Questions and Answers of Investment Analysis Portfolio

Based on Exhibit 1 and Wakuluk’s assumptions about short-term rates and expected inflation, short-term rates in Country X are most likely to be:A. low and bottoming.B. approaching a peak.C. above
Based on Exhibit 1, what capital market effect is Country Z most likely to experience in the short-term?A. Cyclical assets attract investors.B. Monetary policy becomes restrictive.C. The yield curve
Based on Observation 1, fiscal and monetary policies in Country Y will most likely lead to:A. low nominal rates.B. high nominal rates.C. either high or low nominal rates.
Based on Observation 2, what impact will the policy changes have on the trend rate of growth for Country Y?A. Negative B. Neutral C. Positive
Based on Observation 3, Wakuluk most likely expects Country Y’s yield curve in the near term to:A. invert.B. flatten.C. steepen.
Which of the following is least important as a reason for a written investment policy statement (IPS)?A. The IPS may be required by regulation.B. Having a written IPS is part of best practice for a
Which of the following best describes the underlying rationale for a written investment policy statement (IPS)?A. A written IPS communicates a plan for trying to achieve investment success.B. A
A written investment policy statement (IPS) is most likely to succeed if:A. Created by a software program to assure consistent quality.B. It is a collaborative effort of the client and the portfolio
The section of the investment policy statement (IPS) that provides information about how the policy may be executed, including investment constraints, is best described as the:A. Investment
Which of the following is least likely to be placed in the appendices to an investment policy statement (IPS)?A. Rebalancing Policy.B. Strategic Asset Allocation.C. Statement of Duties and
Which of the following typical topics in an investment policy statement (IPS) is most closely linked to the client’s “distinctive needs”?A. Procedures.B. Investment Guidelines.C. Statement of
An investment policy statement that includes a return objective of outperforming the FTSE 100 by 120 basis points is best characterized as having a(n):A. Relative return objective.B. Absolute return
Risk assessment questionnaires for investment management clients are most useful in measuring:A. Value at risk.B. Ability to take risk.C. Willingness to take risk.
Which of the following is best characterized as a relative risk objective?A. Value at risk for the fund will not exceed US$3 million.B. The fund will not underperform the DAX by more than 250 basis
After interviewing a client in order to prepare a written investment policy statement (IPS), you have established the following:The client is best described as having a:A. Low ability to take risk,
In preparing an investment policy statement, which of the following is most difficult to quantify?A. Time horizon.B. Ability to accept risk.C. Willingness to accept risk.
After interviewing a client in order to prepare a written investment policy statement (IPS), you have established the following:The client is best described as having a:A. Low ability to take risk,
Explain whether top-down or bottom-up forecasting is more appropriate for each of the different investors.1. The MegaCosmos Mutual Fund has a stated goal of investing in the stock market composites
Based on Exhibit C, which of the components of economic growth has contributed most to GDP growth during the 1970–1989 time period?A. Labor input.B. Capital stock.C. Total factor productivity.Use
Consider the pairwise correlations of monthly returns of the following asset classes:Based solely on the information in the preceding table, which equity asset class is most sharply distinguished
A client who is a director of a publicly listed corporation is required by law to refrain from trading that company’s stock at certain points of the year when disclosure of financial results are
In defining asset classes as part of the strategic asset allocation decision, pairwise correlations within asset classes should generally be:A. Equal to correlations among asset classes.B. Lower than
A client who is a 34-year-old widow with two healthy young children (aged 5 and 7) has asked you to help her form an investment policy statement. She has been employed as an administrative assistant
Returns on asset classes are best described as being a function of:A. The failure of arbitrage.B. Exposure to the idiosyncratic risks of those asset classes.C. Exposure to sets of systematic factors
The timing of payouts for property and casualty insurers is unpredictable (“lumpy”) in comparison with the timing of payouts for life insurance companies. Therefore, in general, property and
Tactical asset allocation is best described as:A. Attempts to exploit arbitrage possibilities among asset classes.B. The decision to deliberately deviate from the policy portfolio.C. Selecting asset
All of the following are characteristics of preference shares except:A. They are either callable or putable.B. They generally do not have voting rights.C. They do not share in the operating
Investing the majority of the portfolio on a passive or low active risk basis while a minority of the assets is managed aggressively in smaller portfolios is best described as:A. The core–satellite
Which of the following is not a characteristic of common equity?A. It represents an ownership interest in the company.B. Shareholders participate in the decision-making process.C. The company is
The type of equity voting right that grants one vote for each share of equity owned is referred to as:A. Proxy voting.B. Statutory voting.C. Cumulative voting.
