Practice

Trading on the NYSE is executed without a specialist (i.e. a market maker).

Stocks and bonds are two types of financial instruments.

The matching principle in accrual accounting requires that:

A basic equation for the balance sheet is:

Why is the Balance Sheet known as a permanent statement?

How do you calculate the change in Retained Earnings?

Which of the following is generally true?

Which components are part of total assets?

Which components are part of current assets?

Which components are part of Total Liabilities?

When Fixed Assets increase what happens to Cash?

Which is the purpose of the statement of cash flows?

The OIROI (Operating Income Return on Investment) uses what elements on the income statement?

Why would a company be interested in the TAT(Total Asset Turnover) ratio?

Which of the following gives the largest effective rate (APY)?

What does the beta coefficient represent?

Why is depreciation expense taken out of the net income calculation, yet added back at the end?

Why is the NPV preferred over the IRR? Pick Two

What does the Degree of Financial Leverage indicate?

If a company has a high degree of financial leverage, what does that tell us about the firm's risk profile?

What is the cash cycle?

Why is float important to understand?

What should a company do to manage its working capital?

What would be a source of information to determine Replacement Cost?

What does the Sarbanes-Oxley Act require companies to do?

FINRA (Financial Industry Regulatory Authority) does the following:

If a product is made 100% domestically, what can affect its domestic market?

If a company makes its product in a foreign country where labor costs are much lower, what happens?

If the value of a dollar increases, the price of imports:

Why would a farmer buy a hedge when he signs a contract to sell produce overseas?

Suppose the inventory turnover of a company is higher than the industry. Based on this observation, which of the following is most likely?

If a company wishes to obtain a bank loan, will it want to have a higher current ratio or a lower current ratio?

If an investor knows the idiosyncratic risk, the investor knows the:

Why would we reject a project based on the NPV?

Why would we reject a project based on the IRR?

Company A wishes to keep 20% of its assets as cash. Company B keeps its cash balance at 5% of assets. Which of the following statements apply?

Company A offers trade credit of 2% 10 / net 30 and Company B offers trade credit at net 30. What can be said about the credit policies of each company?

Which of the following characterizes collection float?

Company A's inventory is larger than Company B. Both companies are competitors and are about the same size.

What does this difference mean from a working capital management standpoint?

In regards to Accounts Payable balances, which of the following is true:

If two companies have earnings of \$2,000,000, and Company X has a multiple of 1.2 and Company Z has a multiple of 2.0, what can we estimate about the value of each company?

Dodd-Frank regulates which segment of the U.S. Economy?

The SEC Securities & Exchange Commission requires companies to do the following: (pick two)

Economics is a subfield of Finance.

Capital is defined as a financial asset.

Primary financial markets are markets where issuers place new securities with investors.

An IPO occurs on the primary market.

An IPO is a seasoned equity offering.

Syndicates are generally made up of investment banks and other institutional investors.

While competitive sales allow underwriters to submit bids to purchase bonds, negotiated sales do not.

NASDAQ is the world's largest secondary financial market.

Auction markets have a physical location.

Dealer markets have a physical location.

Nasdaq is an example of an auction market.

Stocks that are listed on dealer markets generally have a single dealer for each stock.

Markets are where prices are determined.

The NYSE specialist has an objective to provide liquidity to the market.

The NYSE specialist will charge a higher price to sellers of the stock and a lower price to the buyer of the stock.

The bid-ask spread is compensation to the specialist for providing liquidity to the market.

A market order to buy a stock would execute at the current ask price.

A market order to sell a stock would execute at the current ask price.

A limit order to buy a stock at \$101.55 would execute at the current ask price.

A limit order to buy a stock at \$101.55 would execute when the ask price is at or below \$101.55.

Efficient markets are those in which prices are volatile.

Efficient markets will often have mispriced securities.

Inefficient markets are those in which prices will respond quickly to new information.

Inefficient markets will often have mispriced securities.

Because in an efficient market all available information is built into the price of a stock - investment patterns and trends to "get rich quickly" are not easily discernable and it is difficult to predict the price.

In an inefficient market, prices will slowly respond to new information.

In an efficient market, new information will move prices almost immediately.

What is the relationship between WACC and IRR?

What is the relationship between NPV and IRR?

If a firm's financial and operating leverage is high, what is the implication?

If an industry, such as autos, has very high fixed costs and very cyclical sales, what is the implication for financial leverage?

The SGR measures:

The SEC Securities & Exchange Commission requires public companies to do the following:

If a company produces and sells a product only in the U.S., what international developments may affect its sales?

