FIN 470 Midterm Review

The Economic Growth, Regulatory Relief and Consumer Protection Act of 2019 exempted smaller banks from which rule?

Volker
Liquidity
Demand deposit
Reserves
All of the options
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Terms in this set (68)
The Economic Growth, Regulatory Relief and Consumer Protection Act of 2019 exempted smaller banks from which rule?

Volker
Liquidity
Demand deposit
Reserves
All of the options
Volker
_______ are examples of financial intermediaries.

Insurance companies
All of the options
Commercial banks
Investment companies
Credit unions
All of the options
The means by which individuals hold their claims on real assets in a well-developed economy are

depository assets.
derivative assets.
exchange-driven assets.
investment assets.
financial assets.
financial assets
Mortgage-backed securities were created when ________ began buying mortgage loans from originators and bundling them into large pools that could be traded like any other financial asset.

GNMA and FNMA
GNMA
FHLMC
FNMA and FHLMC
FNMA
FNMA and FHLMC
The spread between the LIBOR and the Treasury-bill rate is called the

term spread.
TED spread.
T-bill spread.
LIBOR spread.
TED spread.
_______ are financial assets.

Bonds, machines, and stocks
Bonds
Machines
Bonds and stocks
Stocks
Bonds and stocks
Investors trade previously issued securities in the ________ market(s).

secondary
derivatives
primary
primary and secondary
secondary
Theoretically, takeovers should result in

increased stock price.
All of the options.
improved management and increased stock price.
increased benefits to existing management of the taken-over firm.
improved management.
improved management and increased stock price
A debt security pays

a fixed or variable income stream at the option of the owner.
a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security.
a fixed level of income for the life of the owner.
a variable level of income for owners on a fixed income.
.a fixed stream of income or a stream of income that is determined
Investment bankers perform which of the following role(s)?

