Archive for July 2017

Which of the following accounting practices are potentially misleading or even fraudulent? I. writing off goodwill as an extraordinary loss II. using accrual rather than cash basis reporting III. off-balance sheet liabilities IV. recognizing revenues prematurely

Which of the following accounting practices are potentially misleading or even fraudulent?
I. writing off goodwill as an extraordinary loss
II. using accrual rather than cash basis reporting
III. off-balance sheet liabilities
IV. recognizing revenues prematurely




A) I and II only
B) I, II and IV only
C) III and IV only
D) I, III and IV only



Answer: D

Which of the following would be typical of a Statement of Cash Flows for a healthy firm in a sustainable business?

Which of the following would be typical of a Statement of Cash Flows for a healthy firm in a sustainable business?



A) Cash flow from operations is negative, cash flows from investment activities and financing activities are positive.
B) Cash flow from operations , investment activities and financing activities must all be positive.
C) Cash flow from operations is positive, cash flows from investment activities and financing activities are negative.
D) If the Statement shows a net increase in cash, the source is unimportant.




Answer: C

Cash flow from operations

Cash flow from operations




A) represents the amount of cash generated by the company.
B) is the least important section of the Statement of Cash Flows.
C) is the amount of cash acquired from the borrowing activities of the firm.
D) represents the cash flows from the purchase and sale of long-term assets.





Answer: A

Which one of the following statements concerning accounting reports is correct?

Which one of the following statements concerning accounting reports is correct?




A) The income statement reflects the position of a firm as of a single point in time.
B) The total equity of a firm is equal to the total assets plus the total liabilities.
C) The statement of cash flows identifies both the sources and the uses of cash.
D) The income statement reflects the amount of cash available for investment and financing activities.



Answer: C

Which of the following accounting practices are potentially misleading or even fraudulent? I. writing off goodwill as an extraordinary loss II. using accrual rather than cash basis reporting III. off-balance sheet liabilities IV. recognizing revenues prematurely

Which of the following accounting practices are potentially misleading or even fraudulent?
I. writing off goodwill as an extraordinary loss
II. using accrual rather than cash basis reporting
III. off-balance sheet liabilities
IV. recognizing revenues prematurely


A) I and II only
B) I, II and IV only
C) III and IV only
D) I, III and IV only




Answer: D

Which of the following are considered in the company analysis phase of a fundamental analysis of a firm? I. the composition and growth in sales II. the capital structure of the firm III. the outlook of the national economy IV. the composition and liquidity of the company's assets

Which of the following are considered in the company analysis phase of a fundamental analysis of a firm?
I. the composition and growth in sales
II. the capital structure of the firm
III. the outlook of the national economy
IV. the composition and liquidity of the company's assets


A) I and II only
B) I, II and IV only
C) II and IV only
D) I, II, III and IV




Answer: B

The stage in an industry's growth cycle in which product acceptance is spreading, investors can foresee the industry's future, and overall economic variables have little to do with the industry's overall performance, is known as the

The stage in an industry's growth cycle in which product acceptance is spreading, investors can foresee the industry's future, and overall economic variables have little to do with the industry's overall performance, is known as the



A) initial development stage.
B) rapid expansion stage.
C) mature growth stage.
D) stability or decline stage.



Answer: B

The rapid expansion phase of an industry is characterized by

The rapid expansion phase of an industry is characterized by





A) extreme sensitivity to interest rates and other economic factors.
B) high returns and relatively low risks.
C) willingness of investors to buy almost any stock associated with the industry.
D) many decades of sustained above average growth.




Answer: C

Which of the following factors are considered when analyzing an industry? I. the nature and conditions of governmental regulations II. the involvement and relations, if any, with labor unions III. the development of new technologies relevant to the industry IV. the extent of competition within the industry

Which of the following factors are considered when analyzing an industry?
I. the nature and conditions of governmental regulations
II. the involvement and relations, if any, with labor unions
III. the development of new technologies relevant to the industry
IV. the extent of competition within the industry


A) I, II and IV only
B) II, III and IV only
C) I, II and III only
D) I, II, III and IV




Answer: D

Investors who conduct industry analyses typically favor companies with strong market positions over companies with less secure market positions because firms with strong market positions tend to I. be price leaders. II. benefit more from economies of scale. III. have better R&D programs. IV. have lower production costs.

Investors who conduct industry analyses typically favor companies with strong market positions over companies with less secure market positions because firms with strong market positions tend to
I. be price leaders.
II. benefit more from economies of scale.
III. have better R&D programs.
IV. have lower production costs.



A) II and IV only.
B) I, II and IV only.
C) I, II and III only
D) I, II, III and IV



Answer: D

Which one of the following statements is correct?

Which one of the following statements is correct?



A) Stock prices are independent of the economic cycle.
B) Stock prices change simultaneously with the economy.
C) Stock prices are often used to predict changes in the economy.
D) Changes in stock prices generally lag changes in the economy.




