Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point. The company usually ships inventory to customers approximately one week after receiving the order. For orders received late in December, Kathy Dobbs, the owner, decides when to ship the goods. If profits are already at an acceptable level, Dobbs delays shipment until January. If profits for the current year are lagging behind expectations, Dobbs ships the goods during December. 1. Under Dobbs’ FOB policy, when should the company record a sale? 2. Do you approve or disapprove of Dobbs’ manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods. (There is no accounting rule against Dobbs’ practice.)

Match each vocabulary term to its definition.

1. eustress a. The effect of positive events, or the optimal amount of stress that people need to promote health and well-being.
2. catastrophe b. The daily annoyances of everyday life.
3. problem-focused coping c. Actions meant to harm or destroy.
4. escape or withdrawal d. The psychological experience produced by urgent demands or expectations for a person's behavior that come from an outside source.
5. aggressione. An unpredictable, large-scale event that creates a tremendous need to adapt and adjust as well as overwhelming feelings of threat.
6. displaced aggression f. Taking out one's frustrations on some less threatening or more available target.
7. hassles g. Leaving the presence of a stressor.
8. general adaptation syndrome h. Coping strategies that try to eliminate the source of a stress or reduce its impact through direct actions.
9. emotion-focused coping i. Coping strategies that change the impact of a stressor by changing the emotional reaction to the stressor.
10. pressure j. The three stages of the body's physiological reaction to stress, including alarm, resistance, and exhaustion.

Match each vocabulary term to its definition.

1. eustress a. The effect of positive events, or the optimal amount of stress that people need to promote health and well-being.
2. catastrophe b. The daily annoyances of everyday life.
3. problem-focused coping c. Actions meant to harm or destroy.
4. escape or withdrawal d. The psychological experience produced by urgent demands or expectations for a person's behavior that come from an outside source.
5. aggressione. An unpredictable, large-scale event that creates a tremendous need to adapt and adjust as well as overwhelming feelings of threat.
6. displaced aggression f. Taking out one's frustrations on some less threatening or more available target.
7. hassles g. Leaving the presence of a stressor.
8. general adaptation syndrome h. Coping strategies that try to eliminate the source of a stress or reduce its impact through direct actions.
9. emotion-focused coping i. Coping strategies that change the impact of a stressor by changing the emotional reaction to the stressor.
10. pressure j. The three stages of the body's physiological reaction to stress, including alarm, resistance, and exhaustion.

From a sample of 209 firms, Wooldridge obtained the following regression results: ${ }^*$

$$\begin{aligned} &\log (\widehat{\text { salary }})=4.32+0.280 \log (\text { sales })+0.0174 \text { roe }+0.00024 \text { ros } \\ &\text { se }=(0.32) \quad(0.035) \quad(0.0041) \quad(0.00054) \\ &R^2=0.283 \\ & \end{aligned}$$

where salary = salary of CEO sales $=$ annual firm sales roe $=$ return on equity in percent ros $=$ return on firm's stock and where figures in the parentheses are the estimated standard errors

$a$. Interpret the preceding regression taking into account any prior expectations that you may have about the signs of the various coefficients.

b. Which of the coefficients are individually statistically significant at the 5 percent level?

c. What is the overall significance of the regression? Which test do you use? And why?

d. Can you interpret the coefficients of roe and ros as elasticity coefficients? Why or why not?

The following multiple-choice problems are based on questions that appeared in past CFA examinations.

a. A bond with a call feature:

(1) Is attractive because the immediate receipt of principal plus premium produces a high return.

(2) Is more apt to be called when interest rates are high because the interest saving will be greater.

(3) Will usually have a higher yield to maturity than a similar noncallable bond.

(4) None of the above.

b. In which one of the following cases is the bond selling at a discount?

(1) Coupon rate is greater than current yield, which is greater than yield to maturity.

(2) Coupon rate, current yield, and yield to maturity are all the same.

(3) Coupon rate is less than current yield, which is less than yleld to maturity.

(4) Coupon rate is less than current yield, which is greater than yield to maturity.

c. Consider a five-year bond with a 10 % coupon selling at a yield to maturity of 8 %. If interest rates remain constant, one year from now the price of this bond will be:

(1) Higher

(2) Lower

(3) The same

(4) Par

d. Which of the following statements is true?