Provide advice to the firms as to market conditions, price, etc.
None of the options
Market new stock and bond issues for firms
Design securities with desirable properties
All of the options
All of the options
A rapidly growing GDP indicates a(n) ______ economy with ______ opportunity for a firm to increase sales. stagnant; little stagnant; ample expanding; little expanding; ample stable; noexpanding; ampleThe industry life cycle is described by which of the following stage(s)? Start-up Consolidation Absolute decline Start-up and consolidation All of the options are correct.Start-up and consolidationIf the economy were going into a recession, an attractive industry to invest in would be the automobile industry. medical services industry. construction industry. automobile and construction industries. medical services and construction industries.medical services industry.The life cycle stage in which industry leaders are likely to emerge is the start-up stage. maturity stage. consolidation stage. relative decline stage. All of the options are correct.consolidation stage.If the economy is growing, firms with low operating leverage will experience higher increases in profits than firms with high operating leverage. similar increases in profits as firms with high operating leverage. smaller increases in profits than firms with high operating leverage. no change in profits.smaller increases in profits than firms with high operating leverage.Assume the U.S. government was to decide to increase the budget deficit. Holding all else constant, this will cause ______ to decrease. interest rates government borrowing unemployment interest rates and government borrowing None of the options are correct.None of the options are correct.Assume the U.S. government was to decide to decrease the budget deficit. Holding all else constant, this will cause ______ to decrease. interest rates government borrowing unemployment interest rates and government borrowing None of the options are correct.interest rates and government borrowinginterest rates and government borrowing it is difficult to predict which firms will succeed and which firms will fail. industry growth is very rapid. firms pay a high level of dividends. it is difficult to predict which firms will succeed and which firms will fail, and industry growth is very rapid. industry growth is very rapid, and firms pay a high level of dividends.it is difficult to predict which firms will succeed and which firms will fail, and industry growth is very rapid.Fiscal policy is difficult to implement quickly because it requires political negotiations. much of government spending is nondiscretionary and cannot be changed. increases in tax rates affect consumer spending gradually. it requires political negotiations, and much of government spending is nondiscretionary and cannot be changed. it requires political negotiations, and increases in tax rates affect consumer spending gradually.it requires political negotiations, and much of government spending is nondiscretionary and cannot be changed.it requires political negotiations, and much of government spending is nondiscretionary and cannot be changed. slow growers. stalwarts. cyclicals. asset plays. turnarounds.turnarounds.An example of a highly cyclical industry is the automobile industry. the tobacco industry. the food industry. the automobile industry and the tobacco industry. the tobacco industry and the food industry.the automobile industry.The "real," or inflation-adjusted, exchange rate is the balance of trade. the budget deficit. the purchasing-power ratio. unimportant to the U.S. economy. None of the options are correct.the purchasing-power ratio.Which of the following are not examples of defensive industries? Food producers Durable goods producers Pharmaceutical firms Public utilitiesDurable goods producersMonetary policy is determined by government budget decisions. presidential mandates. the Board of Governors of the Federal Reserve System. congressional actions. None of the options are correct.the Board of Governors of the Federal Reserve System.During which stage of the industry life cycle would a firm experience stable growth in sales? Consolidation Relative decline Maturity Start-up StabilizationConsolidationA trough is a transition from an expansion in the business cycle to the start of a contraction. a transition from a contraction in the business cycle to the start of an expansion. a depression that lasts more than three years. only something used by farmers to feed pigs and not an investment term.a transition from a contraction in the business cycle to the start of an expansion.The North American Industry Classification System (NAICS) codes are for firms that operate in the NAFTA region. group firms by industry. are a perfect classification system for firms. are for firms that operate in the NAFTA region and group firms by industry. are for firms that operate in the NAFTA region and are a perfect classification system for firms.are for firms that operate in the NAFTA region and group firms by industry.If the economy is shrinking, firms with low operating leverage will experience larger decreases in profits than firms with high operating leverage. similar decreases in profits as firms with high operating leverage. smaller decreases in profits than firms with high operating leverage. no change in profits.smaller decreases in profits than firms with high operating leverage.Classifying firms into groups, such as _________, provides an alternative to the industry life cycle. slow-growers stalwarts countercyclicals slow-growers and stalwarts slow-growers and countercyclicalsslow-growers and stalwartsA top-down analysis of a firm starts with the relative value of the firm. the absolute value of the firm. the domestic economy. the global economy. the industry outlook.the global economy.The industry life cycle is described by which of the following stage(s)?start-up, consolidation, maturity, and relative decline.Riga Corp has an expected ROE of 16%. The dividend growth rate will be ________ if the firm follows a policy of paying 70% of earnings in the form of dividends. 