflows and outflows
- B. Accrual accounting earnings
- C. Cash basis earnings
Answer: B
Explanation:
Accrual accounting earnings are based on the forward-looking nature of the accrual basis.
Since accrual earnings try to match performance with revenue and expense recognition, they tend to do a better job of predicting future cash flows.
NEW QUESTION # 181
The purpose of a hypothesis test is to:
- A. derive the standard error of the data sample given the sample mean and the number of test observations.
- B. measure the significance of the difference between the sample mean and the population mean.
- C. determine the appropriate value of the null hypothesis.
Answer: B
Explanation:
The central hypothesis of investment theory is that nondiversifiable risk is rewarded by a higher expected return. Hypothesis testing supplies probabilistic answers to such concerns as whether a certain average is just the luck of the draw. In other words, the objective is to measure the significance of the difference between the sample mean and the population mean.
NEW QUESTION # 182
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