Participating preference shares entitle shareholders to:A. Participate in the decision-making process of the company.B. Convert their shares into a specified number of common shares.C. Receive an
Which of the following statements about private equity securities is incorrect?A. They cannot be sold on secondary markets.B. They have market-determined quoted prices.C. They are primarily issued to
Venture capital investments:A. Can be publicly traded.B. Do not require a long-term commitment of funds.C. Provide mezzanine financing to early-stage companies.
Calculate the book value of a company using the following information:A. h4,500,000 B. h5,200,000 C. h6,500,000 Number of shares outstanding 100,000 Price per share 52 Total assets Total liabilities
Calculate the 2009 return on equity (ROE) of a stable company using the following data:A. 10.0%B. 13.3%C. 16.7% Total sales 2,500,000 Net income 2,000,000 Beginning of year total assets 50,000,000
Which of the following statements most accurately describes one difference between private and public equity firms?A. Private equity firms are focused more on short-term results than public firms.B.
Emerging markets have benefited from recent trends in international markets. Which of the following has not been a benefit of these trends?A. Emerging market companies do not have to worry about a
When investing in unsponsored depository receipts, the voting rights to the shares in the trust belong to:A. The depository bank.B. The investors in the depository receipts.C. The issuer of the
A basket of listed depository receipts, or an exchange-traded fund, would most likely be used for:A. Gaining exposure to a single equity.B. Hedging exposure to a single equity.C. Gaining exposure to
Which of the following is incorrect about the risk of an equity security? The risk of an equity security is:A. Based on the uncertainty of its cash flows.B. Based on the uncertainty of its future
Which of the following is not a primary goal of raising equity capital?A. To finance the purchase of long-lived assets.B. To finance the company’s revenue-generating activities.C. To ensure that
With respect to Level III sponsored ADRs, which of the following is least likely to be accurate? They:A. Have low listing fees.B. Are traded on the NYSE, NASDAQ, and AMEX.C. Are used to raise equity
If a U.S.-based investor purchases a euro-denominated ETF and the euro subsequently depreciates in value relative to the dollar, the investor will have a total return that is:A. Lower than the
Calculate the total return on a share of equity using the following data:Purchase price: $50 Sale price: $42 Dividend paid during holding period: $2 A. –12.0%B. –14.3%C. –16.0%
From an investor’s point of view, which of the following equity securities is the least risky?A. Putable preference shares.B. Callable preference shares.C. Noncallable preference shares.
Which of the following is least likely to be a reason for a company to issue equity securities on the primary market?A. To raise capital.B. To increase liquidity.C. To increase return on equity.
Which of the following statements is most accurate in describing a company’s book value?A. Book value increases when a company retains its net income.B. Book value is usually equal to the
Which of the following statements is least accurate in describing a company’s market value?A. Management’s decisions do not influence the company’s market value.B. Increases in book value may
Holding all other factors constant, which of the following situations will most likely lead to an increase in a company’s return on equity?A. The market price of the company’s shares increases.B.
The text defines 10 representative sectors, repeated here in Exhibit 9-1. Suppose the classification system is based on the criterion of a company’s principal business activity as judged primarily
Which of the following measures is the most difficult to estimate?A. The cost of debt.B. The cost of equity.C. Investors’ required rate of return on debt.