Answer: C

Which of the following tend to increase security market prices? I. an increase in industrial production II. an increase in corporate profits III. an increase in the federal deficit when the economy is strong IV. an increase in interest rates

Which of the following tend to increase security market prices?
I. an increase in industrial production
II. an increase in corporate profits
III. an increase in the federal deficit when the economy is strong
IV. an increase in interest rates



A) I and II only
B) II and III only
C) I, II and III only
D) I, II, III and IV




Answer: A

Which of the following tend to signal that stock prices are likely to rise in the future? I. Employment increases after several months of recession. II. Interest rates are low compared to the recent past. III. Major market indexes have just reached record highs. IV. Housing starts increase after several months of decline.

Which of the following tend to signal that stock prices are likely to rise in the future?
I. Employment increases after several months of recession.
II. Interest rates are low compared to the recent past.
III. Major market indexes have just reached record highs.
IV. Housing starts increase after several months of decline.



A) I and II only
B) II and III only
C) I, II and IV only
D) I, II, III and IV





Answer: C

The government has an expansionary economic policy when it

The government has an expansionary economic policy when it



A) increases taxes.
B) increases government spending.
C) promotes rising interest rates.
D) limits exports of goods and services.





Answer: B

Rising interest rates tend to

Rising interest rates tend to 



A) contract the level of economic activity.
B) increase the level of business investment.
C) indicate governmental expansion of the economy.
D) signal the trough of a recessionary market.




Answer: A

The Federal Reserve through monetary policy can help expand the economy by

The Federal Reserve through monetary policy can help expand the economy by



A) lowering income taxes on individuals.
B) reducing tariffs such that foreign exports can increase.
C) supporting a moderate growth of the money supply.
D) increasing government spending on the national infrastructure.




Answer: C

Investment analysts who believe that a thorough investigation of a company's financial condition, product development, management and other intrinsic factors can discover stocks that are priced above or below their intrinsic value are advocates of

Investment analysts who believe that a thorough investigation of a company's financial condition, product development, management and other intrinsic factors can discover stocks that are priced above or below their intrinsic value are advocates of 



A) fundamental analysis.
B) behavioral analysis.
C) the efficient market hypothesis.
D) technical analysis.




Answer: A

Fundamental analysis involves the in-depth study of the

Fundamental analysis involves the in-depth study of the



A) role of nondiversifiable risk in an investor's portfolio.
B) financial condition and operating results of a given firm.
C) pattern of security prices as revealed in chart formations.
D) role of diversifiable risk in an investor's portfolio.



Answer: B

Top-down security analysis begins with

Top-down security analysis begins with




A) an analysis of a company's top management.
B) determining an investment's risk and an appropriate discount rate.
C) an analysis of broad economic factors affecting the financial markets.
D) identifying specific industries that are likely to grow faster than the overall economy.




Answer: C

Top-down security analysis

Top-down security analysis



A) starts with the fundamental analysis of a firm.
B) includes economic, industry, and fundamental analysis.
C) concentrates on the competency of the senior management of a firm.
D) centers on the past performance of a firm.



Answer: B

The security analysis process should help investors to I. purchase investments that are priced at or above their intrinsic value. II. sell investments that are priced at or above their intrinsic value. III. purchase investments that are priced at or below their intrinsic value. IV. identify investments appropriate for their goals.

The security analysis process should help investors to
I. purchase investments that are priced at or above their intrinsic value.
II. sell investments that are priced at or above their intrinsic value.
III. purchase investments that are priced at or below their intrinsic value.
IV. identify investments appropriate for their goals.



A) I and IV only
B) II and III only
C) I, II and III only
D) II, III and IV only





Answer: D

The three steps in determining a stock's intrinsic value are I. estimating the stock's future cash flows. II. estimating the risk associated with future cash flows. III. careful analysis of patterns in the stock's recent price history. IV. estimating an appropriate discount rate to apply to future cash flows

The three steps in determining a stock's intrinsic value are
I. estimating the stock's future cash flows.
II. estimating the risk associated with future cash flows.
III. careful analysis of patterns in the stock's recent price history.
IV. estimating an appropriate discount rate to apply to future cash flows



A) III and IV only
B) I, II and IV only
C) I, III and IV only




Answer: B

The intrinsic value of a security is based on the I. amount of risk. II. current market value of the security. III. discount rate applicable to the security. IV. estimated future cash flows from the security.

The intrinsic value of a security is based on the
I. amount of risk.
II. current market value of the security.
III. discount rate applicable to the security.
IV. estimated future cash flows from the security.



A) I and III only
B) III and IV only
C) I, II and III only
D) I, III and IV only




Answer: D

One of the basic premises of security analysis, and in particular fundamental analysis, is that

One of the basic premises of security analysis, and in particular fundamental analysis, is that





A) a stock's price is based on its past cash flows rather than on anticipated future cash flows.
B) market sectors do not move in concert with business cycles.
C) all securities have an intrinsic value that their market value will approach over time.
D) a security's risk has relatively little effect on the security's return.




Answer: C
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