Fundament

alsofI
nves
ting,13e(
Smar
t)

Chapt
er6 CommonSt
ocks

6.
1 Lear
ningGoal1

1)Everyshar
ehol
derisapar
towneroft
hef
irm and,ass
uch,hasadi
rec
tcl
aim ona
port
ionofthefi
rm’sas
set
s.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

2)Ther
eisastr
ongertendenc
yfort
hes
toc
kmar
kett
oinc
reas
einv
aluer
athert
han
decr
easei
nval
ueovert
ime.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

3)Sinc
e1960,ret
urnsont
heDowJ
onesI
ndus
tri
alAv
eragehav
enev
erbeennegat
ive
for3cons
ecuti
veyear
s.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1
4)Formos tstoc
ks,t
her
etur
nsf
rom di
vi
dendi
ncomef
arex
ceedst
her
etur
nfr
om
capi
talgai
ns.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

5)Bet
ween1930and2014,t
heav
erager
etur
nons
toc
ksex
ceeded10%.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal1

6)Bet
ween1956and2011,appr
oxi
mat
ely30% ofy
ear
shadpos
iti
ver
etur
ns.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

7)I
nspi
teofmajorlos
s esi
n2008,bytheendof2014stoc
kpr
ices
,asmeas
uredbyt
he
S&P500index
,werehigherthant
hei
rpeaklev
elsof2007.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion
Lear
ningGoal
:Lear
ningGoal1

8)Bec
ausecommons hareholder
sareenti
tl
edtothepr
ofitsthatremai
naft
eral
lofa
cor
porat
ion’
sot
herobli
gationshavebeenmet,c
ommons harehol
dersar
eknownas

A)r
esi
dualowner
s.

B)t
empor
aryowner
s.

C)debtowner
s.

D)owner
sofl
astr
esor
t.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

9)I
fst
ocksear
nanav
erager
ateofr
etur
nof12%,t
hei
rval
uedoubl
esev
ery

A)4y
ear
s.

B)6y
ear
s.

C)8y
ear
s.

D)12y
ear
s.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

10)Whi
choneoft
hef
oll
owi
ngs
tat
ement
saboutc
ommons
toc
kist
rue?

A)Commons
toc
kcanpr
ovi
deat
trac
tiv
ecapi
tal
appr
eci
ati
onoppor
tuni
ti
es.

B)Di
vi
dendsgener
all
ypr
ovi
det
hegr
eat
estr
ateofr
etur
nonc
ommons
toc
ks.

C)Commons
toc
ksgener
all
yhav
eanegat
iver
ateofr
etur
nov
erat
en-
yearper
iod.
D)TheDJ
IAi
sthebes
tindi
cat
oroft
heov
eral
lper
for
manc
eofc
ommons
toc
ks.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

11)Whi
choft
hef
oll
owi
ngar
ebenef
itsr
elat
edt
ost
ockowner
shi
p?

eas
eoft
radi
ng

at
trac
tiv
einf
lat
ion-
adj
ust
edr
atesofr
etur
n

I
II
.guar
ant
eeofl
ong-
ter
m pos
iti
ver
etur
ns

af
for
dabi
l
ity

A)IandI
Ionl
y

B)I
IandI
Vonl
y

C)IandI
IIonl
y

D)I
,IIandI
Vonl
y

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

6.
2 Lear
ningGoal2

1)Amar
ketc
orr
ect
ioni
sdef
inedasas
toc
kmar
ketdec
li
neof10% ormor
e.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)
Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

2)Whil
emanys tocksi
ncr
eas
einv
alueov
ert
hel
ongr
un,mos
toft
her
etur
nons
toc
ks
comesfrom di
vi
dends.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

3)I
tisnotunus
ualf
orbearmar
ket
stooc
curt
woormor
eti
mesi
nanygi
ven10y
ear
per
iod.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

4)Ov
ert
hel
ongt
erm,t
hec
api
talgai
nonmos
tst
ockswi
llex
ceedt
hedi
vi
dendi
ncome.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

5)Althoughbearmarket
sonav er
ageoc
curev
ery3t
o4y
ear
s,t
het
imi
ngofbear
marketsisv
eryhar
dtopredi
ct.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem
AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

6)Forstoc
ksintheS&P500i
ndex
,ret
urnsf
rom di
vi
dendsex
ceededc
api
talgai
nsov
er
theper
iod2000-
2009.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal2

7)Theperiodfr
om l
ate2007t
hrought
heendof2014i
sbes
tdes
cri
bedasapr
olonged
bearmarket.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal2

8)Fort
heperiod2000t
hrough2009,t
heav
erageannualpr
icec
hangef
ors
toc
ksi
nthe
S&P500indexwas

A)16%.

B)8%.

C)-
1%.

D)-
50%.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)
Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal2

9)Therat
eofret
urnfrom di
vi
dendshasbeenmuc
hhi
gheri
nrec
entdec
adest
hani
t
wasint
he1930sand40s.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal2

10)$10,
000inv
estedi
nt heS&P500i
nMar
ch2009woul
dhav
egr
ownt
omor
ethan
$20,
000bytheendof2014.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal2

11)Whenr es
identi
alr
ealest
ateval
uesfel
lsharpl
yfr
om 2006t
o2009,t
hes
toc
ksof
fi
nanc
iali
nsti
tuti
onswerehar
dlyi
mpactedatall
.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal2

12)St
ocksgener
all
yhav
epr
oduc
edpos
iti
vei
nfl
ati
on-
adj
ust
edr
atesofr
etur
nov
ert
he
l
ong-ter
m.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem
AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

13)Ani
ndi
vi
dual
stoc
kgener
all
ypr
ovi
desa

A)di
vi
dendpay
mentt
hatens
urest
otalpr
otec
tionf
rom pur
chas
ingpowerr
isk.

B)r
efugef
rom ev
entr
isk.

C)curr
enti
ncomet
hati
sles
spr
edi
ctabl
ethant
hatav
ail
abl
efr
om ot
hert
ypesof
i
nvest
ments
.

D)pr
edi
ctabl
eannualr
ateofr
etur
n.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

14)Fr
om Oc
tober2007t
oMar
ch2009,s
toc
kpr
icesasmeas
uredbyt
heS&P500I
ndex

A)near
lydoubl
edi
nval
ue.

B)l
ostmor
ethanhal
fthei
rval
ue.

C)dec
li
nedbynear
ly10%.

D)r
osebynear
ly25%.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

15)Fr
om Mar
ch2009t
oJanuar
y2012,s
toc
kpr
icesasmeas
uredbyt
heS&P500I
ndex

A)mor
ethandoubl
edi
nval
ue.
B)l
ostmor
ethanhal
fthei
rval
ue.

C)dec
li
nedbynear
ly10%.

D)r
osebynear
ly25%.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

16)Which oft
he f
oll
owi
ng per
iods pr
ovi
ded par
tic
ular
ly hi
gh r
etur
ns t
ost
ock
i
nves
tor
s?

A)Febr
uar
y1972-
Oct
ober1974

B)Mar
ch2009-
Dec
ember2014

C)Sept
ember2000-
Sept
ember2002

D)Oc
tober2007-
Mar
ch2009

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal2

17)From 1976thr
ough2014,thedi
vi
dendy
iel
dons
toc
kshasbeen_
___
___
_the
couponyi
eldonc
orporat
ebonds
.

A)s
omet
imeshi
gherands
omet
imesl
owert
han

B)onav
erage,aboutt
hes
ameas

C)c
ons
ist
ent
lyl
owert
han

D)c
ons
ist
ent
lyhi
ghert
han

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem
AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal2

18)Theex
traor
dinar
yrunupi
nst
ockpr
icesdur
ingt
hel
ate1990spr
imar
il
yaf
fec
ted

A)ener
gys
toc
ks.

B)r
etai
lst
ocks
.

C)phar
mac
eut
icals
toc
ks.

D)t
echnol
ogys
toc
ks.

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

19)Manyc
ompani
esi
ncr
eas
edt
hei
rdi
vi
dends

A)whenev
ernec
ess
aryt
ocompens
ates
har
ehol
der
sfordec
li
nings
toc
kval
ues
.

B)i
nev
eryy
ears
inc
e1950.

C)dur
ingt
hemar
ketdec
li
neof2007-
2008.

D)dur
ingt
hemar
ketr
ecov
eryof2009-
2011.

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal2

20)Whi
chofthef
oll
owi
ngar
etr
ueabouts
toc
kmar
ketr
etur
nsasmeas
uredbyt
he
S&P500i
ndex
?

I
n2008al
ones
toc
ksi
nthei
ndexl
ostappr
oxi
mat
ely36% oft
hei
rval
ue.
$10,
000inv
ested i
nthei ndexi
n Mar
ch 2009woul
d hav
ebeen wor
th mor
ethan
$20,
000bytheendof2014.

I
II
.From t
hebegi
nni
ngof2000t
otheendof2010,t
hei
ndexmor
ethandoubl
edi
n
v
alue.

Bothstoc
kandrealest
atepr
icesr
ecov
eredr
ecov
ereds
trongl
yint
heper
iodbet
ween
ear
ly2009andl
ate2014.

A)II
IandI
IIonl
y

B)I
I,I
IIandI
Vonl
y

C)I,
IIandI
Vonl
y

D)I
,andI
Vonl
y

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal1

21)Descr
ibethebearmar
ketof2008t
hroughear
ly2009andt
het
rendofs
toc
kpr
ices
i
ns ubs
equentyear
s.

Ans wer :Dur i

ngt heper iod2008t hroughear ly2009,s t
oc kss uff
ereds omeoft heir
steepes tdec li
nesi ns tockmar kethi s
tor y.From Oc tober2007t oMar chof2009,U. S.
stocksl os thalft heirv alueandt heS&P500i ndexdec li
nedby36% i n2008al one.
Similardec li
neswer eex per i
enc edi nallthewor l
d’smaj ormar kets.St ockssuchasGE,
thathadi ncreas eddividendsf ory ears,hadt ocuttheirdividends .Howev erduri
ngt he
2009- 2011per iods tocksmor et handoubl edinv al
ueandmanyc orporati
onsrestored
allorpar toft heirdi v
idendpay ment s.Thebul lmar ketcont i
nuedt hrough2014wi th
onlyaf ew br i
efc orr
ec tions.( Thes ummerof2015,howev erdi ds eesubstantial
decli
nesi nt hemaj orindex es.)Hi storical
ly
,s tocksar equi ter i
skyandper i
odically
subjectt olargedec li
nes ,butpat iencei srewardedbyhi gherratesofr eturnthanwhat
i
sav ailablefrom l essvolat i
leinvest ments.

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Rev
ised
Lear
ningGoal
:Lear
ningGoal2

6.
3 Lear
ningGoal3

1)Sharesofpubli
cl
ytr
adeds
toc
kcanbei
ssuedei
thert
hroughapubl
icof
fer
ingora
ri
ghtsoffer
ing.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

2)Compani
est
ypi
cal
lyi
ssuenews
har
est
hroughani
nit
ialpubl
icof
fer
ing(
IPO)
.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

3)Shareholder
smus tei
therex
erc
iset
hei
rri
ght
sgr
ant
edv
iaar
ight
sof
fer
ingorl
et
them expi
reunused.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

4)Cor
porati
onsof
tenspl
itt
hei
rstoc
kswhent
heybel
iev
ethatt
hepr
icemakest
hem
l
essat
tract
ivet
oaver
agei
nvest
ors
.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem
AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

5)Thetotalv
alueofani
nves
tor
’shol
dingsi
nac
ompanywi
lli
ncr
eas
easadi
rec
tres
ult
ofastockspl
it.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

6)St
ockhel
dint
reas
uryi
sameansofi
ncr
eas
ingt
henumberofs
har
esout
standi
ng.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal3

7)Fir
mstendt orepur
chas
eshar
esoft
hei
rout
standi
ngs
toc
kwhent
heyv
iew t
he
shar
esasunder
val
ued.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

8)Di
ffer
entc
las
sesofs
toc
kgener
all
yhav
eei
therdi
ffer
entv
oti
ngr
ight
sordi
ffer
ent
di
vi
dends.

Ans
wer
:TRUE
Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

9)El
ect
roni
ctr
adi
ngs
yst
emshav
einc
reas
edt
rans
act
ionc
ost
sofodd-
lott
rades
.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal3

10)Si
nceeac
hs har
eofcommons t
ockr
epr
esent
sowner
shi
pinac
ompany
,shar
esof
commonstockareoft
enr
efer
redt
oas

A)i
ll
iqui
dinv
est
ment
s.

B)equi
tys
ecur
iti
es.

C)f
ixed-
inc
omes
ecur
iti
es.

D)uni
t-c
osts
ecur
iti
es.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

11)Whi
choneoft
hef
oll
owi
ngs
tat
ement
saboutc
ommons
toc
kisc
orr
ect
?

A)Eac
hshar
eofs
toc
khasas
pec
ifi
edmat
uri
tydat
e.

B)Commons t
ockgi
vesstockhol
der
sfi
rstt
itl
etoas
har
eoft
hec
ompany
’sear
nings
,
pr
iort
oothercor
por
ateobli
gati
ons.

C)Commons
toc
kty
pic
all
ypr
ovi
deshi
gherl
evel
sofc
urr
enti
ncomet
handos
imi
lar
gr
adec
orpor
atebonds
.

D)Eachshar
eofc ommons t
ockofagivenc l
assenti
tl
est
hehol
dert
oanequal
owner
shi
pposit
ionandanequalv
otei
nthecor
porat
ion.

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

12)St
ocksthatarereadi
lyav
ail
abl
etot
hegener
alpubl
icandt
hatar
eboughtands
old
ontheopenmar ketar
eknownas

A)i
nit
ialpubl
icof
fer
ings
.

B)publ
ic
lyt
radedi
ssues
.

C)t
reas
urys
toc
ks.

