G-BEC

Question 1

Factors of efficient market hypothesis

Answer 1

Investors are knowledgeable
Capital market prices reflect underlying value
Accounting changes do not influence the stock price

Question 2

efficient market hypothesis

Answer 2

Under the efficient markets hypothesis, the expected return of each security is equal to the return required by the marginal investor, given the risk of the security and that the price equals its fair value as perceived by investors.

Question 3

determining the risk premium on a specific security?

Answer 3

The greater the risk of the investment, the higher the rate of return required by the investor. For each type of investment risk, the investor requires an additional risk premium that compensates him or her for bearing that risk.

Question 4

Price elasticity of demand

Answer 4

The price elasticity of demand is the % change in quantity demanded divided by the % change in price. If the elasticity coefficient is greater than one, demand is elastic. If the coefficient is less than one, demand is inelastic. (the arc method).

Question 5

Expected value in decision analysis is

Answer 5

An arithmetic mean using the probabilities as weights.
Expected value analysis is an estimate of future monetary value based on forecasts and their related probabilities of occurrence. The expected value is found by multiplying the probability of each outcome by its payoff and summing the products.

Question 6

Investment risk

Answer 6

Investment risk is analyzed in terms of the probability that the actual return on an investment will be lower than the expected return. If the expected return on a project exceeds the return on an asset of comparable risk, the project should be pursued.

Question 7

Profit Table

Answer 7

Unit sales increase x probability = exp inc x inc profit

[add all units calculations together]e - cost of advertising = exp net profit

Question 8

estimate NRV of inventory

Answer 8

Expected selling price of the inventory
estimated costs of disposal
estimated costs of completion

Question 9

Probability (risk) analysis is

Answer 9

Probability (risk) analysis is used to examine the array of possible outcomes given alternative parameters. Sensitivity analysis answers what-if questions when alternative parameters are changed. Thus, risk (probability) analysis is similar to sensitivity analysis: both evaluate the probabilities and effects of differing inputs or outputs.

Question 10

The risk to which all investment securities are subject is known as

Answer 10

Systematic risk, also called market risk, is the risk faced by all firms. systematic risk is sometimes referred to as undiversifiable risk. Because all investment securities are affected, this risk cannot be offset through portfolio diversification.

Question 11

Differences between the estimates best supported by the data and those in the financial statements

Answer 11

May be individually reasonable but collectively indicate possible bias.
If the amount in the financial statements is not reasonable, it should be treated as fraud or error and accumulated with other identified misstatements.

Question 12

coefficients of correlation

Answer 12

measures the degree to which any two variables, e.g., two stocks in a portfolio, are related. Perfect negative correlation (–1.0) means that the two variables always move in the opposite direction.

Question 13

Expected rate of return on an investment

Answer 13

{Possible rate of return1 x probability1} +{Possible rate of return2 x probability2} + {Possible rate of return3 x probability3} + {…….} = expected rate of return

Question 14

What is a“kinked” demand curve.

Answer 14

When an oligopolist lowers its price, the other firms in the oligopoly will match the price reduction, but if the oligopolist raises its price, the other firms will ignore the price change.

Question 15

Accounting porfit

Answer 15

the excess of revenues over explicit costs (revenue-salaries- rents- furniture- supplies- insurance-utilities)

Question 16

Economic profit

Answer 16

is not earned until the organizations income exceeds the firms accounting and implicit costs. Implicit costs are forgone salary, interest not earned on investing.

Question 17

Price elasticity of demand

Answer 17

Price elasticity of demand measures the sensitivity of the quantity demanded of a product to a change in its price. It describes the reaction of demand to a change in price from one level to another. When the percentage change in quantity demanded is less than the percentage change in price, inelastic demand exists.

Question 18

Multiple regression analysis

Answer 18

Multiple regression analysis involves the use of a linear equation. This equation consists of one dependent variable and more than one independent variable.

Question 19

A decrease in the price of a complementary good will

Answer 19

Shift the demand curve of the other commodity to the right.

The lower price of the first good results in greater demand for the complementary good at each price level.

Question 20

If the price elasticity of demand for a product is inelastic,

Answer 20

A price increase causes total revenue to increase.

If the demand for a product is inelastic (the ratio is less than 1.0), the price effect on total revenue is greater than the quantity effect. Thus, a firm could increase total revenue by raising its prices.

Question 21

Dual Pricing

Answer 21

Dual pricing is the process of setting different prices based on the currency in which the good or service is being purchased.

Question 22

Collusive pricing

Answer 22

Collusion involves competitive businesses working together to gain advantage in the market. Inflating the price of a good or service higher than the competitive price to realize higher profits is indicative of collusive behavior.

Question 23

Transfer pricing

Answer 23

Transfer pricing is the price that different divisions of the same company charge each other for supplies and labor.

Question 24

Predatory pricing

Answer 24

Predatory pricing is the practice of offering goods or services at an extremely low price designed to force competitors out of the market.

Question 25

Monopolistic competition

Answer 25

In monopolistic competition, products can be differentiated on a basis other than price, such as quality, brands, and styles. Firms in monopolistic competition sell differentiated products at a higher cost per unit.

