Solomon Ch1 Deck 8

Question 1

Net income is transcribed to

Answer 1

the equity portion of the balance sheet

Question 2

Income on the income statement is

Answer 2

the difference between revenues and expenses

Question 3

The equity portion of the balance sheet includes net income from current period’s Income Statement and

Answer 3

may also reflect dividends paid

Question 4

to hedge against currency risk from holding a security which pays in a foreign currency

Answer 4

enter into a forward currency contract to sell the currency at an acceptable rate and then buy currency at the current spot rate, pocketing the difference

Question 5

Enterprise Value full equation

Answer 5

Market Cap + (Value of all Interest Bearing debt - Cash and Cash Equivalents) + Market Value of Preferred Stock + Value of Minority interests

Question 6

The cost of the whole enterprise if it was purchased is the

Answer 6

Enterprise Value

Question 7

downward trend in overall investment depressing individual securities

Answer 7

Systematic Risk

Question 8

Debt to equity is calculated using

Answer 8

shareholder’s equity

Question 9

Annuities limit liquidity with

Answer 9

penalties for taking out money before surrender period is over

Question 10

Dividing an investment into what is needed each year and purchasing treasury notes that mature at each year is called

Answer 10

laddering treasury notes

Question 11

The discount rate used on the dividend discount model is

Answer 11

rate of return that could be expected on another investment, often the WACC

Question 12

TIPS have 3 components of return:

Answer 12

1. Fixed Interest Rate (multiplied by second)
2. Principal Adjusted by CPI changes
3. Appreciation of depreciation associated with changes in inflation and interest rates

Question 13

Upon maturity, TIPS holders are paid

Answer 13

the greater of the original principal amount and the adjusted principal amount

Question 14

TIPS are taxed on both

Answer 14

interest and unrealized gains in principal

Question 15

value for profit or loss on stock index future

Answer 15

(value of stock index on maturity date - futures price when contract entered into) x multiplier that scales the size of contract

Question 16

Regulation S-K requires that a bona fide

Answer 16

price range be put into the preliminary prospectus

Question 17

SEC guidance suggests bona fide price range for stocks priced below $20 be

Answer 17

a $2 range (plus and minus $1)

Question 18

SEC guidance suggests bona fide price range for stocks above $20 to be

Answer 18

20% of the upper endpoint of the range

Question 19

With regards to money supply, the higher number always

Answer 19

includes the lower number (M3 includes M2 and M1)

Question 20

Example of M1

Answer 20

Cash and Coins

Question 21

Example of M2

Answer 21

Savings deposits and non-institutional money markets

Question 22

Example of M3

Answer 22

Large liquid assets and large time deposits

Question 23

expenses associated with starting a new business such as legal fees, business filing fees and registration fees

Answer 23

Organization costs

Question 24

Organization costs are handled on the balance sheet by

Answer 24

amortizing them as an intangible asset

Question 25

In a bankruptcy, the order of creditors is

Answer 25

Secured Creditors
The IRS
Owners of debentures
Preferred Stockholders