D)bl
uec
hips
toc
ks.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

13)Whenacompanyoff
erst
heinv
est
ingpubl
icac er
tai
nnumberofs
har
esofi
tss
toc
k
atacer
tai
npri
ce,t
hecompanyi
smakingwhatisknownasa

A)publ
icof
fer
ing.

B)r
ight
sof
fer
ing.

C)s
toc
kspi
n-of
f.

D)t
reas
uryof
fer
ing.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem
AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal3

14)I
nar
ight
sof
fer
ing,t
he

A)exi
sti
ngstockhol
dersaregi
venthef
irs
toppor
tuni
tyt
opur
chas
enew s
har
esi
n
pr
oporti
ont
ot hei
rcurr
entowner
shi
ppos
iti
on.

B)under
wri
terof
fer
sthei
nves
tingpubl
icac
ert
ainnumberofs
har
esatac
ert
ainpr
ice.

C)totalequi
tyremai
nsc
ons
tantwhi
let
he numberofs
har
esofc
ommon s
toc
k
out
standi
ngincr
eas
es.

D)amountofdebti
nthec
api
tals
truc
tur
einc
reas
esbyt
heamountoft
her
ight
s
of
fer
ing.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

15)Rob owns 300 shar

es ofBl
ackwood common stoc
kv al
ued at$9 a shar
e.
Blackwoodhasdec
lar
eda3-for
-1st
ockspl
iteffec
tiv
etomorr
ow.Aft
erthespl
it
,Rob
willown

A)100s
har
esv
aluedatabout$27as
har
e.

B)100s
har
esv
aluedatabout$3as
har
e.

C)900s
har
esv
aluedatabout$27as
har
e.

D)900s
har
esv
aluedatabout$3as
har
e.

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on
Lear
ningGoal
:Lear
ningGoal3

16)Engi
nes,I
nc.dec
lar
esa4-
for
-10stoc
kspli
t.Thest
ockcur
rentl
ysell
sfor$3as
har
e.
Asharehol
derwhoowned1000shar
esofst
ockpr i
ort
othespl
itwil
lnowown

A)400s
har
esv
aluedatabout$7.
50as
har
e.

B)40s
har
esv
aluedatabout$1.
20as
har
e.

C)250s
har
esv
aluedatabout$7.
50as
har
e.

D)250s
har
esv
aluedatabout$1.
20as
har
e.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

17)Whenac
orpor
ati
ondec
lar
esas
toc
kspl
it
,itus
ual
lydoess
obec
aus
e

A)t
hef
irm’
sret
ainedear
ningsar
eex
ces
siv
e.

B)t
her
ear
etoomanys
har
esofs
toc
kout
standi
ng.

C)i
nves
tor
ssomet
imesr
equi
renont
axabl
eret
urns
.

D)i
twant
stomakei
tss
toc
kmor
eaf
for
dabl
etoav
eragei
nves
tor
s.

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

18)St
ock whi
ch has been i
ssued and s
ubs
equent
lyr
eac
qui
red by t
he i
ssui
ng
cor
por
ati
onisc
all
ed

A)l
ett
ers
toc
k.

B)t
reas
urys
toc
k.

C)c
las
sif
ieds
toc
k.
D)books
toc
k.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

19)Ti
ffanyowned1000s har
esofGIAstockwhi
chwass el
li
ngf or$1.
50pers har
e
whenthecompanydecl
areda1for10r
evers
espl
it
.Af
tert
hes pl
it
,Tiff
anyowned

A)10,
000s
har
eswor
thappr
oxi
mat
ely$1.
50pers
har
e.

B)10,
000s
har
eswor
thappr
oxi
mat
ely$0.
15pers
har
e.

C)100s
har
eswor
thappr
oxi
mat
ely$15pers
har
e.

D)100s
har
eswor
thappr
oxi
mat
ely$1.
50pers
har
e.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

20)Whi
choft
hef
oll
owi
ngi
sunl
ikel
ytobef
oundi
nani
nter
nets
toc
kquot
ati
on?

A)ear
ningpers
har
e(EPS)

B)bet
a

C)pr
evi
ousday
’sc
los
ingpr
ice

D)br
oker
’sc
ommi
ssi
onper100s
har
es

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion
Lear
ningGoal
:Lear
ningGoal3

21)Whatar
etheef
fec
tsofac
ompanyr
epur
chas
ingi
tsowns
toc
kasTr
eas
urys
har
es?

A)us
ual
lynegat
ivei
nthes
hor
tter
m butunc
ert
ainov
ert
hel
ongt
erm

B)us
ual
lypos
iti
vei
nthes
hor
tter
m butunc
ert
ainov
ert
hel
ongt
erm

C)us
ual
lypos
iti
vei
nbot
hthes
hor
tter
m andt
hel
ongt
erm

D)noef
fec
tinei
thert
hes
hor
tter
m ort
hel
ongt
erm

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

22)Onemot
ivef
ori
ssui
ngc
las
sif
ieds
toc
kwi
thdi
ffer
entv
oti
ngr
ight
sist
o

A)i
ncr
eas
ethemar
ketv
alueoft
hec
ompany
.

B)av
oidSECr
epor
tingr
equi
rement
s.

C)al
lowt
hec
ompany
’sf
ounder
stor
etai
ncont
roloft
hec
ompany
.

D)f
aci
li
tat
ethei
ssueofaddi
ti
onal
shar
esi
nthef
utur
e.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

23)St
ockquot
esonmos
tInt
ernets
erv
icepr
ovi
der
ssuc
hasYahooFi
nanc
einc
lude

t
hehi
ghes
tandl
owes
tpr
iceov
ert
hel
ast52weeks
.

t
hec
los
ingpr
icef
ort
hepr
evi
oust
radi
ngday
.

I
II
.theopeni
ngpr
icef
ort
heday
.

t
hebi
dpr
iceandas
kpr
ice.
A)IandI
IIonl
y

B)I
IandI
Vonl
y

C)I
,IIandI
IIonl
y

D)I
I,I
IIandI
Vonl
y

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal3

24)Ar
oundl
otc
ons
ist
sof

A)1s
har
e.

B)10s
har
es.

C)100s
har
es.

D)1,
000s
har
es.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

25)AssumethePl um Corpor
ati
onhastwodiff
erenti
ssuesofcommons toc
k.One
i
ssuecarri
esvot
ingri
ghts,andtheot
heri
ssuedoesnot
.Inthi
ssi
tuat
ion,Pl
um i
ssai
d
tohav
ei s
sued

A)buy
-bac
kst
ock.

B)t
reas
urys
toc
k.

C)OTCs
toc
k.

D)c
las
sif
ieds
toc
k.

Ans
wer
:D
Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

26)Whydos
omec
ompani
ess
pli
tthei
rst
ock?

Answer:As t
oc ks
pli
treducest
henumberofsharesoutst
andingwhiledec
reasi
ngt
he
pri
cepershare.Fi
rmsoftendecl
arespl
it
swhentheirst
ockist r
adi
ngatapr i
cewhi
ch
theyc
onsi
dert obetoohightoatt
rac
tthety
pesofinvest
orstheyseek.

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

6.
4 Lear
ningGoal4

1)As
toc
k’smar
ketv
aluewoul
dnor
mal
lybehi
ghert
hani
t’
sbookv
alue.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

2)As
toc
k’sbookv
alueandparv
aluear
enor
mal
lyt
hes
ameornear
lyt
hes
ame.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal4
3)A s t
ockc an haveonl
yonemar
ketv
alue,butdi
ffer
enti
nves
tmentv
aluesf
or
di
ffer
entinv
es t
ors.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

4)As
toc
k’si
nves
tmentv
aluec
anbemuc
hhi
ghert
hani
tsbookv
alue.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

5)Theinv
estmentval
ueforapubl
ic
lytr
adedst
ockc
anr
eadi
lybef
oundi
nthef
inanc
ial
sect
ionofthenews
paperorontheInt
ernet
.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

6)I
fafir
m hasa2mil
li
onsharesouts
tandi
nganditss
toc
ktr
adesat$25pers
har
e,t
he
companyhasamar
ketcapi
tal
izat
ionof$50,
000,
000.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on
Lear
ningGoal
:Lear
ningGoal4

7)Anot
hert
ermf
ort
hes
tat
edv
alueorf
acev
alueofas
toc
kisi
ts

A)bookv
alue.

B)l
iqui
dat
ionv
alue.

C)parv
alue.

D)pr
oxyv
alue.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

8)Theparors
tat
edv
alueofc
ommons
toc
kisi
mpor
tantf
or

A)ac
count
ingpur
pos
esonl
y.

B)hel
pingt
hei
nves
tordet
ermi
net
hes
toc
k’si
ntr
ins
icv
alue.

C)hel
pingt
heboar
dofdi
rec
tor
sdet
ermi
net
hedi
vi
dendpay
out
.

D)hel
pingt
hemar
ketdet
ermi
net
het
radi
ngpr
iceoft
hes
toc
k.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

9)Thebal
ancesheetv
alueofaf
irm’
sas
set
smi
nust
hebal
anc
esheetamountofi
ts
l
iabi
li
ti
esi
sknownas

A)parv
alue.

B)bookv
alue.

C)l
iqui
dat
ionv
alue.
D)mar
ketv
alue.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal4

10)I
fafi
rm hasa2mi ll
ionsharesout
standi
ngandi
tsst
ockt
radesat$25pers
har
e,
thec
ompanyalsohas$10,000,
000indebt.Thec
ompany
’smar
ketcapi
tal
iz
ati
oni
s

A)$40,
000,
000.

B)$49,
000,
000.

C)$50,
000,
000.

D)$60,
000,
000.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

11)Westl
akeIndus
trieshastot
alass
etsof$42.5mil
li
on,totaldebtof$29.
3mil
li
on,
and$2.4mill
ionof6% pr efer
redstockouts
tandi
ng.Ifthec ompanyhas250,
000
shar
esofcommons tockouts
tandi
ng,it
sbookval
uepersharewouldbe

A)$32.
33.

B)$33.
60.

C)$43.
20.

D)$52.
80.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on
Lear
ningGoal
:Lear
ningGoal4

12)Asagener
alr
ule,whic
honeofthef
oll
owi
ngs
tat
ement
sconc
erni
ngt
hev
ari
ous
val
uesofc
ommons t
ockiscor
rec
t?

A)Mar
ketv
aluesar
eus
ual
lybel
owbookv
alues
.

B)Parv
aluesar
eus
ual
lyabov
ebookv
alues
.

C)Mar
ketv
aluesar
eus
ual
lybel
owparv
alues
.

D)Bookv
aluesar
eus
ual
lybel
owmar
ketv
alues
.

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

13)Whi
choft
hef
oll
owi
ngwi
llt
endt
oinc
reas
etr
ans
act
ionc
ost
s?

A)us
ingaf
ulls
erv
icebr
oker

B)buy
ingors
ell
ings
har
est
hroughanon-
li
nebr
oker

C)buy
ingors
ell
ingmor
ethan1000s
har
esi
nas
ingl
etr
ade

D)buy
ingors
ell
ingatt
imeswhenv
olumei
shi
ghandt
heex
changesar
ebus
y

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal4

14)TheChar br
idgeInc.has4mill
ionsharesofst
ockouts
tandi
ng.Thes toc
khasapar
val
ueof$1. 00pershareandiscur
r ent
lytr
adi
ngat$36pershare.Nic
oleesti
mat
esthe
i
nv es
tmentv al
ueoft hisstoc
kat$38. 50.Accor
dingt
ot hi
sinformati
on,themar
ket
capit
ali
zat
ionofCharbridgeis

A)$144,
000,
000.
B)$154,
000,
000.

C)$4,
000,
000.

D)$72mi
ll
ion.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal4

15)Youar
egi
vent
hef
oll
owi
ngi
nfor
mat
iononac
ompany
.

Whi
choneoft
hef
oll
owi
ngs
tat
ement
sisc
orr
ectbas
edont
hei
nfor
mat
ionpr
ovi
ded?

A)Themar
ketpr
icei
s$21.
34pers
har
e.

B)Thei
nves
tmentv
aluei
s$2.
67pers
har
e.

C)Theparv
aluei
s$2.
67pers
har
e.

D)Thebookv
aluei
s$21.
34pers
har
e.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

16)Thev
aluet
hati
nves
tor
spl
aceonas
toc
kisc
all
edi
ts

A)bookv
alue.

B)i
nves
tmentv
alue.

C)l
iqui
dat
ionv
alue.

D)parv
alue.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appl
ic
ati
onofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntopr
act
ice)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

17)Whati
sther
elat
ions
hipbet
weenas
toc
k’smar
ketv
alueandi
tsi
nves
tmentv
alue?

Answer:As t
ock’smar ketvalueisitsactualpr ic
eatanygi ventime;it
si nvest
ment
val
ueiswhatan i nvestorthinkst hes tocki swor t
h. I ftheinvest
ort hi
nkst he
i
nvest
mentv alueishigherthant hemarketv al
ue,sheshouldbuythestock.Howev er
,
themarketisvalueisaki ndofc onsensuses ti
mat eofalli
nvest
orswhoar ewi l
li
ngt o
buyorsellatthecurrentprice,soitisunlikelythatastock’
sinves
tmentv aluewillbe
ver
yfaraboveorbelowi tsmar ketval
ue.

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

6.
5 Lear
ningGoal5

1)Ac
ompany
’sboar
dofdi
rec
tor
smus
tdec
lar
eadi
vi
dendi
fthef
irmi
spr
ofi
tabl
e.

Ans
wer
:FALSE

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

2)Shar
eholderswhos el
lthei
rstockonoraftertheex-
div
idenddat
e,butbef
oret
he
dat
eofrecord,wil
lst
il
lrecei
vethedecl
areddi
vidend.