(1) The expectations hypothesis indicates a flat yield curve if anticipated future short-term rates exceed current short-term rates.

(2) The basic conclusion of the expectations hypothesis is that the long-term rate is equal to the anticipated short-term rate.

(3) The liquidity hypothesis indicates that, all other things being equal, longer maturities will have higher yields.

(4) The liquidity preference theory states that a rising yield curve necessarily implies that the market anticipates increases in interest rates.

In response to the Great Recession, Federal Reserve leaders continue to keep the short-run target interest rate near zero. While the Fed controls short-term interest rates, long-term interest rates essentially depend on supply and demand dynamics, as well as longer-term interest rate expectations. For the $2001-2010$ period, the accompanying table shows a portion of data for the annualized rates for the $10-y e a r$ Treasury yield (in %) and the 3 -month Treasury yield (in %).

$$\begin{array}{|c|c|c|} \hline \text { Year } & \text { 10-Year Yield } & \text { 3-Month Yield } \\ \hline 2001 & 5.02 & 3.47 \\ \hline 2002 & 4.61 & 1.63 \\ \hline \vdots & \vdots & \vdots \\ \hline 2010 & 3.21 & 0.14 \\ \hline \end{array}$$

b. Calculate and interpret the sample correlation coefficient. Use $\alpha=0.05$ to test if the population correlation coefficient is different from zero.

Troopers Medical Labs, Inc., began operations 5 years ago producing stetrics, a new type of instrument it hoped to sell to doctors, dentists, and hospitals. The demand for stetrics far exceeded initial expectations, and the company was unable to produce enough stetrics to meet demand.

The company was manufacturing its product on equipment that it built at the start of its operations. To meet demand, more efficient equipment was needed. The company decided to design and build the equipment, because the equipment currently available on the market was unsuitable for producing stetrics.

In 2017, a section of the plant was devoted to development of the new equipment and a special staff was hired. Within 6 months, a machine developed at a cost of $714,000 increased production dramatically and reduced labor costs substantially. Elated by the success of the new machine, the company built three more machines of the same type at a cost of$441,000 each.

Instructions

• a. In general, what costs should be capitalized for self-constructed equipment?
• b. Discuss the propriety of including in the capitalized cost of self-constructed assets: (1) The increase in overhead caused by the self-construction of fixed assets. (2) A proportionate share of overhead on the same basis as that applied to goods manufactured for sale.
• c. Discuss the proper accounting treatment of the $273,000 ($714,000 − $441,000) by which the cost of the first machine exceeded the cost of the subsequent machines. This additional cost should not be considered research and development costs.

Results of a 2013 Adobe Systems study on retail apps and buying habits reveals insights on perceptions and attitudes toward mobile shopping using retail apps and browsers, providing new direction for retailers to develop their digital publishing strategies. Increased consumer interest in using shopping applications means retailers must adapt to meet the rising expectations for specialized mobile shopping experiences. The results indicate that tablet users (55 percent) are almost twice as likely as smartphone users (28 percent) to use their device to purchase products and services. The findings also reveal that retail and catalog apps are rapidly catching up to mobile browsers as a viable shopping channel: Nearly half of all mobile shoppers are interested in using apps instead of a mobile browser (45 percent of tablet shoppers and 49 percent of smartphone shoppers). The research is based on an online survey with a sample of 1,003 18–54 year olds who currently own a smartphone and/or tablet; it includes consumers who use and do not use these devices to shop.

a. Describe the population of interest.

b. Describe the sample that was collected.

c. Describe a parameter of interest.

d. Describe the statistic used to estimate the parameter in (c).

Consider a collection $A_1, ... , A_k$ of mutually exclusive and exhaustive events, and a random variable X whose distribution depends on which of the $A_i’s$ occurs (e.g., a commuter might select one of three possible routes from home to work, with X representing the commute time). Let $E\left(X | A_{i}\right)$ denote the expected value of X given that the event $A_i$ occurs. Then it can be shown that $E(X) = \Sigma E\left(X | A_{i}\right) \cdot P\left(A_{i}\right)$, the weighted average of the individual “conditional expectations” where the weights are the probabilities of the partitioning events. a. The expected duration of a voice call to a particular telephone number is 3 minutes, whereas the expected duration of a data call to that same number is 1 minute. If 75% of all calls are voice calls, what is the expected duration of the next call? b. A deli sells three different types of chocolate chip cookies. The number of chocolate chips in a type i cookie has a Poisson distribution with parameter $\mu_{i}=i+1 \ (i=1,2,3)$. If 20% of all customers purchasing a chocolate chip cookie select the first type, 50% choose the second type, and the remaining 30% opt for the third type, what is the expected number of chips in a cookie purchased by the next customer?

