Questions 1-20 Flashcards
Which is the primary risk to an investor’s “purchasing power”?
A. Low interest rates
B. Equity volatility
C. Inflation
D. Deflation
C. Inflation
Over time, inflationary forces cause prices to increase, thereby causing the value of what a “dollar” will buy to decrease. For example, movie theatre tickets have risen consistently over time so that the same movie experience can now cost 3x what it did twenty years ago.
Which of the following is a tool to measure inflation?
A. The yield curve
B. The CPI
C. Food and energy prices
D. The Discount rate
B. The CPI or Consumer Price Index.
Food and energy prices are usually stripped out because of their volatility to give a “core” inflation rate.
The most used and most well-known leading economic indicator is:
A. New unemployment claims
B. Consumer confidence
C. The S&P 500
D. The new jobs payroll reports
C. The S&P 500 is by far the most widely followed leading economic indicator. While unemployment claims and consumer confidence are also leading indicators, they are used in conjunction with the stock markets. The payroll numbers are a coincident indicator.
Four consecutive quarters of declining GDP are labeled as:
A. A depression
B. A recession
C. A soft patch
D. Slowing growth
B. A recession.
A recession is defined as two consecutive quarters of declining GDP, up to six. Any more than six consecutive is a Depression.
Which of the following are lagging economic indicators?
A. Personal income levels
B. Monetary supply (M2)
C. CPI change
D. New building permits
C. CPI change
M2 and new building permits are leading indicators and personal income levels is considered a coincident indicator.
In a situation where short term interest rates are higher than longer term interest rates, which of the following is true?
A. Yield curve inverted, indicator positive economic growth
B. Yield curve is normal, indicator positive economic growth
C. Yield curve inverted, indicator negative economic growth
D. Yield curve is normal, indicator negative economic growth
C. Yield curve inverted, negative economic growth
The situation of short term rates being higher than longer term rates is not normal, and is therefore inverted. This is often a predictor of negative economic growth and is viewed by some as a recession indicator.
Two financial ratios, the Current ratio and the Quick ratio, are almost identical except for one key metric. Which of the following is included in the Current ratio, but not the Quick ratio?
A. Current liabilities
B. Cash on hand
C. Inventories
D. Goodwill
C. Inventories
The current ratio incorporates inventory as well as current assets and liabilities
On an income statement, which of the following is NOT used to calculate operating margin?
A. Advertising expenses
B. Depreciation expenses
C. Cost of goods sold
D. Interest expenses
D. Interest expenses
Another name for the operating margin is EBIT, or Earnings Before Interest and Taxes. So interest and tax expenses are not figured into the operating margin.
On a balance sheet, assets are generally one of three types. Which of the following is not a type of asset found on a balance sheet?
A. Current assets
B. Fixed assets
C. Saleable assets
D. Intangible assets
C. Saleable assets
Saleable assets would be included in inventory which is a current asset
An 8-K filing is which of the following?
A. An annual report filed by all public companies
B. A quarterly report filed by public companies
C. A monthly report filed by public companies
D. A report of important news before the next scheduled report
D. A report of important news before the next scheduled report
The 10-Q is quarterly, the 10-K is annual, and the 8-K is for news filed before the next 10-Q or 10-K.
Which of the following is true about the Price-to-Earnings ratio?
A. Diluted earnings per share is most important
B. The dividend payout ratio is most important
C. It is more important to preferred stock investors than common stock investors
D. It can fluctuate greatly even when the earnings don’t change
D. It can fluctuate greatly even when the earnings don’t change
The “price” is often the change factor for the PE ratio and therefore the ratio is a good measure of the value of a stock to investors
Calculating the Net Present Value (NPV) is useful in which of the following situations?
A. Comparing a bond investment to a stock investment
B. Deciding whether a business investment is a good use of cash
C. Deciding which of two mutual funds is a better investment
D. Comparing an investment in a preferred stock to a common stock
B. Deciding whether a business investment is a good use of cash
NPV is relevant when calculating future cash flows and whether the cost of current investment will be returned in future increases cash flows or not.
If your city’s average annual income is $52,000, this is which of the “measures of central tendency”?
A. Median
B. Mode
C. Mean
D. Average
C. Mean
When numbers are added up and then divided to get the “average”, that is the Mean.
Using the analogy of a roller-coaster to discuss the “scariness” of a ride made for kids versus one made for adults (bigger kids), the appropriate measure would be:
A. Standard deviation
B. Beta
C. Systematic risk
D. Adrenaline response
A. Standard deviation
Standard deviation is the normal variation of the investment - or ride - going both up and down.
Which of the following investment risks cannot be diversified away?
A. Market risk
B. Event risk
C. Interest rate risk
D. Business risk
A. Market risk
Market risk is systematic, which cannot be diversified away through geographic, asset class or country diversification