Question 26

In the economic theory of production and cost, the short run is defined to be a production process

Answer 26

In which there is insufficient time to vary the amount of all inputs.
The short run is defined as a period so brief that a firm has insufficient time to vary the amount of all inputs. Thus, the quantity of one or more inputs is fixed. The long run is a period long enough that all inputs, including plant capacity, can be varied.

Question 27

The competitive model of supply and demand predicts that a surplus can arise if there is a

Answer 27

Minimum price above the equilibrium price.

In the competitive model of supply and demand, a surplus can never occur unless government intervenes to impose an artificial price floor. A surplus can arise if a minimum price (also called a price floor) is set that exceeds the equilibrium price. For example, if the minimum price is $5 and the equilibrium price is $4, consumers will demand fewer goods at $5 than $4, but producers will supply more goods at $5 than $4. Thus, a surplus will occur. However, at a price of $4, supply would exactly equal demand.

Question 28

In relation to the laws of supply and demand, an increase in supply will

Answer 28

Decrease the equilibrium price and increase the equilibrium quantity exchanged.
If more goods are available at each price but demand is unchanged, the price at which demand equals supply will decline.

Question 29

According to the COSO ERM framework, the characteristic of risk that reflects its nature and scope is

Answer 29

Complexity is the nature and scope of a risk. Interdependence of risks ordinarily increases their complexity.

Question 30

Pursuant to the Sarbanes-Oxley Act of 2002, an accountant who destroys documents to impede an investigation by a U.S. agency can be

Answer 30

Fined and/or imprisoned not more than 20 years.
Under the Sarbanes-Oxley Act of 2002, knowingly altering documents to impede an investigation by a U.S. agency could result in a fine, imprisonment of up to 20 years, or both.

Question 31

Which of the following pricing policies results in establishment of a price to external customers higher than the competitive price for a given industry?

Answer 31

Collusion involves competitive businesses working together to gain advantage in the market. Inflating the price of a good or service higher than the competitive price to realize higher profits is indicative of collusive behavior.

Question 32

Any business firm that has the ability to control the price of the product it sells

Answer 32

Faces a downward-sloping demand curve.

A firm that can control the price of its product is a monopolist. In a monopoly, the industry demand curve is also the firm’s demand curve. The demand curve is downward-sloping since the lower the price, the higher the demand for a product.

Question 33

Which of the following factors are included in an entity’s control environment?

Answer 33

Integrity and ethical values, assignment of authority, and human resource practices.

(1) the organization demonstrates a commitment to integrity and ethical values;
(2) the board demonstrates independence from management and exercises oversight of internal control; (3) management establishes structures, reporting lines, and authorities and responsibilities;
(4) the organization demonstrates a commitment to attract, develop, and retain competent individuals in alignment with objectives;
(5) the organization holds individuals accountable for their internal control responsibilities.

Question 34

Economies and diseconomies of scale are important determinants of the

Answer 34

Pattern of costs in the long run

Question 35

The primary mechanism of monetary control of the Federal Reserve System is

Answer 35

Conducting open market operations.
Open Market operations (buying and selling government securities) are the primary means used by the Fed to control the money supply. .

Question 36

In markets that are imperfectly competitive, such as monopoly and monopolistic competition, firms produce at an output at which

Answer 36

Marginal cost equals marginal revenue.

Question 37

Using the midpoint method, demand is inelastic in which price range

Answer 37

Demand is inelastic when the coefficient of elasticity is less than 1. (the midpoint method).

Question 38

Control Activities

Answer 38

The policies and procedures helping to ensure that management directives are executed and actions are taken to address risks to achievement of objectives

Question 39

An oligopoly

Answer 39

Consists of a few firms.
Prices tend to be rigid (sticky) because of the Interdependence among firms.
The demand curve for an oligopolist tends to be kinked. Price decreases are usually matched by price decreases, but price increases are often not followed.

Question 40

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established

Answer 40

Financial Stability Oversight Council and the Bureau of Consumer Financial Protection

Question 41

An issuer’s annual report contains the following statements:

Answer 41

Under the Sarbanes-Oxley Act, an issuer’s annual report must contain the following statements: 1) A statement that management has taken responsibility for establishing and maintaining an adequate system of internal control over financial reporting; 2) the name of the internal control model, if any, used to design and assess the effectiveness of the internal control system (COSO’s Internal Control – Integrated Framework is the most widely used model in the United States); 3) an assessment of whether internal control over financial reporting is effective; and 4) a statement that an independent public accounting firm that is registered with the PCAOB also has assessed the system.

Question 42

According to the Sarbanes-Oxley Act of 2002, when an issuer’s board of directors selects members to be on the company’s audit committee, the board of directors must select individuals who

Answer 42

are an independent member of the board of directors. To be independent, a member must not be affiliated with, or receive any compensation (other than for service on the board) from, the issuer.

Question 43

The Sarbanes-Oxley Act of 2002 requires issuers to have an

Answer 43

Section 301 of the Sarbanes-Oxley Act requires issuers to have an audit committee.

Question 44

Inherent risk is

Answer 44

Inherent risk is the risk when management does not act to alter its severity. Severity commonly is measured as a combination of impact and likelihood.

Question 45

The components of enterprise risk management (ERM) should be present and functioning. What does “present” mean

Answer 45

The components and principles of ERM, and their related controls, should be present and functioning to help the entity achieve its strategy and business objective. “Present” means such components, principles, and controls exist in the design and implementation of ERM.