[Comparing actual inflation and expected inflation] Go to the Web site of the Federal Reserve Bank of St. Louis (FRED) (fred.stlouisfed.org) and download monthly data on the inflation rate expected by consumers as measured by the University of Michigan’s survey (MICH) for 1978 to the present. Next, download the monthly inflation rate measured using the consumer price index, or CPI (CPIAUCSL), for the same period. (You can find the inflation rate by clicking on “Units” and selecting “Percent Change from Year Ago.”) Plot both series on the same graph. During which periods did consumers do a good job of forecasting the inflation rate? During which periods did they do a poor job? Do consumers’ expectations of the inflation rate tend to be more volatile or less volatile than the actual inflation rate?

A new head of the Federal Reserve: In a hypothetical economy, let's say the Fed chairman announces suddenly that he will step down after a year. The president makes her choice to succeed the departing Fed head at the same time. Participants in the financial markets anticipate that Congress will ratify the candidate. They also think the nominee's future monetary policy will be more contractionary. In other words, market players anticipate a future decrease in the money supply. Instead, imagine that the nominee's identity is a surprise and that participants in the financial market had anticipated the nominee to be someone who supported a more contractionary policy than the actual nominee. What is anticipated to occur to the yield curve on the day of the announcement given these circumstances? (Hint: Use caution. Is the actual nominee anticipated to have a more restrictive or more liberal stance in comparison to expectations?)

Consider the following regression results." (The actual data are in Table 9.8.)

$$\begin{aligned} \widehat{\mathrm{UN}}_t &=2.7491+\underset{1.1507 D_t-}{1.5294 V_t-} \begin{array}{c} 0.8511\left(D_t V_t\right) \end{array} \\ t &=(26.896) \quad(3.6288) \quad(-12.5552) \quad \begin{array}{l} (-1.9819) \\ R^2=0.9128 \end{array} \end{aligned}$$

where $\mathrm{UN}=$ unemployment rate, $\%$

$V=$ job vacancy rate, $\%$

$D=1$, for period beginning in 1966-IV

$=0$, for period before 1966-IV

$t=$ time, measured in quarters

a. What are your prior expectations about the relationship between the unemployment and vacancy rates?

b. Holding the job vacancy rate constant, what is the average unemployment rate in the period beginning in the fourth quarter of 1966? Is it statistically different from the period before 1966 fourth quarter? How do you know?

c. Are the slopes in the pre- and post- 1966 fourth quarter statistically different? How do you know?

$d$. Is it safe to conclude from this study that generous unemployment benefits lead to higher unemployment rates? Does this make economic sense?

Match each vocabulary term to its definition.

1. eustress a. The effect of positive events, or the optimal amount of stress that people need to promote health and well-being.
2. catastrophe b. The daily annoyances of everyday life.
3. problem-focused coping c. Actions meant to harm or destroy.
4. escape or withdrawal d. The psychological experience produced by urgent demands or expectations for a person's behavior that come from an outside source.
5. Aggression e. An unpredictable, large-scale event that creates a tremendous need to adapt and adjust as well as overwhelming feelings of threat.
6. displaced aggression f. Taking out one's frustrations on some less threatening or more available target.
7. hassles g. Leaving the presence of a stressor.
8. general adaptation syndrome h. Coping strategies that try to eliminate the source of a stress or reduce its impact through direct actions.
9. emotion-focused coping i. Coping strategies that change the impact of a stressor by changing the emotional reaction to the stressor.
10. pressure j. The three stages of the body's physiological reaction to stress, including alarm, resistance, and exhaustion.

Hicks Company purchased merchandise from Beyer Company with freight terms of FOB shipping point. The freight costs will be paid by the ______________.

A. seller.

B. buyer.

C. transportation company.

D. buyer and the seller.