3.0% 6.0% 7.2% 4.8%4.8%Red Stapler Company has a balance sheet which lists $85 million in assets, $40 million in liabilities, and $45 million in common shareholders' equity. It has 1,400,000 common shares outstanding. The replacement cost of the assets is $115 million. Shares currently sell for $90.What is Red Stapler's market value per share? $1.68 $2.60 $32.14 $60.71 none of the aboveNone the correct answer is $90Each of two stocks, A and B, are expected to pay a dividend of $5 in the upcoming year. The expected growth rate of dividends is 10% for both stocks. You require a rate of return of 11% on stock A and a return of 20% on stock B. The intrinsic value of stock A will be greater than the intrinsic value of stock B. will be the same as the intrinsic value of stock B. will be less than the intrinsic value of stock B. cannot be calculated without knowing the market rate of return.will be greater than the intrinsic value of stock B.One of the problems with attempting to forecast stock market values is that there are no variables that seem to predict market return. the earnings multiplier approach can only be used at the firm level. the level of uncertainty surrounding the forecast will always be quite high. dividend-payout ratios are highly variable. None of the options are correct.the level of uncertainty surrounding the forecast will always be quite high.Since 1955, Treasury bond yields and earnings yields on stocks have been identical. negatively correlated. positively correlated. uncorrelated.positively correlated.Turtle Corp has an expected ROE of 10%. The dividend growth rate will be ________ if the firm follows a policy of paying 40% of earnings in the form of dividends. 6.0% 4.8% 7.2% 3.0%6.0% 26% × 0.90 = 23.4%.Each of two stocks, C and D, are expected to pay a dividend of $3 in the upcoming year. The expected growth rate of dividends is 9% for both stocks. You require a rate of return of 10% on stock C and a return of 13% on stock D. The intrinsic value of stock C will be greater than the intrinsic value of stock D. will be the same as the intrinsic value of stock D. will be less than the intrinsic value of stock D. cannot be calculated without knowing the market rate of return.will be greater than the intrinsic value of stock D.Shark Tank Corp has an expected ROE of 26%. The dividend growth rate will be _______ if the firm follows a policy of plowing back 90% of earnings. 2.6% 10% 23.4% 90%23.4% 26% × 0.90 = 23.4%.You wish to earn a return of 10% on each of two stocks, C and D. Each of the stocks is expected to pay a dividend of $2 in the upcoming year. The expected growth rate of dividends is 9% for stock C and 10% for stock D. The intrinsic value of stock C will be greater than the intrinsic value of stock D. will be the same as the intrinsic value of stock D. will be less than the intrinsic value of stock D. will be the same or greater than the intrinsic value of stock D. None of the options are correct.will be less than the intrinsic value of stock D.Toria Corp has an expected ROE of 15%. The dividend growth rate will be _______ if the firm follows a policy of plowing back 75% of earnings. 3.75% 11.25% 8.25% 15.0%11.25% 15% × 0.75 = 11.25%.High P/E ratios tend to indicate that a company will _______, ceteris paribus. grow quickly grow at the same speed as the average company grow slowly not grow None of the options are correct.grow quicklyThe most popular approach to forecasting the overall stock market is to use the dividend multiplier. the aggregate return on assets. the historical ratio of book value to market value. the aggregate earnings multiplier. Tobin's Q.the aggregate earnings multiplier.The Gordon model is a generalization of the perpetuity formula to cover the case of a growing perpetuity. is valid only when g is less than k. is valid only when k is less than g. is a generalization of the perpetuity formula to cover the case of a growing perpetuity and is valid only when g is less than k. is a generalization of the perpetuity formula to cover the case of a growing perpetuity and is valid only when k is less than g.is a generalization of the perpetuity formula to cover the case of a growing perpetuity and is valid only when g is less than k.__________ are analysts who use information concerning current and prospective profitability of a firm to assess the firm's fair market value. Credit analysts Fundamental analysts Systems analysts Technical analysts SpecialistsFundamental analystsHistorically, P/E ratios have tended to be higher when inflation has been high. lower when inflation has been high. uncorrelated with inflation rates but correlated with other macroeconomic variables. uncorrelated with any macroeconomic variables, including inflation rates.lower when inflation has been high.Salted Chips Company is expected to have EPS in the coming year of $2.50. The expected ROE is 12.5%. An appropriate required return on the stock is 11%. If the firm has a plowback ratio of 70%, the growth rate of dividends should be 5.00%. 6.25%. 6.60%. 7.50%. 8.75%.8.75% 12.5% × 0.7 = 8.75%.Suppose that the average P/E multiple in the oil industry is 20. Non-Standard Oil Corp is expected to have an EPS of $3.00 in the coming year. The intrinsic value of Non-Standard Oil Corp stock should be $28.12. $35.55. $60.00. $72.00. None of the options are correct.$60.00 20 × $3.00 = $60.00.A firm has a lower asset turnover ratio than the industry average, which implies the firm has a lower P/E ratio than other firms in the industry. the firm is less likely to avoid insolvency in the short run than other firms in the industry. the firm is less profitable than other firms in the industry. the firm is utilizing assets less efficiently than other firms in the industry. the firm has lower spending on new fixed assets than other firms in the industry.the firm is utilizing assets less efficiently than other firms in the industry.A firm has a higher asset turnover ratio than the industry average, which implies the firm has a higher P/E ratio than other firms in the industry. the firm is more likely to avoid insolvency in the short run than other firms in the industry. the firm is more profitable than other firms in the industry. the firm is utilizing assets more efficiently than other firms in the industry. the firm has higher spending on new fixed assets than other firms in the industry.the firm is utilizing assets more efficiently than other firms in the industry.