Ans
wer
:TRUE

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5
3)Hi
ghdi
vi
dendy
iel
dsar
ety
pic
alofr
api
dlygr
owi
ngc
ompani
es.

Ans
wer
:FALSE

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

4)Di
vi
dendpay
ment
sar
eus
ual
lymor
est
abl
ethanc
api
talgai
ns.

Ans
wer
:TRUE

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal5

5)St
ockdi
vi
dendsdonoti
ncr
eas
ethev
alueofas
har
ehol
der
’spos
iti
on.

Ans
wer
:TRUE

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

6)Stockdi
videndsand st
ockspli
tsbot
hinc
reas
ethenumberofs
har
esbutadd
not
hingtot
hev al
ueofthecompany.

Ans
wer
:TRUE

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5
7)Cas
hdi
vi
dendsar
etax
edatt
hes
amer
ateasor
dinar
yinc
ome.

Ans
wer
:FALSE

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal5

8)Thes
tockli
sti
ngforacompanyshowsaP/Eof18,adivi
dendyiel
dof2.
4% anda
cl
osi
ngpri
ceof$23.
76.Whati
stheamountofdi
vi
dendspers
hare?

A)$0.
03

B)$0.
57

C)$1.
03

D)$1.
32

Ans
wer
:B

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

9)Thedec
isi
onofhowmuc
hmoneyt
opayouti
ndi
vi
dendsi
smadebyt
he

A)boar
dofdi
rec
tor
s.

B)c
ompanys
har
ehol
der
s.

C)c
hiefex
ecut
iveof
fic
er.

D)c
hieff
inanc
ialof
fic
er.

Ans
wer
:A

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on
Lear
ningGoal
:Lear
ningGoal5

10)Fac
tor
scons
ider
edi
nmaki
ngadec
isi
ononaf
irm’
sdi
vi
dendi
ncl
udet
he

c
ashpos
iti
onoft
hef
irm.

f
irm’
sgr
owt
hpr
ospec
ts.

I
II
.theex
pec
tat
ionsoft
hes
har
ehol
der
s.

mi
nimum di
vi
dendsr
equi
redbyl
aw.

A)I
IandI
Vonl
y

B)I
,IIandI
Vonl
y

C)I
,IIandI
IIonl
y

D)I
,II
,II
IandI
V

Ans
wer
:C

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

11)Thedateonwhi
chaninv
estormustbear
egi
ster
eds
har
ehol
deroft
hef
irmi
n
ordert
orec
eiv
eadi
vi
dendi
scall
edthe

A)dat
eofr
ecor
d.

B)ex
-di
vi
denddat
e.

C)pay
mentdat
e.

D)pur
chas
edat
e.

Ans
wer
:A

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5
12)TheLimbergerCor
por
ati
ondec
laredaquart
erl
ydividendof$0.10pershare.Theex
-di
videnddat
ewasJ ul
y15,t
hedateofrecor
dwasJ uly18,andthepay mentdat ewas
Jul
y28.Ifyouhadowned100sharesoftheLimbergerCorporat
ionands ol
dt hem on
Jul
y15,then

A)youwoul
dcol
lec
t$10.
00i
ndi
vi
dends
,andt
hepur
chas
erwoul
dnotc
oll
ectany
di
vi
dends
.

B)thepurchas
erwoul
dcol
lec
t$10.
00i
ndi
vi
dends
,andy
ouwoul
dnotc
oll
ectany
di
vi
dends.

C)youwoul
dcol
lec
t$5.
00i
ndi
vi
dends
,andt
hepur
chas
erwoul
dcol
lec
t$5.
00i
n
di
vi
dends
.

D)nei
thery
ounort
hepur
chas
erwoul
dcol
lec
tanymoneyi
ndi
vi
dends
.

Ans
wer
:A

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

13)Thecommons har
esoftheHibouxLt
dhaveabookval
ueof$21.
60andamarket
val
ueof$28. 60.Thec ompanypays$0.
28indiv
idendseac
hquart
er.Whati
st he
div
idendyi
eld?

A)1.
0%

B)1.
3%

C)3.
9%

D)5.
2%

Ans
wer
:C

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal5

14)Si
nce2003,mos
tdi
vi
dendsar
etax
ed

A)atahi
gherr
atet
hanc
api
talgai
ns.
B)atal
owerr
atet
hanc
api
talgai
ns.

C)att
hes
amer
ateasor
dinar
yinc
ome.

D)att
hes
amer
ateasc
api
talgai
ns.

Ans
wer
:D

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

15)Sinc
e2003,di
vi
dendshav
ebeent
axedatt
hes
amer
ateasc
api
talgai
ns.Asa
res
ult
,

A)manyc
ompani
eshav
ereduc
edt
heper
cent
ageofear
ningspai
doutasdi
vi
dends
.

B)manyc
ompani
eshav
einc
reas
edt
heper
cent
ageofear
ningspai
doutasdi
vi
dends
.

C)t
axr
ateshav
ehadl
it
tleornoef
fec
tondi
vi
dendpol
ic
ies
.

D)mor
ecompani
eshav
erepl
aceddi
vi
dendswi
ths
toc
krepur
chas
epl
ans
.

Ans
wer
:B

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal5

16)Di
vi
dendy
iel
disc
alc
ulat
edbydi
vi
ding

A)t
hemar
ketpr
iceofones
har
eofs
toc
kbyt
heannualdi
vi
dendpers
har
e.

B)t
heannualdi
vi
dendpers
har
ebyt
hemar
ketpr
iceofones
har
eofs
toc
k.

C)ear
ningspers
har
ebymar
ketpr
icepers
har
e.

D)annualdi
vi
dendpers
har
ebyear
ningspers
har
e.

Ans
wer
:B

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies
AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

17)I
fac
orpor
ati
ondec
lar
esa10% s
toc
kdi
vi
dend,t
hen

A)t
hes
har
epr
iceoft
hes
toc
kwi
l
lmos
tli
kel
ydec
li
nebyabout9%.

B)t
hes
har
epr
iceoft
hes
toc
kwi
llmos
tli
kel
yinc
reas
ebyabout10%.

C)t
hes
har
epr
iceoft
hes
toc
kwi
llmos
tli
kel
yremai
nunc
hanged.

D)eac
hs har
ehol
derwi
llgeta10% c
ashr
ebat
eof
fhi
sorhernex
troundl
otpur
chas
e
oft
hes t
ock.

Ans
wer
:A

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

18)Gy psum Corp.pay

sout25% ofi tsear
ningsasdi
vi
dends
.Earni
ngspersharear
e
curr
ent l
y$1.32,bookv al
uepers har
eis$16.80,andthemarketpri
cepersharei
s
$22.44.Whatisthedivi
dendyi
eld?

A)1.
5%

B)2.
0%

C)5.
9%

D)7.
9%

Ans
wer
:A

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

19)Pi
lgr
im Cor
p.stoc
kc urr
entlysel
lsf
or$25pershar
e?Theannualdi
vi
dendpayment
i
s$1.00pershareandearningspersharear
e$3.
00.Thedi
videndyi
eldi
s____
___
_and
t
hedi
vi
dendpay
outr
ati
ois_
___
___
_.

A)12%;.
4%

B)8.
33%;25%

C)4%;33%

D)33%;4%.

Ans
wer
:C

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

20)Pilgr
im Cor
p.s t
ockc ur
rent
lys
ell
sfor$25. Thedivi
dendyi
eldis4% andthe
di
videndpayoutrat
iois25%.Thedivi
dendi
s____
____andtheear
ningspers
har
eare
___
_ _
___.

A)$3.
00;$1.
00

B)$1.
00;$4.
00

C)$.
12;$1.
00

D)$.
25;$6.
25

Ans
wer
:B

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

21)Tot
akeadvant
ageoftheopport
uni
tyt
oac qui
readdi
ti
onalshar
esofac ompany
’s
stoc
kwi
thouti
ncurr
inganybr
oker
agecommis
sions,manyi
nvest
orspar
tic
ipatei
n

A)i
nit
ialpubl
icof
fer
ings
.

B)di
vi
dendr
einv
est
mentpl
ans
.

C)def
err
edequi
tys
ecur
iti
es.

D)c
orpor
atet
rus
ts.
Ans
wer
:B

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

22)Rei
nves
teddi
vi
dends

A)ar
etax
edwhent
hes
har
espur
chas
edwi
tht
her
einv
est
eddi
vi
dendar
esol
d.

B)ar
etax
edatt
het
imet
hedi
vi
dendi
spai
d.

C)donoti
ncr
eas
ethev
alueofani
nves
tor
shol
dings
.

D)ar
egener
all
ysol
datapr
emi
um ov
ert
hemar
ketpr
ice.

Ans
wer
:B

Lear
ningOut
come:F-
22Compar
eandc
ont
ras
tdi
ffer
entt
ypesofpay
outpol
ic
ies

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

6.
6 Lear
ningGoal6

1)St
ockswhi
chper
for
m wel
linaf
alt
eri
ngec
onomyar
ecal
leddef
ens
ives
toc
ks.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

2)Mid-
cap s
tocksar
e gener
all
ycl
ass
ifi
ed ast
hos
e wi
th a mar
ketc
api
tal
iz
ati
on
bet
ween$2and$10bi
ll
ion.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem
AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal6

3)“
Babybl
ues
”isat
erm us
edt
oref
ert
otel
ecom s
toc
ks.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

4)As
toc
kcanbebot
hat
echs
toc
kandabl
uec
hips
toc
katt
hes
amet
ime.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

5)So-
cal
ledi
ncomes
toc
kspayf
ixeddi
vi
dendss
imi
lart
oint
eres
tonbonds
.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

6)Ameri
canDepos
itaryRecei
pts(ADRs)areiss
uedagai
nsts
har
esofU.
S.c
orpor
ati
ons
andar
etradedonf
or ei
gnsecuri
tyexchanges
.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem
AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

7)Americ
anDeposit
aryRecei
pts(ADRs)aredenomi
natedi
nU. S.doll
arsandtr
adedon
U.S.s
ecuri
tyex
changes.butt
racktheperf
ormanceofafor
eignc or
porati
on.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal6

8)Overtheper
iod1900t
o2014,U.
S.s
toc
kshadt
hehi
ghes
trat
eofr
etur
nofany
count
ry.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal6

9)Therat
eofr
etur
nonaf
orei
gni
nves
tmenti
saf
fec
tedbyc
hangesi
ntheex
change
rat
es.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

10)Anincr
easeintheval
ueofthedoll
arrelat
ivet
ot heyenhasapos
iti
veef
fec
tont
he
ret
urnsofU.S.i
nvest
orswhoinves
tinstocksofJapanes
ef i
rms.
Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

11)Anincreasei
nthedoll
arr
elat
ivetotheeur
ohasanegat
iveef
fec
tont
her
etur
nsof
U.S.i
nves
tor swhoi
nves
tinEuropeanfi
rms.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

12)Themostc ommonr easonforaninves

tortoadoptthequal
it
ylong-
ter
m gr
owt
h
i
nvestments
trategyi
sforlong-
term ac
cumulat
ionofcapi
tal
.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

13)Thet
otal
-ret
urnappr
oac
hconc
ent
rat
ess
olel
yonc
api
talgai
nsov
ert
hel
ongt
erm.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6
14)Whi
choneoft
hef
oll
owi
ngi
sac
har
act
eri
sti
cofbl
uec
hips
toc
ks?

A)guar
ant
eedmi
nimum annual
div
idendof$2as
har
e

B)annualdi
vi
dendsofmor
ethan$5pers
har
e

C)l
ongands
tabl
edi
vi
dendandear
ningsr
ecor
ds

D)r
elat
ivel
yhi
ghr
iskex
pos
ure

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

15)I
nves
tor
sseeki
ngc
urr
enti
ncomet
hatt
endst
oinc
reas
eov
ert
imes
houl
dpur
chas
e

A)c
orpor
atebonds
.

B)i
ncomes
toc
ks.

C)gr
owt
hst
ocks
.

D)s
pec
ulat
ives
toc
ks.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

16)Compani
eswi
ths
trongear
ningsbutl
imi
tedgr
owt
hoppor
tuni
ti
es

A)donotgener
all
ypayanydi
vi
dends
.

B)ar
ecal
ledbl
ue-
chi
pst
ocks
.

C)gener
all
ypayhi
ghdi
vi
dends
.

D)ar
espec
ulat
ives
toc
ks.

Ans
wer
:C
Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

17)Charac
ter
ist
icsofes
tabl
is
hed gr
owt
hcompani
esi
ncl
udeal
loft
hef
oll
owi
ng
EXCEPT

A)hi
ghoper
ati
ngmar
gins
.

B)s
teadyear
ningsgr
owt
h.

C)adequat
ecas
hfl
owt
oser
vic
ethei
rdebt
.

D)hi
ghdi
vi
dendpay
outr
ati
os.

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

18)Stoc
kswhos e pri
cesare ex
pect
ed toremai
nst
abl
e,orev
en pr
osper
,when
economi
cac
tiv
ityi
ss l
owingdownareknownas

A)def
ens
ives
toc
ks.

B)c
ycl
ic
als
toc
ks.

C)gr
owt
hst
ocks
.

D)s
pec
ulat
ives
toc
ks.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6
19)Whi
choft
hef
oll
owi
ngar
ety
pic
alc
har
act
eri
sti
csofs
mal
lcaps
toc
ks?

s
trongbal
anc
esheet
s

mar
ketc
apl
esst
han$2bi
ll
ion

I
II
.pot
ent
ialf
orhi
ghr
etur
nsal
ongwi
thhi
ghr
isk

pot
ent
ial
lydr
amat
icc
hangesi
nthei
rear
nings

A)I
IIandI
Vonl
y

B)I
IandI
IIonl
y

C)I
,II
IandI
Vonl
y

D)I
I,I
IIandI
Vonl
y

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal6

20)Whi
choft
hef
oll
owi
ngar
echar
act
eri
sti
csofbl
ue-
chi
pst
ocks
?

s
oli
dbal
anc
esheet
s

gener
ousdi
vi
dendy
iel
ds

I
II
. i
mmuni
tyf
rom bearmar
ket
s

s
omegr
owt
hpot
ent
ial

A)I
IIandI
Vonl
y

B)I
IandI
IIonl
y

C)I
,IIandI
Vonl
y

D)I
I,I
IIandI
Vonl
y

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)
Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

21)St
ocksr
elat
edt
ocomput
ersandt
heI
nter
netar
ecl
ass
ifi
edas

A)bl
ue-
chi
pst
ocks
.