The SEC requires the following to file audited financial statements:

Which best describes conceptually the valuation of all financial assets in financial markets?

Which accurately describes an "efficient" market?

If a firm's goal is to maximize stockholder wealth, which would the firm avoid?

If you wanted to evaluate a non-public company, what sources would you use?

Which section of the Statement of Cash Flows describes the production and sales of the firm's product?

For calculating cash flows, why is depreciation added to Net Income?

The fundamental concept underlying the valuation of all financial assets is:

What explains the size of the yield spread of junk bonds over Treasury?

What does Beta measure?

What is the most effective use of financial statements in valuing a stock?

If market interest rates rise, what impact does it have on a given bond?

What impact did the recent corporate tax cut have on a firm's WACC?

Why do firms often use "sensitivity" tests in analyzing investment projects?

If debt is less costly than equity, why don't firms maximize debt use?

Why does a firm's investment opportunities affect it dividend payout ratio?

If two annuities have the same payments and term, why is an Annuity Due more valuable than an Ordinary Annuity?

What is the impact of rising interest rates on foreign exchange?

In cash flow statements, which section reflects so-called "spontaneous" accounts which vary with sales?

What are the practical disadvantages of the Gordon model for equity valuation?

What factor determines the "market risk premium" on stocks?

Why would a company buy back outstanding stock?

Which factor does NOT affect a firm's WACC?

Why should an investor diversify the portfolio?

Which statement about a PE ratio is false?

If a firm cannot access markets sufficiently to meet their DFN, what strategies might they use?

Which is not true of both stocks and bonds?

The value of a corporation is best measured by:

Which is not a component of the DuPont formula?

What metric converts FV to PV?

The interest rate on a corporate bond does not reflect:

PV ordinarily is less than FV. What would cause the opposite?

Which would likely have the lowest price?

Junk bonds are those whose rating is below:

Diversification protects against:

Which is the best diversification for stock investment?

If you are assessing a firm's ability to meet short term obligations, you would use which ratio?

To assess firm efficiency, which ratio would you use?

Which would have the highest value?

Which is the most important profit ratio?

If the debt ratio increases, what effect does that have on ROE?

Why is it a challenge for a fund manager to review financial statements from other countries?

What is true about the content and structure of an income statement?

What is true when income for tax purposes is higher than accounting income?

What does the statement of cash flows report?

What does net income measure that the cash flow from operating activities does not?

Which measure of cash flow is commonly used to evaluate the change in revenue and costs?

An analyst is comparing the ratios of two firms and needs to address accounting differences. What would be considered an accounting difference between the two firms?

For the year 2013, a firm has a return on equity (ROE) that is greater than return on assets (ROA). Which conclusion would an analyst draw from these numbers?

What is an example of an estimate used in recording transactions?

What is the coupon rate (yield) of a bond?

If the coupon rate on a particular bond is higher than the market rate of return, at what will the bond sell?

Which securities are issued by the U.S. Federal government and are taxable at the federal level?

What is the current price of the bond, if the required rate of return on a bond is the same as the coupon rate?

If the current coupon rate on a bond is 6% and the bond is selling at a 5% discount, what is the yield to maturity on the bond?

How is a short-term receivable, with the maturity of less than one year, carried on the balance sheet?

When is a company that has strong operating revenues and competent management a good investment?

Thinking about levels of market efficiency quadrants. Which investment option should be selected assuming a prudent investor wants to maximize their expected return E(R)?

Which security type includes the right to vote for a board of directors?

Economists forecast the probability of recession at 22%. During periods of recession, returns for a company have been -2%. Returns for the company have been 18% during an expansionary period. What is the forecast probability of an expansionary period?

What makes the "efficient frontier" efficient?

What are 3 components required in calculating weighted average cost of capital (WACC)?

What advantage does the Gordon growth model have compared to the capital asset pricing model (CAPM)?

How does the weighted average cost of capital affect a company's growth opportunities?

Under which three conditions would a firm decide to reduce the growth rate?

Which three changes would affect an estimate of differential cash flows?

Why is it important to prepare an accurate fixed asset financing forecast?

How is the value of a project determined in the capital budgeting process?

Company A has a high degree of business risk. What will be the effect on the company's EBIT if the company suffers a slight decrease in sales?

What effect does the method of financing investments have on the value of the firm?

Why would a company prefer equity financing over debt financing?

Which hybrid security has some elements that resemble equity and others that resemble debt?