__________ is a report of the cash flow generated by the firm's operations, investments, and financial activities. The balance sheet The income statement The statement of cash flows The auditor's statement of financial condition None of the options are correct.The statement of cash flowsCommon size income statements make it easier to compare firms that use different inventory valuation methods (FIFO vs. LIFO). in different industries. with different degrees of leverage. of different sizes.of different sizes.What type of firm is most easily valued using fundamental analysis? public utility social media company new start-up company company in financial distresspublic utilityFundamental analysis uses earnings and dividends prospects. relative strength. price momentum. earnings, dividend prospects, and relative strength. earnings, dividend prospects, and price momentum.earnings and dividends prospects.Proceeds from a company's sale of stock to the public are included in par value. additional paid-in capital. retained earnings. par value and additional paid-in capital. All of the options are correct.par value and additional paid-in capital.Current Ratio equalstotal current assets divided by total current liabilitiesA firm has a lower quick (or acid test) ratio than the industry average, which implies the firm has a lower P/E ratio than other firms in the industry. the firm is less likely to avoid insolvency in the short run than other firms in the industry. the firm may be more profitable than other firms in the industry. the firm has a lower P/E ratio than other firms in the industry, and the firm is less likely to avoid insolvency in the short run than other firms in the industry. the firm is less likely to avoid insolvency in the short run than other firms in the industry, and the firm may be more profitable than other firms in the industry.the firm is less likely to avoid insolvency in the short run than other firms in the industry, and the firm may be more profitable than other firms in the industry.Common size financial statements make it easier to compare firms of different sizes. in different industries. with different degrees of leverage. that use different inventory valuation methods (FIFO vs. LIFO).of different sizes.Suppose two portfolios have the same average return and the same standard deviation of returns, but Buckeye Fund has a lower beta than Wild Cat Fund. According to the Sharpe measure, the performance of Buckeye Fund is better than the performance of Wild Cat Fund. is the same as the performance of Wild Cat Fund. is poorer than the performance of Wild Cat Fund. cannot be measured as there are no data on the alpha of the portfolio.is the same as the performance of Wild Cat Fund.What assumption about risk-adjusted techniques for measuring performance poses a potential problem? Mean reversion Portfolio risk is constant over time Returns are normally distributed Lognormal outcome of prices None of the options are correct.Portfolio risk is constant over timeBad investment decisions can be made in a category of funds due to poor performing funds not being considered. This is called ___________, trend analysis. fundamental analysis. portfolio bias. survivorship bias. None of the options are correct.survivorship bias.Suppose two portfolios have the same average return and the same standard deviation of returns, but portfolio A has a higher beta than portfolio B. According to the Sharpe measure, the performance of portfolio A is better than the performance of portfolio B. is the same as the performance of portfolio B. is poorer than the performance of portfolio B. cannot be measured as there are no data on the alpha of the portfolio. None of the options are correct.is the same as the performance of portfolio B.Most professionally managed equity funds generally outperform the S&P 500 Index on both raw and risk-adjusted return measures. underperform the S&P 500 Index on both raw and risk-adjusted return measures. outperform the S&P 500 Index on raw return measures and underperform the S&P 500 Index on risk-adjusted return measures. underperform the S&P 500 Index on raw return measures and outperform the S&P 500 Index on risk-adjusted return measures. match the performance of the S&P 500 Index on both raw and risk-adjusted return measures.underperform the S&P 500 Index on both raw and risk-adjusted return measures.__________ developed a popular method for risk-adjusted performance evaluation of mutual funds. Eugene Fama Michael Jensen William Sharpe Jack Treynor Michael Jensen, William Sharpe, and Jack TreynorMichael Jensen, William Sharpe, and Jack TreynorThe geometric average rate of return is based on the market's volatility. the concept of expected return. the standard deviation of returns. the CAPM. the principle of compounding.the principle of compounding.Suppose two portfolios have the same average return and the same standard deviation of returns, but portfolio A has a higher beta than portfolio B. According to the Treynor measure, the performance of portfolio A is better than the performance of portfolio B. is the same as the performance of portfolio B. is poorer than the performance of portfolio B. cannot be measured as there are no data on the alpha of the portfolio. None of the options are correct.is poorer than the performance of portfolio B.Investing in a mutual fund because of positive historical performance is a form of ___________, trend analysis. fundamental analysis. portfolio bias. selection bias. None of the options are correct.selection bias.In measuring the comparative performance of different fund managers, the preferred method of calculating rate of return is internal rate of return. arithmetic average. dollar weighted. time weighted. None of the options are correct.time weighted.