B)i
ncomes
toc
ks.

C)c
ycl
ic
als
toc
ks.

D)t
echs
toc
ks.

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

22)Ty
pic
alc
har
act
eri
sti
csofgr
owt
hst
ocksi
ncl
ude

A)r
api
dlygr
owi
ngdi
vi
dends
.

B)hi
ghr
atesofgr
owt
hinoper
ati
onsandear
nings
.

C)ac
qui
si
ti
onsofc
ompet
ingc
ompani
es.

D)s
trongper
for
manc
eev
eni
nmar
ketdownt
urns
.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

23)Whi
choft
hef
oll
owi
ngbes
tfi
tst
hedes
cri
pti
on“
spec
ulat
ives
toc
k”?

A)Si
ri
usXMRadi
o

B)Fac
ebook

C)Amaz
on
D)Appl
e

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal6

24)Whi
choft
hef
oll
owi
ngbes
tfi
tst
hedes
cri
pti
on“
def
ens
ives
toc
k”?

A)Fac
ebook

B)Wal
mar
t

C)Sams
ung

D)Tes
laMot
ors

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal6

25)Whi
choft
hef
oll
owi
ngbes
tfi
tst
hedes
cri
pti
on“
bluec
hips
toc
k”?

A)Fac
ebook

B)UnderAr
mour

C)Gener
alEl
ect
ric

D)Chi
pot
leMex
icanGr
il
l

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on
Lear
ningGoal
:Lear
ningGoal6

26)Onec
har
act
eri
sti
cofmi
d-c
aps
toc
ksi
sthatt
hey

A)ar
egener
all
ynewf
irmswi
thhi
ghgr
owt
hpot
ent
ial
.

B)t
endt
obehi
ghl
yvol
ati
le.

C)ar
efai
rl
ygood-
siz
edc
ompani
est
hatof
ferat
trac
tiv
eret
urnoppor
tuni
ti
es.

D)ar
etr
adedpr
imar
il
ythr
oughpi
nks
heetbi
ds.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

27)Whi
chc
ategor
yofs
toc
ksr
epr
esent
sthehi
ghes
tlev
elofr
isk?

A)l
arge-
cap

B)mi
d-c
ap

C)babybl
ue

D)s
mal
l-
cap

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

28)TheU.
S.s
toc
kmar
ket

A)c
urr
ent
lyr
epr
esent
sabout66% oft
hewor
ld’
sequi
tymar
ket
.

B)c
ons
ist
ent
lyout
per
for
mst
hef
orei
gnmar
ket
sonc
eex
changer
atesar
econs
ider
ed.

C)i
sdec
reas
ingasaper
cent
ageoft
hewor
ld’
sequi
tymar
ket
.

D)l
is
tsov
er25,
000s
toc
ks.
Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

29)Advantagesofus
ing Amer
ican Depos
itar
yRec
eipt
sto par
tic
ipat
einf
orei
gn
market
sinc
lude

l
owert
rans
act
ionc
ost
sthanf
ordi
rec
tfor
eigns
toc
kpur
chas
es.

r
educ
edex
pos
uret
ofor
eignex
changer
isk.

I
II
. di
vi
dendsar
epai
dinU.
S.dol
lar
s.

quot
ati
onsar
ereadi
lyav
ail
abl
efr
om U.
S.s
our
cess
uchasYahooFi
nanc
eorMSN
Money.

A)IandI
Ionl
y

B)IandI
IIonl
y

C)I
,IIandI
IIonl
y

D)I
,II
IandI
Vonl
y.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal6

30)ADRs

ar
eshar
esofU.
S.c
ompani
est
radedonf
orei
gnex
changes
.

ar
eshar
esoff
orei
gnc
ompani
est
radedonU.
S.ex
changes
.

I
II
.paydi
vi
dendsi
nU.
S.dol
lar
sift
heypaydi
vi
dends
.

ar
esubj
ectt
oex
changer
ater
isk.

A)IandI
Ionl
y
B)I
IandI
IIonl
y

C)I
I.I
IIandI
Vonl
y

D)I
,II
,II
IandI
V

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

31)Amandapur chasedstockinaGermanf irm atapr

icepershareof35euroswhen
theU.S.$/eur
oex changeratewas$1.20.Aftersi
xmonths,Anns ol
dthest
ockfor37
euroswhen theU. S.$/euro exc
hanger at
ewas$1. 10.Thes tockdoesnotpaya
div
idend.WhatisAnn’srateofret
urnont hi
sinvest
ment?

A)3.
31%

B)-
3.10%

C)5.
7%

D)9.
2%

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal6

32)Aggr
ess
ives
toc
kmanagement

A)r
equi
reshol
dings
pec
ulat
ives
toc
ksf
ort
hel
ongt
erm.

B)i
nvol
vesac
tiv
est
ockt
radi
ngi
nthes
hor
t-t
ermi
ntheques
tforc
api
talgai
ns.

C)c
onc
ent
rat
esont
hel
ong-
ter
m gr
owt
has
pec
tsofas
ecur
ity
.

D)c
onc
ent
rat
esonhi
ghdi
vi
dendy
iel
dings
toc
ks.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem
AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

33)Whi
choft
hef
oll
owi
ngar
eadv
ant
agesoft
hebuyandhol
dst
rat
egy
?

r
api
dac
cumul
ati
onofweal
th

l
owt
rans
act
ionc
ost
s

I
II
.capi
talgai
nst
axedatt
hel
ong-
ter
mrat
e

por
tfol
ior
equi
resl
esst
imeandener
gyt
omanaget
hanf
ormos
tot
hers
trat
egi
es

A)IandI
Ionl
y

B)I
IandI
IIonl
y

C)I
I,I
IIandI
Vonl
y

D)I
,II
,II
IandI
V

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

34)Whi
choneofthefol
lowinginves
tmentst
rat
egi
eswoul
dNOTappealt
oani
nves
tor
whoismos
tconcernedwit
hs t
orageofval
ue?

A)buy
-and-
hol
d

B)hi
ghi
ncome

C)qual
it
ylong-
ter
m gr
owt
h

D)s
pec
ulat
ionands
hor
t-t
ermt
radi
ng

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)
Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

35)Thecommons tocki
nves
tmentstrat
egyt hatisthemostbasi
cs t
rat
egyandis
popularwithconserv
ati
ve,qual
it
y-c
onscious indi
vi
dual
slooki
ng forcompeti
ti
ve
ret
urnsovert
helongruni
sthe

A)buy
-and-
hol
dst
rat
egy
.

B)c
urr
enti
ncomes
trat
egy
.

C)gr
owt
hst
rat
egy
.

D)s
pec
ulat
ionands
hor
t-t
ermt
radi
ngs
trat
egy
.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

36)Aggr
ess
ives
toc
kmanagementf
ocus
esont
hepur
sui
tof

A)di
vi
dendi
ncome.

B)s
hor
t-t
ermc
api
tal
gai
ns.

C)l
ong-
ter
mcapi
tal
gai
ns.

D)al
loft
heabov
e.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

37)Whi
chofthef
oll
owingstr
ategi
esappealt
oinves
tor
swhopl
acepr
imar
yemphas
is
onthes
tor
ageofval
ueaspec
tsofaninvest
ment?

buyandhol
d
s
hor
t-t
ermt
radi
ng

I
II
.qual
it
ylong-
ter
m gr
owt
h

c
ons
ist
entdi
vi
dendr
ecor
d

A)IandI
Vonl
y

B)IandI
IIonl
y

C)I
,IIandI
IIonl
y

D)I
,II
IandI
Vonl
y

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

38)Whic
hs tr
ategyappli
est
oinves
tor
swhof undlong-
ter
m goal
swi
thhi
gh-
qual
it
y
stoc
kswhic
ht heyr
etai
nfort
heenti
rei
nves
tmentperi
od?

A)qual
it
ylong-
ter
m gr
owt
h

B)buyandhol
d

C)s
pec
ulat
ion

D)c
urr
enti
ncome

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

39)I
ncomes
toc
ksar
ewel
lsui
tedf
orr
eti
reesbec
aus
e

A)di
vi
dendi
ncomei
stax
-fr
ee.

B)t
hec
api
talgai
nsar
epr
edi
ctabl
e.
C)di
vi
dendy
iel
dst
endt
oex
ceedbondy
iel
ds.

D)di
vi
dendst
endt
oinc
reas
eov
ert
ime.

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

40)Ex
plai
nwhyev
erys
toc
kpor
tfol
ios
houl
dinc
ludes
omedef
ens
ives
toc
ks.

Ans wer:Stocksgeneral
lymov
eindi rec
tc orr
elationt
ot heoveral
leconomy .Defensi
ve
stocksaret heexcepti
onastheyt endtor emai nrel
ati
velys
tableorev eni nc
reasein
valuewhent heeconomymov esintoar ecession.Thus,def
ens i
vestocksof f
ergood
downs i
de pr ot
ecti
on in afalt
ering economy and al s
o provide the benefit
s of
divers
ifi
cat
ion.

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB: 8Appli
cat
ionofknowl
edge(
Abl
etot
rans
lat
eknowl
edgeofbus
ines
sand
managementi
ntoprac
tic
e)

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

Fundament
alsofI
nves
ting,13e(
Smar
t)

Chapt
er7 Anal
yzi
ngCommonSt
ocks

7.
1 Lear
ningGoal1

1)Thetopdownappr oac
htos ec
uri
tyanaly
sisst
art
swi
tht
opmanagementandt
hen
exami
nesproduc
tionandmarketi
ngstr
ategi
es.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal1

2)Companyanal
ysi
sisonl
yconc
ernedwi
thhowac
ompanyhasper
for
medi
nthepas
t.
Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal1

3)Adv
ocatesoft he ef
fic
ientmarkethypothes
iswoul
d ar
gue t
hati
tisv
irt
ual
ly
i
mposs
ibl
ef oranyi
nvest
ortocons
istent
lyout
perf
ormthemar
ket
.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

4)Ec
onomi
canaly
sisi
sconcer
nedwi t
hhow thegener
alst
at eoft heeconomywi
ll
i
mpactt
heper
for
manceofapart
icul
arcompanywi
thi
napar
ticulari
ndust
ry.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal1

5)Investor
swhobeliev
ethatmostsecur
iti
esar
eef
fic
ient
lypr
iceds
houl
dnotnotbe
concernedwit
hfundament
alanal
ysi
s.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

6)Fundament
alanalysi
scan onl
y be pr
ofi
tabl
eifs
ome s
ecur
iti
es ar
e atl
eas
t
tempor
ari
lymi
spr
iced.

Ans
wer
:TRUE
Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

7)Mar ket
sc an onl
y be ef
fic
ient i
f many c
ompet
ent anal
yst
s ar
e per
for
ming
fundamentalanal
ysi
s.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

8)Oneoft hebas
icpr
emi
sesofs
ecur
ityanal
ysi
s,and i
n par
tic
ularf
undament
al
anal
ysi
s,i
sthat

A)ast
ock’
spr
icei
sbas
edoni
tspas
tcas
hfl
owsr
athert
hanonant
ici
pat
edf
utur
ecas
h
fl
ows
.

B)mar
kets
ect
orsdonotmov
einc
onc
ertwi
thbus
ines
scy
cles
.

C)al
lsec
uri
ti
eshav
eani
ntr
ins
icv
aluet
hatt
hei
rmar
ketv
aluewi
llappr
oac
hov
ert
ime.

D)as
ecur
ity
’sr
iskhasr
elat
ivel
yli
ttl
eef
fec
tont
hes
ecur
ity
’sr
etur
n.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

9)Thei
ntr
ins
icv
alueofas
ecur
ityi
sbas
edont
he

amountofr
isk.

c
urr
entmar
ketv
alueoft
hes
ecur
ity
.

I
II
.di
scountr
ateappl
ic
abl
etot
hes
ecur
ity
.

es
timat
edf
utur
ecas
hfl
owsf
rom t
hes
ecur
ity
.
A)IandI
IIonl
y

B)I
IIandI
Vonl
y

C)I
,IIandI
IIonl
y

D)I
,II
IandI
Vonl
y

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

10)Thet
hrees
tepsi
ndet
ermi
ningas
toc
k’si
ntr
ins
icv
aluear
e

es
timat
ingt
hes
toc
k’sf
utur
ecas
hfl
ows
.

es
timat
ingt
her
iskas
soc
iat
edwi
thf
utur
ecas
hfl
ows
.

I
II
.car
efulanal
ysi
sofpat
ter
nsi
nthes
toc
k’sr
ecentpr
icehi
stor
y.

es
timat
inganappr
opr
iat
edi
scountr
atet
oappl
ytof
utur
ecas
hfl
ows
.

A)I
I,I
IIandI
Vonl
y

B)I
,IIandI
Vonl
y

C)I
,II
IandI
Vonl
y

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

11)Thebas
icmot
ivat
ionofs
ecur
ityanal
ysi
sist
ohel
pinv
est
ors

A)i
dent
ifyt
hebes
tti
mest
obuyands
ells
ecur
iti
es.

B)c
ont
ribut
etot
heef
fic
ienc
yofs
ecur
iti
esmar
ket
s.