How do increases in market interest rates affect a firm's cost of capital?

Which two ratios are used to evaluate a company's working capital management?

Why should a company carry cash?

What is commonly used method that limits the time it takes between payment and the receipt of cash?

Some companies offer discounts to customers in order to give incentive for paying earlier than the due date. What two terms incentivize customers to accept trade discounts?

Which three costs are associated with holding inventory?

Investors will often sell a stock that has gains rather than a stock that is suffering losses in their portfolio, despite subsidized tax relief when selling at a loss. What the logic-defying behavioral implications of such a decision?

How are the Security and Exchange Commissions' Regulation S and Rule 144A similar?

What is the primary intent of the Sarbanes-Oxley Act?

Which element is a required disclosure in the prospectus, according to the Securities Act of 1933?

Which condition must be met for a firm that trades in equities to be in compliance with the Securities and Exchange (SEC) regulations?
Securities and Exchange (SEC) regulations?

Which practice is limited by the Volcker rule of the Dodd-Frank Act?

What is beta?

What do investors, entrepreneurs and other market participants rely on the SEC to do?

What is one way a firm maximizes shareholder value?

What is one of the two basic types of financial instruments?

The stock price of a company increases and the market is deemed efficient. What assumption can be made?

Which statement is true about how the global market affects the U.S.?

What are secondary markets?

A special interest group in the U.S. has been lobbying intensely for protectionism through increased tariffs and trade restrictions, with the argument that it will save jobs in the industry they represent. What is the most likely result if they are successful?

What is true about the content of an income statement?

What is the basis used to compute a company's income tax expense?

A company's trial balance shows \$900 in long-term debt. On which financial statement should this be shown?

What do cash flows from financing activities generally relate to?

What is true about the cash flow from the operating activities section of the statement of cash flows?

An analyst is comparing the ratios of two firms and needs to address accounting differences. What would be considered an accounting difference between two firms?

Firms A and B are in the same industry. For the year 2013, Firm A has a gross margin of .45 and Firm B has a gross margin of .36.
Which conclusion would an analyst draw when comparing Firm A to Firm B?

What is a subordinated debenture?

Which securities are issued by the U.S. federal government and are taxable at the federal level?

What is the difference between a secured loan and an unsecured loan?

What is the intrinsic value of a stock?

Which investment option should be selected assuming a prudent investor wants to maximize their return E(R)?

What is the relationship between annual percentage rate (APR) and annual percentage yield (APY)?

What is the priority order of repayment (first to last) to a company's investors and creditors?

Where on the "efficient frontier" is a young investor with a high risk tolerance likely to fall?

Supply and demand factors suggest the slope for an individual asset in the portfolio will equal the slope of the market portfolio itself.

What is the significance of this equalization?

What are the components required in calculating weighted average cost of capital (WACC)? Choose 3

What advantage does the Gordon Growth Model have compared to the capital asset pricing model (CAPM)?

Under which three conditions would a firm decide to reduce the growth rate? Choose 3

What are discretionary accounts?

What is the purpose of the capital budget process?

Firm A has a lower degree of business risk than Firm B. What will happen if there is a 1% increase in sales for both firms?

Modigilani and Miller's initial capital structure theory suggested that in the absence of taxes, bankruptcy costs and transaction costs, the firm's capital structure would not affect the weighted average cost of capital (WACC).

What has been proven by subsequent research and inclusion of factors omitted in the initial theory?

Which strategy issues new debt within a company and takes the proceeds from the debt issuance to buy back some of the outstanding shares?

Which type of bond gives an investor the right to trade each bond for a set number of shares of common stock whenever the investor chooses?

A credit agency recently downgraded a company's debt. What is the impact on the cost of debt?

Which financial ratio measures a company's ability to meet its short term obligations with its most liquid assets?

Which term describes the amount of cash that a firm must hold as a safety net to counter future unforeseen expenses?

Some companies offer discounts to customers in order to give incentive for paying earlier than the due date. Which two terms incentivize customers to accept trade discounts? Choose 2

Which ratio is used in the comparable multiples method?

Investors will often sell as stock that has gains rather than a stock that is suffering losses in their portfolio, despite subsidized tax relief when selling at a loss. What are the logic defying behavioral implications of such a decision?

How are the Securities and Exchange Commissions Regulation S and Rule 144A similar?

What must a firm have to be in compliance with Financial Industry Regulatory Authority (FINRA) rules?

Which organization was created by Dodd-Frank to monitor how systematic risk could impact the banking industry?