Acct Theory- Mod 3 Flashcards

1
Q

What is the main concept of Module 3

A

Efficient Security Markets

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2
Q

Are all shares on the market equally liquid?

A

No

More demand for a share= More liquid share

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3
Q

What are the 4 main types of markets?

A

Stock Markets
Bond Markets
Commodities Markets
Money Markets

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4
Q

In an efficient security market, what is reflected in the prices?

A

All information that is publicly known is reflected in the price

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5
Q

What is market efficiency?

A

It is a relative concept, all information may not be known, but as soon as information becomes known, the market price will quickly adjust

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6
Q

How are shares priced?

A

At what investors think they are worth, based on public info

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7
Q

What are the 3 possible market strengths? Which one do we have in reality? Describe each

A

Weak- Only Historical Info

Semi Strong- All publicly known information is reflected in the price.

Strong- Everyone knows everything

We have a semi-Strong market

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8
Q

What affects share prices

A
Inside information
uniformed buying and selling
Noise traders
Market Trends
Herd Mentality
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9
Q

What happened with Bre-x (Handout)?

A

Overstated the potential gold deposits in their claim

Started to generate buzz, everyone jumped on hoping to get rich

Share price sky rocketed

Gold deposits were re-stated downward, everyone sold as fast as they could, which crashed the share price

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10
Q

What was the result of the Beaver study in 1973?

A

Company accounting policies do not affect stock price as long as there is no impact on cash flow

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11
Q

Why does accounting need to provide timely, accurate and cost effective information?

A

Because there are competing sources for information:

Analysts
News Media
Internet
Company press releases

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12
Q

What is the Capital Asset Pricing Model?

A

A method for calculating the predicted future share price

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13
Q

What are the 3 main uses of the Capital Asset Pricing Model?

A

Model for analysts to estimate Beta

A way to seperate the realized return on a share from an unexpected or abnormal return

Predict future share price

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14
Q

How do we control or mitigate estimation risk?

A

Insider Trading Laws

Financial Reporting

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15
Q

What is the purpose of MD&A?

A

Discuss recent performance, overall financial condition, and future prospects.

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16
Q

What must an MD&A be, in order to be useful?

A
Understandable
Relevant
Comparable
Verifiable
Timely
17
Q

What are the two main benefits of Superior Disclosure?

A

Enables investors to make better decisions

Improves the ability of securities markets to direct investments to it most productive uses