C)i
dent
ifys
ecur
iti
eswhos
eint
rins
icv
aluesar
eatorneart
hei
rmar
ketv
alues
.

D)i
dent
ifymi
spr
iceds
toc
ks.
Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal1

12)Top-
downs
ecur
ityanal
ysi
s

A)s
tar
tswi
tht
hef
undament
alanal
ysi
sofaf
irm.

B)i
ncl
udesec
onomi
c,i
ndus
try
,andf
undament
alanal
ysi
s.

C)c
onc
ent
rat
esont
hec
ompet
enc
yoft
hes
eni
ormanagementofaf
irm.

D)c
ent
ersont
hepas
tper
for
manc
eofaf
irm.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

13)Thenor
mals
equenc
einper
for
mingt
opdownanal
ysi
sis

A)c
ompet
iti
on,c
ons
umerdemand,t
hreatofs
ubs
tit
utepr
oduc
ts.

B)mar
ketc
ondi
ti
ons
,ri
sk,c
ompanyf
undament
als
.

C)ec
onomy
,indus
try
,company
.

D)pr
ofi
tabi
li
ty,ef
fic
ienc
y,l
iqui
dit
y.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal1

14)Fundament
alanal
ysi
sinv
olv
est
hei
n-dept
hst
udyoft
he

A)r
oleofnondi
ver
sif
iabl
eri
ski
nani
nves
tor
’spor
tfol
io.
B)f
inanc
ialc
ondi
ti
onandoper
ati
ngr
esul
tsofagi
venf
irm.

C)pat
ter
nofs
ecur
itypr
icesasr
eveal
edi
nchar
tfor
mat
ions
.

D)r
oleofdi
ver
sif
iabl
eri
ski
nani
nves
tor
’spor
tfol
io.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

15)Inves
tmentanal ystswhobelievethatathoroughi nv
esti
gationofac ompany’s
fi
nanci
alcondit
ion,productdevel
opment,managementandot herintr
ins
icfactorsc
an
di
scoverstoc
kst hatarepr
icedaboveorbelowthei
rint
rinsi
cvalueareadvoc
at esof

A)f
undament
alanal
ysi
s.

B)behav
ior
alanal
ysi
s.

C)t
heef
fic
ientmar
kethy
pot
hes
is.

D)t
echni
calanal
ysi
s.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal1

7.
2 Lear
ningGoal2

1)Mos tf
irmstendtobemor
epr
ofi
tabl
eandhav
ehi
ghers
toc
kval
ueswhent
he
economyi
ss t
rong.

Ans
wer
:TRUE

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atus
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ousEdi
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on

Lear
ningGoal
:Lear
ningGoal2
2)Thepur
poseofec
onomicanal
ysi
sistogainanins
ighti
ntotheunderl
yi
ngheal
thor
vi
tal
it
yoftheec
onomyandtofor
mulateexpect
ati
onsaboutfut
uresec
uri
typr
ices
.

Ans
wer
:TRUE

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ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

3)Thebusi
nes
scy
cler
efl
ect
sec
onomi
cchangesonl
yint
hei
ndus
tri
als
ect
orsoft
he
economy
.

Ans
wer
:FALSE

Lear
ningOut
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atus
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ousEdi
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on

Lear
ningGoal
:Lear
ningGoal2

4)Thebes
tti
met
obuys
toc
kisatt
hepeakofanec
onomi
ccy
cle.

Ans
wer
:FALSE

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ningOut
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atus
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ousEdi
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Lear
ningGoal
:Lear
ningGoal2

5)Devel
opingagener
aleconomicout
lookass
ist
sinthei
dent
ifi
cat
ionofi
ndus
tri
es
andfi
rmsthatmi
ghtbegoodinves
tmentoppor
tuni
ti
es.

Ans
wer
:TRUE

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ningOut
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atus
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ousEdi
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Lear
ningGoal
:Lear
ningGoal2

6)Feder
albudgetdef
ici
tst
endt
ofur
therdepr
essanal
readydepr
ess
edec
onomy
.
Ans
wer
:FALSE

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ningOut
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atus
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ousEdi
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on

Lear
ningGoal
:Lear
ningGoal2

7)Changesi
nst
ockpr
icest
endt
olagc
hangesi
nlev
elofec
onomi
cac
tiv
itybys
ever
al
months.

Ans
wer
:FALSE

Lear
ningOut
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atus
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ousEdi
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Lear
ningGoal
:Lear
ningGoal2

8)I
nter
estr
atesands
toc
kpr
icest
endt
ori
seandf
allt
oget
her
.

Ans
wer
:FALSE

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ningOut
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atus
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tion

Lear
ningGoal
:Lear
ningGoal2

9)Whichmeas
ureoft
hebusines
scyc
ler
epres
ent
sthemarketv
alueofal
lgoodsand
ser
vic
espr
oducedi
nacount
ryoverat
wel
ve-
monthper
iod?

A)i
ndus
tri
alpr
oduc
tioni
ndex

B)moneys
uppl
y

C)gr
ossdomes
ticpr
oduc
t

D)pr
oduc
tiv
ityav
erage

Ans
wer
:C

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ningOut
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atus
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ousEdi
ti
on
Lear
ningGoal
:Lear
ningGoal2

10)Whi
choneoft
hef
oll
owi
ngi
sli
kel
ytohav
eanegat
iveef
fec
tons
toc
kpr
ices
?

A)f
all
ingi
nter
estr
ates

B)adec
reas
eint
hemoneys
uppl
y(M2)

C)l
owi
nfl
ati
on

D)adec
reas
eint
heunempl
oymentr
ate

Ans
wer
:B

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ningOut
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atus
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ousEdi
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Lear
ningGoal
:Lear
ningGoal2

11)TheFeder
alRes
erv
ethr
oughmonet
arypol
ic
ycanhel
pex
pandt
heec
onomyby

A)l
ower
ingi
ncomet
axesoni
ndi
vi
dual
s.

B)r
educ
ingt
ari
ffss
ucht
hatf
orei
gnex
por
tsc
ani
ncr
eas
e.

C)s
uppor
tingamoder
ategr
owt
hoft
hemoneys
uppl
y.

D)i
ncr
eas
inggov
ernments
pendi
ngont
henat
ionali
nfr
ast
ruc
tur
e.

Ans
wer
:C

Lear
ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

12)Ri
si
ngi
nter
estr
atest
endt
o

A)c
ont
rac
tthel
evelofec
onomi
cac
tiv
ity
.

B)i
ncr
eas
ethel
evelofbus
ines
sinv
est
ment
.

C)i
ndi
cat
egov
ernment
alex
pans
ionoft
heec
onomy
.

D)s
ignalt
het
roughofar
eces
sionar
ymar
ket
.

Ans
wer
:A
Lear
ningOut
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atus
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ousEdi
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on

Lear
ningGoal
:Lear
ningGoal2

13)Thegov
ernmenthasanex
pans
ionar
yec
onomi
cpol
ic
ywheni
t

A)i
ncr
eas
est
axes
.

B)i
ncr
eas
esgov
ernments
pendi
ng.

C)pr
omot
esr
isi
ngi
nter
estr
ates
.

D)l
imi
tsex
por
tsofgoodsands
erv
ices
.

Ans
wer
:B

Lear
ningOut
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atus
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ousEdi
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ningGoal
:Lear
ningGoal2

14)Ris
ingc or
porateprof
itsar
eli
kel
ytohav
ethegr
eat
estef
fec
tonwhi
choft
he
fol
lowi
ngindustr
ials
ect
ors?

A)bus
ines
sequi
pment

B)def
ens
e

C)f
oodandagr
icul
tur
e

D)c
ons
umerdur
abl
es

Ans
wer
:A

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ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

15)Whi
choft
hef
oll
owi
ngbus
ines
seswi
llbepos
iti
vel
yimpac
tedbyaweakdol
lar
?

A)r
etai
li
ng
B)i
mpor
ts

C)ex
por
ts

D)per
sonals
erv
ices

Ans
wer
:C

Lear
ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

16)Whi
choft
hef
oll
owi
ngbus
ines
seswi
llbenegat
ivel
yimpac
tedbyas
trongdol
lar
?

A)r
etai
li
ng

B)i
mpor
ts

C)ex
por
ts

D)aut
omot
ive

Ans
wer
:C

Lear
ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

17)Whichoft
hef
oll
owi
ngt
endt
osi
gnalt
hats
toc
kpr
icesar
eli
kel
ytor
isei
nthe
fut
ure?

Empl
oymenti
ncr
eas
esaf
ters
ever
almont
hsofr
eces
sion.

I
nter
estr
atesar
elowc
ompar
edt
other
ecentpas
t.

I
II
.Maj
ormar
keti
ndex
eshav
ejus
treac
hedr
ecor
dhi
ghs
.

Hous
ings
tar
tsi
ncr
eas
eaf
ters
ever
almont
hsofdec
li
ne.

A)IandI
Ionl
y

B)I
IandI
IIonl
y

C)I
,IIandI
Vonl
y
D)I
,II
,II
IandI
V

Ans
wer
:C

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ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

18)Whi
choft
hef
oll
owi
ngar
echar
act
eri
sti
csofanex
pans
ionar
yfi
scalpol
ic
y?

I
ncr
eas
edgov
ernments
pendi
ngoni
nfr
ast
ruc
tur
epr
ojec
ts.

Reduc
tioni
ndef
ens
eandeduc
ati
onbudget
s.

I
II
.Reduc
tioni
nempl
oymentt
axes
.

Reduc
tioni
ngov
ernmentbor
rowi
ng.

A)IandI
IIonl
y

B)I
IandI
IIonl
y

C)I
,IIandI
Vonl
y

D)I
,II
,II
IandI
V

Ans
wer
:A

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ningOut
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atus
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tion

Lear
ningGoal
:Lear
ningGoal2

19)Which ofthefol
lowi
ng i
smos
tli
kel
ytoi
ncr
eas
einv
alueast
her
esul
tofa
weakeni
ngdoll
ar?

A)anADRf
oraf
orei
gnt
elec
ommuni
cat
ionsc
ompany

B)s
toc
kinaf
irmt
hatdependsheav
il
yoni
mpor
tedr
awmat
eri
als

C)s
toc
kinaf
irm wi
thmanyac
count
spay
abl
einf
orei
gnc
urr
enc
ies

D)s
toc
kinaf
orei
gnc
ompanyt
hatdependsheav
il
yonex
por
tst
otheU.
S.

Ans
wer
:A
Lear
ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal2

20)Whi
choneoft
hef
oll
owi
ngs
tat
ement
sisc
orr
ect
?

A)St
ockpr
icesar
eindependentoft
heec
onomi
ccy
cle.

B)St
ockpr
icesc
hanges
imul
taneous
lywi
tht
heec
onomy
.

C)St
ockpr
icesar
eof
tens
tar
ttor
isebef
oret
heendofar
eces
sion.

D)Changesi
nst
ockpr
icesgener
all
ylagc
hangesi
ntheec
onomy
.

Ans
wer
:C

Lear
ningOut
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atus
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ousEdi
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on

Lear
ningGoal
:Lear
ningGoal2

21)Nameatl eastthr
eeec
onomi
cvar
iabl
est
hatt
heaf
fec
tthes
toc
kmar
ketand
desc
ribet
hei
reffect
s.

Answer: Inf
lati
on:high inf
lat
ion increas es t
he rat
e atwhi chc ashf lows f
rom
i
nvestment
sarediscountedandthereforet endstolowerthei
rval
ue.Inflati
onisal
soa
majorcomponentofi nt
erestrates
.I nt
er estrates
:ingeneralrisi
ngint er
esthavea
negat
iveef
fectonsecuri
typri
cesandf al
lingi nt
eres
tratesaposit
iveeff
ec t.

Moneysuppl
y :moderat
egr owthint hemoneys upplyhasapos
iti
veef
fect
,butrapi
d
growthcanleadt
oi nfl
ati
onandhi gherint
erestrat
es,whi
chwouldbenegati
ve.A
contr
act
ingmoneysupplyistypi
calofrecess
ionsanddepres
sesst
ockpri
ces
.

Exchangerates: arel
ati
velyweakdoll
arfavorsindustr
iest
hataremajorex
porters
suchasagric
ul t
ureandconstr
uct
ionequi
pment.As t
rongdoll
arf
avor
simport
ersand
als
or educ
est hepossi
bil
it
yofinfl
ati
onbecauseimportedgoodsarec
heaperi
ndollar
terms.

(
Studentans
wer
swi
llv
ary
.)

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atus
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Lear
ningGoal
:Lear
ningGoal2

7.
3 Lear
ningGoal3

1)Topredi
ctthedemandf oranindust
rials
ect
or,i
tises
sent
ialt
ounder
standt
he
economi
cforc
esthataf
fec
ttheindus
try
.

Ans
wer
:TRUE

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ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

2)Economi
cfac
tor
ssuc
hasaweakdol
larwi
llhav
eanegat
ivei
mpac
tonal
lindus
tri
al
sect
ors.

Ans
wer
:FALSE

Lear
ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

3)Indus
tri
esi
nther
api
dex
pans
ions
tagewi
llbees
pec
ial
lys
ens
iti
vet
oas
lowi
ng
economy.

Ans
wer
:FALSE

Lear
ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

4)I
naddi
ti
ont
ocompanyr
epor
ts,Val
ueLi
neal
sopubl
is
hesi
ndus
tryanal
yses
.

Ans
wer
:TRUE

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ningOut
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yti
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ng

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tionSt
atus
:Pr
evi
ousEdi
ti
on
Lear
ningGoal
:Lear
ningGoal3

5)Theec onomywi l
lexpandmor
esl
owl
yifc
ons
umer
sdec
idedt
osav
emor
eand
reduc
etheirdebtl
evel
s.

Ans
wer
:TRUE

Lear
ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

6)I
ndustryanal
ysi
sfoc
usesontheamounts
pentonr
esear
chanddev
elopmentby
i
ndi
vidualcompani
eswi
thi
nthei
ndus
try
.

