Stock Fundamentals Quiz Prep Flashcards

1
Q

What is a leading indicator? (Give definition and an example)

A

Economic series that usually reach peaks or troughs before corresponding peaks or troughs in aggregate economy activity. For example bond yields are thought to be a good leading indicator of the stock market because bond traders anticipate and speculate trends in the economy (even though they aren’t always right).

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2
Q

What is a coincident indicator? (Give definition and an example)

A

Economic series that have peaks and troughs that roughly coincide with the peaks and troughs in the business cycle. Personal income is a coincidental indicator for the economy: high personal income rates will coincide with a strong economy.

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3
Q

What is a lagging indicator? (Give definition and an example)

A

Economic series that experience their peaks and troughs after those of the aggregate economy. Unemployment is one of the most popular lagging indicators. If the unemployment rate is rising, it indicates that the economy has been doing poorly.

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4
Q

What is a mutual fund?

A

Mutual Funds are collective investment entities: they are portfolios sold to the public.

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5
Q

What are the 3 types of mutual funds?

A

Open-end funds
Close-end funds
Unit investment trusts

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6
Q

Open-end funds

A

can sell shares to the public every day and is to be able to buy back those shares at the end of any day.

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7
Q

Close-end funds

A

usually issue shares only once to the public in an initial public offering (IPO). Any investor who no longer wish to invest into the fund has to sell it to another investor: the fund will not buy shares back.

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8
Q

Unit investment trusts

A

also usually issue shares once, but they allow investors to sell back their shares to the fund. They often have a limited time span.

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9
Q

How do you calculate the value of a share of a mutual fund?

A

NAV= Market Value Assets - Liabilities/# of shares outstanding

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10
Q

What is an ETF?

A

It allows investors to buy and sell shares of a portfolio of securities.

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11
Q

What is the difference between a mutual fund and an ETF?

A

It is like a mutual fund but the difference is that it closely track an underlying index or portfolio and it is traded during the day, like a stock. Mutual funds are bought or sold only at the end of the day.

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12
Q

What is top-down approach to value a stock?

A
  1. ) First examine the influence of the general economy on all firms and the security markets
  2. ) Then analyze the prospects for various global industries with the best outlooks in this economic environment
  3. ) Finally turn to the analysis of individual firms in the preferred industries and to the common stock of these firms.
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13
Q

In what kind of industry would buy a stock during a time when the overall stock market is close to the lowest point?

A

Financial industry because it is a cyclical industry based on interest rates.

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14
Q

In what kind of industry would buy a stock during a time when the overall stock market is close to the highest point?

A

Precious metals

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15
Q

What are the five stages of the life cycle of an industry?

A
  1. ) Pioneering development
  2. ) Rapid accelerating growth
  3. ) Mature growth
  4. ) Stabilization & market maturity
  5. ) Deceleration of growth & decline
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16
Q

What are the five forces of the Porter model to analyze an industry?

A
  1. Competition in the industry;
  2. Potential of new entrants into the industry;
  3. Power of suppliers;
  4. Power of customers;
  5. Threat of substitute products.
17
Q

What is the concept of barrier of entry? Give definition and 2 or 3 situations of barrier of entry.

A

Barriers to entry are factors or conditions in the competitive environment of an industry that make it difficult for new businesses to begin operating in that market. For example government policy (regulation), or capital requirement (large investments).

18
Q

What would you look for when analyzing the intensity of competition?

A
  1. ) Number of competitors
  2. ) Stage of the industry
  3. ) High fixed cost: then it put pressure on the firms because they have to make sure that the capacity is high.
  4. ) Differentiation: if there is not much difference between firms, then competition is more intense.
  5. ) High strategic stakes: a diversified firm could focus on one industry because of an overall strategy, so it put pressure to compete.
  6. ) High exit barriers
19
Q

What is the concept of substitute?

A

There is competition from other industries that can produce substitute products. These products can perform the same function but they are made differently.

20
Q

What would you look for when examining the bargaining power of buyers?

A

The buyer can be powerful and limit the profit companies can make.

It happens when:
1.) There is a concentration, so the buyer buy large quantities relative to seller sales.
2.) The buyer purchase a product that represent a big part of its purchases, so he is looking for bargains.
3.) The product is standard and undifferentiated
4.) The buyer is in a very competitive environment himself, looking for bargains when he purchases its supply.
5.) Buyer is already integrated in a big company.
The product is not important to the quality of the product that the buyer produces.

21
Q

What would you look for when examining the bargaining power of suppliers?

A

A supplier has power when:

  1. ) There is not a lot of companies making that product
  2. ) There is not much substitute
  3. ) Suppliers deliver to other industries, so they don’t have to rely on that industry particularly.
  4. ) The product of the supplier is very important for the buyer
  5. ) Labor organization