Ans
wer
:FALSE

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ningOut
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atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal3

7)Inves
tor
swhoc onductindust
ryanal
ysestypi
cal
lyfavorcompani
eswit
hstr
ong
marketpos
iti
onsovercompanieswit
hles
ssecur
emar ketpos
iti
onsbec
aus
efi
rmswit
h
st
rongmarketposi
ti
onstendt o

bepr
icel
eader
s.

benef
itmor
efr
om ec
onomi
esofs
cal
e.

I
II
.hav
ebet
terR&Dpr
ogr
ams
.

hav
elowerpr
oduc
tionc
ost
s.

A)I
IandI
Vonl
y

B)I
,IIandI
Vonl
y

C)I
,IIandI
IIonl
y

D)I
,II
,II
IandI
V

Ans
wer
:D

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ningOut
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yti
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ng
Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

8)Thec
ons
umerel
ect
roni
csi
ndus
trywoul
dbemos
tsi
gni
fi
cant
lyaf
fec
tedby

A)dev
elopment
sint
echnol
ogy
.

B)i
nter
estr
atesandi
nfl
ati
on.

C)l
aborr
elat
ions
.

D)gov
ernmentr
egul
ati
ons
.

Ans
wer
:A

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ningOut
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yti
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Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

9)Whi
choft
hef
oll
owi
ngf
act
orsar
econs
ider
edwhenanal
yzi
ngani
ndus
try
?

t
henat
ureandc
ondi
ti
onsofgov
ernment
alr
egul
ati
ons

t
hei
nvol
vementandr
elat
ions
,ifany
,wi
thl
aboruni
ons

I
II
.thedev
elopmentofnewt
echnol
ogi
esr
elev
antt
othei
ndus
try

t
heex
tentofc
ompet
iti
onwi
thi
nthei
ndus
try

A)I
,IIandI
Vonl
y

B)I
I,I
IIandI
Vonl
y

C)I
,IIandI
IIonl
y

D)I
,II
,II
IandI
V

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

10)Whi
chs
tageofani
ndus
try
’sgr
owt
hcy
clei
smos
tinf
luenc
edbyec
onomi
cev
ent
s?
A)i
nit
ialdev
elopment

B)s
tabi
li
tyordec
li
ne

C)mat
uregr
owt
h

D)r
api
dex
pans
ion

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

11)Whichstageofani
ndus
try
’sgr
owt
hcy
clei
sint
eres
tingonl
yforpot
ent
ial
lyhi
gh
di
videndpay
outs?

A)i
nit
ialdev
elopment

B)s
tabi
li
tyordec
li
ne

C)mat
uregr
owt
h

D)r
api
dex
pans
ion

Ans
wer
:B

Lear
ningOut
come:F-
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scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

12)Ther
api
dex
pans
ionphas
eofani
ndus
tryi
schar
act
eri
zedby

A)ex
tremes
ens
iti
vi
tyt
oint
eres
trat
esandot
herec
onomi
cfac
tor
s.

B)hi
ghr
etur
nsandr
elat
ivel
ylowr
isks
.

C)wi
ll
ingnes
sofi
nves
tor
stobuyal
mos
tanys
toc
kas
soc
iat
edwi
tht
hei
ndus
try
.

D)manydec
adesofs
ust
ainedabov
eav
eragegr
owt
h.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem
AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

13)Wel
lmanagedc
ompani
esr
arel
yreac
hthedec
li
nes
tagebec
aus
e

A)t
hewor
ld’
spopul
ati
oni
sgr
owi
ng.

B)t
heyc
ont
inuous
lydev
elopnewpr
oduc
tst
omeett
heneedsofc
hangi
ngmar
ket
s.

C)c
ons
umer
sremai
nloy
alt
oes
tabl
is
hedbr
ands
.

D)al
loft
heabov
e.

Ans
wer
:B

Lear
ningOut
come:F-
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scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

14)Whic
hstageofanindustry’
sgrowt
hcy
cleof
fer
sthegr
eat
estoppor
tuni
tyf
oran
i
nvest
orwhoisseeki
ngcapi
talgains
?

A)i
nit
ialdev
elopment

B)mat
uregr
owt
h

C)s
tabi
li
tyordec
li
ne

D)r
api
dex
pans
ion

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

15)Li
standexplai
nthevar
iousst
agesofthegrowt
hcyc
leofanindust
ry.Al
sodi
scus
s
themeri
tofinvest
ingi
ntheindus
trydur
ingeac
hofthevar
iouss
tages
.

Ans
wer
:The4s
tagesoft
hegr
owt
hcy
clear
e

i
nit
ialdev
elopments
tage—t
hei
ndus
tryi
snewandunt
ried;i
nves
tmentoppor
tuni
ti
es
ar
enotav
ail
abl
etomos
tinv
est
ors
;ri
sksar
ehi
gh;

rapi
dexpansi
ons tage—productacceptancei
sspr
eadi
ngandi
nvest
orsc
anfores
eethe
i
ndustr
y’sfuture;economicv ar
iablesdon’thavealar
geeffec
ton theindust
ry’
s
perf
ormance;goodt i
metoinvestinc ompany;

matur
egr owt
h—heav
ilyi
nfl
uenc
edbyeconomicdevel
opment;expans
ioncomesfr
om
t
heec onomy’
sgrowth;mayprovi
dedefens
ive,c
ycli
calorc
ur r
entincometypesof
i
nvest
mentoppor
tuni
ties
;

st
abil
it
yordecl
ine—demandf
ort
hei
ndus
try
’spr
oduc
tsi
sdi
mini
shi
ng;i
nves
tment
oppor
tuni
ti
esar
efew.

Lear
ningOut
come:F-
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undament
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ksandhowt
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uet
hem

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yti
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hinki
ng

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tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

16)Br
ief
lydes
cri
beanddi
scus
sindus
tryanal
ysi
sandt
hemot
ivat
ionbehi
ndi
t.

Ans
wer
:Indus
tryanal
ysi
s

f
ocus
esont
heac
tiv
iti
esofoneofmor
eindus
tri
es.

l
ooksatt
hec
ompet
iti
vepos
iti
onofani
ndus
tryi
nrel
ati
ont
oot
heri
ndus
tri
es.

s
eeksanswer
st oquest
ionss
uchas:How i
stheindus
tryr
egul
ated?Whatrol
edoes
l
aborplayi
nt heindus
try?Whateconomi
cforc
esar ees
peci
all
yimpor
tanttothe
i
ndust
ry?

f
aci
li
tat
esr
esear
chbyus
ingpubl
is
hedr
epor
tss
uchast
heS&PI
ndus
trySur
vey
s.

Lear
ningOut
come:F-
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scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal3

7.
4 Lear
ningGoal4

1)Fundament
alanalys
isi sbasedont hepr
esumpti
onthatthev
alueofas
toc
kis
i
nfl
uencedbythef
inancialper
formanc
eoftheis
sui
ngcompany
.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem
AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

2)Fundament
alanal
ysi
senc
ompas
sesr
etur
n,butnotr
isk,i
nthev
aluat
ionpr
oces
s.

Ans
wer
:FALSE

Lear
ningOut
come:F-
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scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

3)Thes t
atementofc as
hf lowsi
sles
sinf
luenc
edt
hant
hei
ncomes
tat
ementby
choi
cesofaccount
ingmethods.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal4

4)Thei
ncomes
tat
ementi
ndi
cat
eshows
ucc
ess
ful
lyac
ompanyhasut
il
iz
edi
tsas
set
s.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

5)Posi
ti
vec
ashf
lowf
rom i
nves
tingac
tiv
iti
esi
sty
pic
aloff
irmsex
per
ienc
ingheal
thy
growt
h.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on
Lear
ningGoal
:Lear
ningGoal4

6)A companymayappearto bepr

ofi
tabl
eon i
tsi
ncomes
tat
ement
,butf
ailt
o
gener
ates
trongc
ashf
lows.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

7)Thebal
anc
esheets
ummar
izest
hec
ompany
’soper
ati
onsov
ert
hel
astf
isc
aly
ear
.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

8)EBI
TDAs
tandsf
orear
ningsbef
orei
nfl
ati
on,t
axes
,depr
eci
ati
on,andadj
ust
ment
s.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

9)Cal
cul
ati
ngtheti
mesinteres
tearnedrati
ousi
ngEBITDAismorec
onservat
ivet
han
usi
ngEBITbec
ausei
ttakesthecostofrepl
aci
ngfi
xedass
etsi
ntoc
onsi
derat
ion.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

10)Whi
choft
hef
oll
owi
ngar
econs
ider
edi
nther
ati
oanal
ysi
sofaf
irm?
pr
ofi
tabi
li
ty

mar
kets
har
e

I
II
.li
qui
dit
y

l
ever
age

A)IandI
Ionl
y

B)I
,II
IandI
Vonl
y

C)I
IandI
Vonl
y

D)I
,II
,II
IandI
V

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

11)Whichoft
hef
oll
owi
ngac
count
ingpr
act
icesar
epot
ent
ial
lymi
sl
eadi
ngorev
en
fr
audul
ent?

wr
iti
ngof
fgoodwi
llasanex
traor
dinar
ylos
s

us
ingac
crualr
athert
hanc
ashbas
isr
epor
ting

I
II
.of
f-bal
anc
esheetl
iabi
li
ti
es

r
ecogni
zi
ngr
evenuespr
emat
urel
y

A)IandI
Ionl
y

B)I
,IIandI
Vonl
y

C)I
IIandI
Vonl
y

D)I
,II
IandI
Vonl
y

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on
Lear
ningGoal
:Lear
ningGoal4

12)Whi
choneoft
hef
oll
owi
ngs
tat
ement
sconc
erni
ngac
count
ingr
epor
tsi
scor
rec
t?

A)Thei
ncomes
tat
ementr
efl
ect
sthepos
iti
onofaf
irm asofas
ingl
epoi
nti
nti
me.

B)Thet
otalequi
tyofaf
irmi
sequal
tot
het
otalas
set
spl
ust
het
otall
iabi
li
ti
es.

C)Thes
tat
ementofc
ashf
lowsi
dent
ifi
esbot
hthes
our
cesandt
heus
esofc
ash.

D)Theincomes t
atementr
efl
ect
stheamountofc
ashav
ail
abl
efori
nves
tmentand
fi
nanc
ingact
ivi
ti
es.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

13)Cas
hfl
owf
rom oper
ati
onsi
ncl
udesal
loft
hef
oll
owi
ngadj
ust
ment
stoneti
ncome
EXCEPT

A)pur
chas
esofnewequi
pment
.

B)depr
eci
ati
on.

C)i
ncr
eas
eordec
reas
einc
urr
entl
iabi
li
ti
es.

D)i
ncr
eas
eordec
reas
einc
urr
enti
nvent
ory
.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal4

14)Whi
chofthefoll
owi
ngwouldbet
ypi
calofaSt
atementofCas
hFl
owsf
oraheal
thy
fi
rminasus
tai
nablebus
ines
s?

A)Cashfl
ow fr
om oper
ati
onsisnegat
ive,c
ashf
lowsf
rom i
nves
tmentac
tiv
iti
esand
fi
nanc
ingact
ivi
ti
esar
eposi
tiv
e.

B)Cas
hf l
ow f
rom oper
ati
ons,i
nves
tmentac
tiv
iti
esandf
inanc
ingac
tiv
iti
esmus
tal
l
beposi
ti
ve.
C)Cashfl
ow from oper
ati
onsispos
iti
ve,c
ashf
lowsf
rom i
nves
tmentac
tiv
iti
esand
fi
nanc
ingact
ivi
tiesar
enegati
ve.

D)I
ftheSt
atements
howsaneti
ncr
eas
einc
ash,t
hes
our
cei
suni
mpor
tant
.

Ans
wer
:C

Lear
ningOut
come:F-
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scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

15)Whi
choft
hef
oll
owi
ngmeas
uresex
cludesnon-
cas
hchar
gesagai
nsti
ncome?

A)oper
ati
ngex
pens
es

B)EBI
T

C)neti
ncomebef
oret
axes

D)EBI
TDA

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

16)Whi
choft
hef
oll
owi
ngwoul
dbef
oundonac
ompany
’si
ncomes
tat
ement
?

c
ostofgoodss
old

i
nter
estex
pens
e

I
II
.cas
hfl
owf
rom oper
ati
ons

ear
ningsbef
oret
axes

A)IanI
Vonl
y

B)I
,IIandI
IIonl
y

C)I
,IIandI
Vonl
y

D)I
,II
,II
IandI
V
Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

17)Whi
choft
hef
oll
owi
ngwoul
dbef
oundonac
ompany
’sbal
anc
esheet
?

Ac
count
srec
eiv
abl
e

I
nter
estex
pens
e

I
II
.Pr
oper
typl
antandequi
pment

Tot
als
toc
khol
der
s’equi
ty

A)IanI
Vonl
y

B)I
,IIandI
IIonl
y

C)I
,IIandI
Vonl
y

D)I
,II
IandI
Vonl
y

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

18)OnSeptember30,t
heSi
mps
onCompanyr
epor
tedt
hef
oll
owi
ngi
nfor
mat
iononi
ts
fi
nanc
ials
tatement
s.

Whati
stheamountoft
hes
toc
khol
der
’sequi
tyi
ntheSi
mps
onCompany
?

A)$243,
000

B)$277,
000

C)$927,
000

D)$3,
217,
000

Ans
wer
:A
Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

19)Br
ief
lydes
cri
bef
undament
alanal
ysi
sandt
hebas
icas
sumpt
ionbehi
ndi
t.

Ans
wer
:

r
est
sonthebel
iefthatt
hev al
ueofas
toc
kisi
nfl
uenc
edbyt
heper
for
manc
eoft
he
c
ompanyt
hati
ssuedthestoc
k.

s
tudi
est
hef
inanc
ialc
ondi
ti
onandoper
ati
ngr
esul
tsofaf
irm.

us
esf
inanc
ialr
ati
ost
ounder
standr
elat
ions
hips
.

c
ompar
esc
urr
entr
ati
ost
ohi
stor
icalandi
ndus
trys
tandar
ds.

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

7.
5 Lear
ningGoal5

1)Rat
ioanal
ysi
sist
hes
tudyoft
her
elat
ions
hipsbet
weenv
ari
ousf
inanc
ials
tat
ement
acc
ounts
.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

2)Fi
nanc
ialr
ati
osc
anr
evealal
otaboutac
ompany
’sl
iqui
dit
y,ac
tiv
ity
,andpr
ofi
tabi
li
ty.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on
Lear
ningGoal
:Lear
ningGoal5

3)Thequi
ckrat
iodiff
ersfr
om thec
urr
entc
urr
entr
ati
oint
hatac
count
srec
eiv
abl
ear
e
excl
udedf
rom cur
rentass
ets.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal5

4)Return on as
set
sisaveryi
mport
antanal
yti
calt
oolbecauseitmeas
ureshow
ef
fec
tivel
ymanagementi
susi
ngafi
rm’
sas
setst
ogenerat
eprofi
ts.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

5)Af
irm wi
thav
eryl
owdebt
-equi
tyr
ati
ohasal
owr
iskofdef
aul
ti
ngoni
tsl
oans
.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

6)Af i
rm wi
thaverylowdebt-
equi
tyr
ati
omi
ghtbeabl
etoi
ncr
eas
eret
urnonequi
ty
bytaki
ngonaddi
tionaldebt
.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5
7)TheAlli
edComput erCo.hassal
esof$300mill
ion,anetprofi
tmarginof9%,and10
mil
lionsharesofc ommons tockouts
tandi
ng.I
thasnopr eferr
edstockoutst
andi
ng.I
f
All
iedst
oc ktradesat$50pers har
e,i
thasapri
ce/earni
ngsrati
oof20.9.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

8)Retur
nonequi
ty(
ROE)i
scomput
edbydi
vi
dingneti
ncomebyt
hemar
ketv
alueof
equi
ty.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

9)ThePEGrat
iodi
vi
desthes
toc
k’sc
urr
entpr
icebyt
hegr
owt
hrat
eofear
ningsov
er
thepr
ecedi
ng12months
.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal5

10)Inseeki
ngpotent
ialstockinv
es t
ments,mostanal
yst
slookf
orc
ompani
est
hat
havePEGrati
ost
hatareequaltoorlesst
hanone.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5
11)Bankscanusethet
imesi
nter
estear
nedr
ati
oasameas
ureofabor
rower
’sabi
li
ty
torepayt
heirl
oan.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

12)I
fafi
rm hasanequit
ymult
ipl
ierof3,t
hismeanst
hatt
hef
irm has$3i
nequi
tyf
or
ever
y$1i
nlong-ter
m debt.

Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

13)Returnonequit
yc anbeex pr
ess
edmat
hemat
ical
lyas“
(netpr
ofi
tmar
gin)
(tot
al
ass
etturnov
er)
(equi
tymult
ipl
ier
).
”

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

14)Ahi
ghP/
Erat
iomaybeani
ndi
cat
iont
hatas
toc
kisov
erpr
iced.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

15)Ahi
ghPEGr
ati
oimpl
iesahi
ghgr
owt
hrat
einear
ningsr
elat
ivet
othes
toc
k’spr
ice.
Ans
wer
:FALSE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal5

16)Whencompar
ingcompaniesi
nthesameindus
trybutofdif
fer
ents
izes
,netpr
ofi
t
margi
nismoremeani
ngf
ulthannetpr
ofi
tasadoll
aramount.

Ans
wer
:TRUE

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal5

17)Whi
choft
hef
oll
owi
ngar
emeas
uresofl
iqui
dit
y?

networ
kingc
api
tal

ac
count
srec
eiv
abl
etur
nov
er

I
II
.cur
rentr
ati
o

t
imesi
nter
estear
ned

A)IandI
IIonl
y

B)I
,IIandI
IIonl
y

C)I
,IIandI
Vonl
y

D)I
,II
IandI
Vonl
y

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

18)Fi
nanc
ial
rat
ios
al
lowc
ompar
isonsac
ros
sfi
rmswi
thoutc
onc
ernov
erf
irms
ize.

c
anc
ompar
eaf
irm’
soper
ati
ngandf
inanc
ials
tat
ust
oindus
trynor
ms.

I
II
.pr
ovi
dei
nsi
ght
sint
oac
ompani
esf
utur
e.

l
ookatt
hel
iqui
dit
y,ac
tiv
ity
,lev
erage,pr
ofi
tabi
li
tyandmar
ketmeas
uresofaf
irm.

A)I
IandI
Vonl
y

B)IandI
Ionl
y

C)I
,IIandI
Vonl
y

D)I
,II
,II
IandI
V

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Rev
ised

Lear
ningGoal
:Lear
ningGoal4

19)OnDecember31,theGol
dSt
andar
dCompanyr
epor
tedt
hef
oll
owi
ngi
nfor
mat
ion
onit
sfi
nanci
als
tatements
.

Ac
cor
dingt
othi
sinf
ormat
ion,t
hec
ompany
’sc
urr
entr
ati
oisappr
oxi
mat
ely

A)1.
39.

B)1.
68.

C)1.
73.

D)1.
90.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

20)Todeter
minewhet
herac
ompanyi
sus
ingl
ever
ageef
fec
tiv
ely
,ananal
ysts
houl
d
consi
der

A)t
hec
urr
entr
ati
oandnetwor
kingc
api
tal
.
B)i
nvent
ory
,ac
count
srec
eiv
abl
eandt
otalas
sett
urnov
err
ati
os.

C)t
hedebtt
oequi
tyandt
imesi
nter
estear
nedr
ati
os.

D)ROAandt
henetpr
ofi
tmar
gin.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal4

21)Acompanyhassal
esof$640,
000,netpr
ofitaf
tert
axesof$23,
000,andat
otal
ass
ett
urnov
erof2.
5.Whati
stheret
urnonasset
s?

A)3.
6%

B)4.
5%

C)8.
1%

D)9.
0%

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

22)Acompanyhassalesof$640,
000,netpr
ofitaf
tertaxesof$23,
000,atot
alas
set
tur
nov
erof4.17andanequi
tymulti
pli
erof1.
67.Whatistheret
urnonequi
ty?

A)24%

B)9.
0%

C)8.
1%

D)4.
5%

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng
Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal5

23)Subs
tit
uti
ngEBITDAforEBI
Twhenc
omput
ingt
het
imesi
nter
estear
nedr
ati
owi
ll
makethecompanyappear

A)mor
elev
eraged.

B)l
essl
ever
aged.

C)mor
epr
ofi
tabl
e.

D)l
essef
fic
ient
.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

24)Fort
hei
rlas
tfi
scaly
ear
,theShor
tCompanyr
epor
tedt
hef
oll
owi
ngi
nfor
mat
ion.

Whati
stheac
count
srec
eiv
abl
est
urnov
err
ate?

A)0.
8

B)2.
8

C)4.
5

D)7.
3

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

25)Thei
nventor
yturnoverrat
eforaf
irmi
s14.
5asc
ompar
edt
other
elev
anti
ndus
try
rat
eof13.
2.Inthi
scase,thefi
rmis

A)s
ell
i
ngi
tsi
nvent
orys
lowert
hant
hei
ndus
try
.

B)under
per
for
mingt
hei
ndus
try
.
C)av
eragi
ngf
ewerday
sofs
alesi
ninv
ent
oryt
hant
hei
ndus
try
.

D)gener
ati
ngf
ewers
alesperdol
l
arofi
nvent
ory
.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

26)At
otalas
sett
urnov
erof3meanst
hatev
ery

A)$1i
nsal
esi
ssuppor
tedby$3ofas
set
s.

B)$3i
nas
set
spr
oduc
es$1i
nnetear
nings
.

C)$1i
ntot
alas
set
sisr
epl
acedonav
erageev
ery3y
ear
s.

D)$1i
nas
set
spr
oduc
es$3i
nsal
es.

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

27)OnMar c
h31,Adol
pha,I
nc.r
epor
tedt
hef
oll
owi
ngi
nfor
mat
iononi
tsf
inanc
ial
stat
ement
s.

Whati
stheav
ail
abl
enetwor
kingc
api
talf
orAdol
pha,I
nc.
?

A)-
$253,
844

B)-
$132,
366

C)$121,
578

D)$1,
873,
020

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng
Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal4

28)A companyhasanetlossforthey
earof$(
10,
000,
000)andadef
ici
t(negat
ive
equi
ty)of$(
1,000,
000)
.ROEwil
lbe

A)1000% i
ndi
cat
inganex
cept
ional
oppor
tuni
ty.

B)1000% andmeani
ngl
ess
.

C)-
1000% i
ndi
cat
ingt
hatt
hec
ompanyi
sindi
res
trai
ts.

D)10.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

29)Themeasur
ethati
ndi
cat
eshowef
fic
ient
lyas
set
sar
ebei
ngus
edt
osuppor
tsal
es
i
sc al
ledt
he

A)t
otalas
sett
urnov
er.

B)c
urr
entr
ati
o.

C)bookv
alue.

D)netpr
ofi
tmar
gin.

Ans
wer
:A

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

30)Alendi
ngins
tit
utionwouldpr
efert
hataf
irm hav
ea_
___
___
_debt
-equi
tyr
ati
oand
a___
_____ti
mesinter
estear
nedrati
o.

A)hi
gher
;hi
gher

B)hi
gher
;lower
C)l
ower
;hi
gher

D)l
ower
;lower

Ans
wer
:C

Lear
ningOut
come:F-
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scus
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undament
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toc
ksandhowt
oval
uet
hem

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yti
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ng

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tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

31)Marco’
sj ustreport
edanEPSof$1. 80onrevenuesof$440mi l
li
on.Thecompany
has13mi ll
ions haresouts
tandi
ng.Totalas
setsar e$380mi l
li
on,curr
entliabi
li
ti
es
equal$78milli
on,andlong-t
erm debti
s$122mil
lion.Netfi
xedasset
sarewort h$230
mil
li
on.Giv
ent hisinfor
mati
on,whichoneoft
hefollowings
tatementsisc
orrec
t ?

A)Mar
co’
snetwor
kingc
api
tali
s$72mi
ll
ion.

B)Mar
co’
scur
rentr
ati
ois1.
75.

C)Mar
co’
stot
alas
sett
urnov
eri
s3.
67.

D).
Mar
co’
sdebt
-equi
tyr
ati
ois0.
75.

Ans
wer
:A

Lear
ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

32)Worces
terCor porati
onhasaP/Erati
oof15.Nati
ckCorpor
ati
onisinthesame
i
ndustr
yasWor cester,buthasaP/Erati
oof20. Poss
ibl
eint
erpret
ati
onsofthi
s
di
scr
epancyinc
lude

A)Wor
ces
terCor
por
ati
oni
sov
erpr
iced.

B)Nat
ickCor
por
ati
onhashi
gherear
ningspers
har
e.

C)I
nves
tor
sex
pec
tNat
ickt
ogr
owf
ast
ert
hanWor
ces
ter
.

D)Nat
ick’
sst
ockpr
icei
shi
ghert
hanWor
ces
ter
’s.

Ans
wer
:C

Lear
ningOut
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scus
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uet
hem
AACSB:3Anal
yti
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ng

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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

33)Nadi
neEnt
erpr
iseshast
otalass
etsof$240,
000,adebt
-equi
tyr
ati
oof0.
60,anda
ret
urnonas
set
sof9%.Whati stheret
urnonequi
ty?

A)5.
4%

B)5.
6%

C)14.
4%

D)15.
0%

Ans
wer
:C

Lear
ningOut
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atus
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ousEdi
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on

Lear
ningGoal
:Lear
ningGoal5

34)QuickCementhasaretur
nonas s
etsof8%.Ifi
thas$1.5mi
ll
ioni
ntotalas
setsand
atotalas
settur
noverof2,i
tfol
lowsthatt
hefi
rm musthav
eanetprofi
tmarginof

A)4%.

B)6%.

C)8%.

D)12%.

Ans
wer
:A

Lear
ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

35)I
nves
tor
sar
emos
tint
eres
tedi
nwhi
choneoft
hef
oll
owi
ngr
ati
os?

A)r
etur
nonas
set
s

B)c
urr
entr
ati
o
C)netpr
ofi
tmar
gin

D)r
etur
nonequi
ty

Ans
wer
:D

Lear
ningOut
come:F-
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scus
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uet
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yti
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ng

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tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

36)Whi
choneoft
hef
oll
owi
ngi
sal
ever
agemeas
ure?

A)t
imesi
nter
estear
ned

B)networ
kingc
api
tal

C)r
etur
nonequi
ty

D)netpr
ofi
tmar
gin

Ans
wer
:A

Lear
ningOut
come:F-
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scus
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

37)I
fac
ompany
’sROAi
shi
gh,t
henani
nves
torc
anas
sumet
hatt
hec
ompany

A)i
sindangerofdef
aul
ti
ngoni
tsl
oans
.

B)pay
sahi
ghdi
vi
dend.

C)i
spr
ofi
tabl
e.

D)hasmor
eequi
tyt
handebti
nit
scapi
tals
truc
tur
e.

Ans
wer
:C

Lear
ningOut
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scus
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5
38)I
faf
irm hasanROAof10% andanROEof10%,t
hent
he

A)oper
ati
ngr
esul
tsoft
hef
irm ar
eimpr
ovi
ng.

B)f
irm hasnof
inanc
iall
ever
age.

C)f
irm mus
thav
eenoughc
ashonhandt
opays
omeex
tradi
vi
dends
.

D)f
irmi
slos
ingmoney
.

Ans
wer
:B

Lear
ningOut
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scus
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

39)Ki
m hasgat
her
edt
hef
oll
owi
ngi
nfor
mat
iononac
ompany
.

Whati
stheamountoft
heear
ningspers
har
e?

A)$0.
14

B)$0.
25

C)$0.
28

D)$0.
30

Ans
wer
:B

Lear
ningOut
come:F-
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scus
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undament
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ksandhowt
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uet
hem

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yti
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

40)Overthelas
t5y ears
,Spenc
erI
nc.
’
sear
ningshavegr
ownatanannualav
erager
ate
of9%.Cur r
entEPSar e$1.
80andt
hecompany’
sstockr
ecent
lys
oldf
or$36pershare.
Spenc
er’sPEGrati
ois

A).
05

B)20

C)2.
22

D)222.
22
Ans
wer
:C

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ningOut
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atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal5

41)JJIndust
rieshasaP/
Erat
ioof18andanEPSof$0.
93.Thi
smeanst
hatJ
J’ss
toc
k
i
sc ur
rentl
yselli
ngfor

A)$16.
74pers
har
e.

B)$17.
07pers
har
e.

C)$18.
00pers
har
e.

D)$19.
35pers
har
e.

Ans
wer
:A

Lear
ningOut
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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

42)Whendividendpayoutrati
osarehi
ghert
han_
___
___
_,i
nves
tor
sshoul
dinv
est
igat
e
whetherornottheyar
es us
t ai
nabl
e.

A)15%

B)25%.

C)40%.

D)75%.

Ans
wer
:D

Lear
ningOut
come:F-
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scus
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uet
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ng

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tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal5

43)Whi
choft
hef
oll
owi
ngmaybes
ignsoff
utur
epr
obl
emsf
orac
ompany
?
I
nvent
ori
esgr
owi
ngf
ast
ert
hans
ales
.

Rapi
dlyi
ncr
eas
ingdebtt
oequi
tyr
ati
o.

I
II
.Cas
hfl
owf
rom oper
ati
onsi
shi
ghert
hanneti
ncome.

Cur
rentl
iabi
li
ti
esi
ncr
eas
ingf
ast
ert
hanc
urr
entas
set
s.

A)IandI
IIonl
y

B)I
IandI
Vonl
y

C)I
,IIandI
Vonl
y

D)I
,IIandI
IIonl
y

Ans
wer
:C

Lear
ningOut
come:F-
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scus
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undament
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toc
ksandhowt
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uet
hem

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yti
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ng

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tionSt
atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

44)ThePEGr
ati
o

A)pr
efer
redbyi
nves
tor
sisequal
to2.
0orhi
gher
.

B)c
ompar
est
hepr
ice/
ear
ningsr
ati
otot
her
ateofgr
owt
hoft
hec
ompany
’sear
nings
.

C)i
sameas
ureofaf
irm’
sli
qui
dit
y.

D)meas
urest
heabi
li
tyofaf
irm’
sas
set
stogener
ategr
owt
hfort
hef
irm.

Ans
wer
:B

Lear
ningOut
come:F-
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scus
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undament
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uet
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ng

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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal5

45)Whi
choft
hef
oll
owi
ngdi
rec
tlyi
mpac
tret
urnonequi
ty?

netpr
ofi
tmar
gin

l
ever
age

I
II
.ret
urnonas
set
s
c
ashf
lowf
rom i
nves
tmentac
tiv
iti
es

A)IandI
IIonl
y

B)I
IandI
Vonl
y

C)I
,IIandI
Vonl
y

D)I
,IIandI
IIonl
y

Ans
wer
:D

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ningOut
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atus
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ousEdi
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on

Lear
ningGoal
:Lear
ningGoal5

46)ROE=( netprofi
tmargin)(
tot
alassetturnover)(
equi
tymult
ipl
ier
).Whatisthe
advantageofus i
ng t
hisexpanded v
ersion oftheROE f or
mul
av ersusus
ing t
he
si
mpl i
fi
edver
sionwhichi
snetincomediv
idedbyt otalequi
ty?

Answer:Theexpandedver
sionprovi
desmor ei
nsightint
oaf i
rm’soperat
ions
.Thenet
prof
itmargi
nrefl
ectstheeffi
ci
encyofoperati
ons.Thetotalassettur
novermeasur
es
theabi
li
tyofas
setstogenerat
esales
.Theequitymulti
pli
erref
lec
t st
heuseoflev
erage.

Lear
ningOut
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atus
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on

Lear
ningGoal
:Lear
ningGoal5

47)Thef
oll
owi
ngi
nfor
mat
ioni
sav
ail
abl
efort
heOi
lCr
eekCor
por
ati
on.

(
a)Whati
sthec
urr
entr
ati
o?

(
b)Whati
sthenetwor
kingc
api
tal
?

(
c)Whati
stheneti
ncome?

(
d)Whati
sther
etur
nonequi
ty?

(
e)Whati
sthet
otal
ass
ett
urnov
er?

(
f)Whati
sthedebt
-equi
tyr
ati
o?

(
g)Whati
stheac
count
srec
eiv
abl
etur
nov
er?

(
h)Whati
stheear
ningspers
har
e(EPS)
?
(
i)Whati
sthepr
icet
oear
nings(
P/E)r
ati
o?

Ans
wer
:

(
a)0.
88

(
b)-
$5,
000

(
c)$11,
700

(
d)20.
17%

(
e)1.
33

(
f)0.
83

(
g)10.
26

(
h)$0.
78

(
i)18.
50

Lear
ningOut
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atus
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ningGoal
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ningGoal5

7.
6 Lear
ningGoal6

1)Acompany’
srat
iosar
emor
emeani
ngf
ulwhenc
ompar
edt
oot
herc
ompani
esi
nthe
samei
ndust
ry.

Ans
wer
:TRUE

Lear
ningOut
come:F-
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scus
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undament
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uet
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yti
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ng

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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

2)Thedebtt
oequi
tyr
ati
oshoul
dbeappr
oxi
mat
elyt
hes
ameac
ros
sal
lindus
tri
al
sec
tor
s.

Ans
wer
:FALSE

Lear
ningOut
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scus
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undament
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ksandhowt
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uet
hem

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yti
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hinki
ng
Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

3)Fi
nanc
ialr
ati
osgi
vel
it
tlei
ndi
cat
ionwhet
herac
ompanyi
swel
lmanagedornot
.

Ans
wer
:FALSE

Lear
ningOut
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uet
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ng

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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

4)Inv
estor
swhowantt oanal
yzeac
ompany
’sr
ati
osus
ual
lyneedt
ocomput
ethem
fr
om thefi
nanc
ials
tat
ement
s.

Ans
wer
:FALSE

Lear
ningOut
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ng

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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

5)His
t ori
calc
ompar
isonswi
llr
evealwhet
herac
ompany
’sper
for
manc
eisi
mpr
ovi
ngor
det
eriorati
ng.

Ans
wer
:TRUE

Lear
ningOut
come:F-
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scus
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undament
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ksandhowt
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uet
hem

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yti
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ng

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atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

6)Gener
all
y,t
hemar
ketpr
iceofas
toc
kis

A)bel
owi
tsbookv
alue.

B)abov
eit
sbookv
alue.

C)equalt
oit
sparv
alue.

D)equalt
oit
sbookv
alue.

Ans
wer
:B
Lear
ningOut
come:F-
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scus
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undament
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ksandhowt
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uet
hem

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yti
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ng

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tionSt
atus
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ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

7)To det
ermi
newhetherapharmac
eut
icalc
ompany
’spr
ofi
tabi
li
tyr
ati
osi
ndi
cat
e
st
rengt
horweaknes
s,weshoul
d

c
ompar
ethem t
oot
her
sint
hes
amei
ndus
try
.

c
ompar
ethem t
ocompani
esi
nunr
elat
edi
ndus
tri
ess
uchasener
gyorbanki
ng.

I
II
.compar
ethem t
opr
evi
ousy
ear
s.

c
ompar
ethem t
oabs
olut
est
andar
dses
tabl
is
hedbyt
heCFAI
nst
itut
e.

A)IandI
Ionl
y

B)IandI
IIonl
y

C)I
IIandI
Vonl
y

D)I
Vonl
y

Ans
wer
:B

Lear
ningOut
come:F-
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scus
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uet
hem

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yti
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ng

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atus
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evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

8)Whi
choft
hef
oll
owi
ngi
sar
eadi
lyav
ail
abl
esour
ceofi
ndus
tryc
ompar
isons
?

St
andar
d&Poor
’s

MSNMoney
,YahooFi
nanc
eandot
herf
inanc
ialpor
tal
s

I
II
.Mer
gent(
Moody
’s)

TheWal
lSt
reetJ
our
nal

A)IandI
Ionl
y

B)I
,IIandI
IIonl
y

C)I
IIandI
Vonl
y
D)I
I,I
IIandI
Vonl
y

Ans
wer
:B

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ningOut
come:F-
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scus
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undament
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ksandhowt
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uet
hem

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yti
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ng

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tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

9)Ac
ompar
isonofaf
irm’
scur
rentf
inanc
ialr
ati
ost
othos
eofpr
iory
ear
sal
lowsone
to

A)ac
cur
atel
ypr
edi
ctt
hef
utur
eper
for
manc
eofaf
irm.

B)s
eehowaf
irm’
sper
for
manc
ecompar
est
othatofac
ompet
itor
.

C)s
eet
rendst
hatar
edev
elopi
ng.

D)det
ermi
nei
fthef
irmi
sper
for
mingbet
tert
hant
heov
eral
lindus
try
.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6

10)Amgen’sdebttoequi
tyr
ati
ois.
54whi
leWal
mar
t’
sis.
68.Byc
ompar
ingt
hes
e
rat
ioswecanconcl
ude

A)t
hatWal
mar
tisi
ndangerofbankr
upt
cy.

B)t
hatAmgenus
est
ool
it
tledebtf
inanc
ing.

C)t
hatWal
mar
tus
est
ool
it
tleequi
tyf
inanc
ing.

D)v
eryl
it
tlebec
aus
ethef
irm’
sar
eindi
ffer
enti
ndus
tri
es.

Ans
wer
:D

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6
Us
ethef
oll
owi
ngi
nfor
mat
ionf
ort
heques
tion(
s)t
hatf
oll
ow.

CompanyXandCompanyYar
eint
hes
amei
ndus
tryandhav
ethef
oll
owi
ngr
ati
os.

11)Bas
edont
hei
nfor
mat
ionabov
e,wec
anc
onc
ludet
hat

A)c
ompanyXi
sus
ingl
ever
agemor
eaggr
ess
ivel
ythanc
ompanyY.

B)c
ompanyXi
smor
eli
qui
dthanc
ompanyY.

C)c
ompanyXi
sus
ingas
set
smor
eef
fic
ient
lyt
hanc
ompanyY.

D)companyXi
srei
nves
tingahi
gherper
cent
ageofi
tsear
ningsi
nthebus
ines
sthan
companyY.

Ans
wer
:B

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal6

12)Bas
edont
hei
nfor
mat
ionabov
e,wec
anc
onc
ludet
hat

A)c
ompanyYi
smor
efi
nanc
ial
lyc
ons
erv
ati
vet
hanc
ompanyX.

B)c
ompanyYi
smor
eli
qui
dthanc
ompanyX.

C)companyYi
srei
nves
tingahi
gherper
cent
ageofi
tsear
ningsi
nthebus
ines
sthan
companyX.

D)c
ompanyYi
sus
ingas
set
sles
sef
fic
ient
lyt
hanc
ompanyX.

Ans
wer
:C

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:NewQues
tion

Lear
ningGoal
:Lear
ningGoal6

13)CompanyXandCompanyYar
eint
hes
amei
ndus
tryandhav
ethef
oll
owi
ngr
ati
os.

Disc
usstherel
ati
venaturesofthetwoc ompani
esintermsofris
kandretur
n.Ident
ify
themoregrowth-or
ientedfi
rm andjus
tif
yyoursel
ect
ion.Suppor
tyourdi
scuss
ionand
concl
usi
onsbyrefer
ringtotherati
os.

Ans
wer
:CompanyYhasmor
efi
nanc
ialr
iskbec
aus
eit
sdebt
/equi
tyr
ati
oishi
gher
thanbot hXandt hei ndus t
ryav er age.Y’scurrentr ati
oi slowert hanbothA’sandt he
i
ndus t
ryav erage,indi catinglessl iquidit
yandpos siblyawi l
li
ngnes stosacri
fi
ces ome
safetyinpur suitofef fi
ciency.CompanyYhasal owernetpr ofi
tmar gi
nwhi chmaybe
caus edbyhi gheri nt erestex pens esduet othehi gherdebtl oad.CompanyYof fersa
higherr eturnt os har eholdersbas edont hereturnonequi tyratio.Y’shigherrateof
returnonequi tyisent i
relyduet oitsus eofdebtf inanc i
ngbec aus eret
urnonas setsis
thes amef orbot hc ompani es( 1.9×4. 2=2. 1×3.8) .CompanyX’ snetprofi
tmar ginis
sli
ght l
yabov ethei ndus tryav erage,whi lebothc ompani es
’r et
urnonequi tyrati
osar e
belowt hei ndus tr
yav erages.CompanyYi sprobabl ygrowi ngfas t
erthanCompanyX
bec ausethedi videndpay outr atioislowerandt het otalassetturnoverrat
eishigher.

Lear
ningOut
come:F-
09Di
scus
sthef
undament
alsofs
toc
ksandhowt
oval
uet
hem

AACSB:3Anal
yti
calt
hinki
ng

Ques
tionSt
atus
:Pr
evi
ousEdi
ti
on

Lear
ningGoal
:Lear
ningGoal6