A company’s cost of equity is often used as a proxy for investors’:A. Average required rate of return.B. Minimum required rate of return.C. Maximum required rate of return.
Which of the following is least likely to involve industry analysis?A. Sector rotation strategy.B. Top-down fundamental investing.C. Tactical asset allocation strategy.
1. The GICS classification system classifies companies on the basis of a company’s primary business activity as measured primarily by:A. Assets.B. Income.C. Revenue.2. Which of the following is
A sector rotation strategy involves investing in a sector by:A. Making regular investments in it.B. Investing in a preselected group of sectors on a rotating basis.C. Timing investment to take
Which of the following information about a company would most likely depend on an industry analysis? The company’s:A. Dividend policy.B. Competitive environment.C. Trends in corporate expenses.
The GICS semiconductor and semiconductor equipment industry (453010) has two subindustries—the semiconductor equipment subindustry (45301010) and the semiconductors subindustry (45301020). Members
Which industry classification system uses a three-tier classification system?A. Russell Global Sectors.B. Industry Classification Benchmark.C. Global Industry Classification Standard.
U.S. shipments of prefabricated housing (precut, modular housing) declined sharply in 1999–2004 as the abundant availability of low-cost mortgage financing and other factors led individuals to
In which sector would a manufacturer of personal care products be classified?A. Health care.B. Consumer staples.C. Consumer discretionary.
1. An industry experiencing slow growth and high prices is best characterized as being in the:A. Mature stage.B. Shakeout stage.C. Embryonic stage.2. Which of the following statements about the
Which of the following statements about commercial and government industry classification systems is most accurate?A. Many commercial classification systems include private for-profit companies.B.
1. Which of the following industries is most affected by government regulation?A. Oil services.B. Pharmaceuticals.C. Confections and candy.2. Which of the following industries is least affected by
Which of the following is not a limitation of the cyclical/noncyclical descriptive approach to classifying companies?A. A cyclical company may have a growth component in it.B. Business-cycle
In 1870, women accounted for only 15 percent of the workforce in the United States outside the home. By 1950, after two world wars and the Great Depression, this figure had risen to 30 percent (it
A company that is sensitive to the business cycle would most likely:A. Not have growth opportunities.B. Experience below-average fluctuation in demand.C. Sell products that the customer can purchase
Which of the following factors would most likely be a limitation of applying businesscycle analysis to global industry analysis?A. Some industries are relatively insensitive to the business cycle.B.
Which of the following statements about peer groups is most accurate?A. Constructing a peer group for a company follows a standardized process.B. Commercial industry classification systems often
With regard to forming a company’s peer group, which of the following statements is not correct?A. Comments from the management of the company about competitors are generally not used when
When selecting companies for inclusion in a peer group, a company operating in three different business segments would:A. Be in only one peer group.B. Possibly be in more than one peer group.C. Not
An industry that most likely has both high barriers to entry and high barriers to exit is the:A. Restaurant industry.B. Advertising industry.C. Automobile industry.
Which factor is most likely associated with stable market share?A. Low switching costs.B. Low barriers to entry.C. Slow pace of product innovation.
Which of the following companies most likely has the greatest ability to quickly increase its capacity?A. Restaurant.B. Steel producer.C. Legal services provider.
A population that is rapidly aging would most likely cause the growth rate of the industry producing eyeglasses and contact lenses to:A. Decrease.B. Increase.C. Not change.
If over a long period of time a country’s average level of educational accomplishment increases, this development would most likely lead to the country’s amount of income spent on consumer
If the technology for an industry involves high fixed capital investment, then one way to seek higher profit growth is by pursuing:A. Economies of scale.B. Diseconomies of scale.C. Removal of
Which of the following life-cycle phases is typically characterized by high prices?A. Mature.B. Growth.C. Embryonic.
In which of the following life-cycle phases are price wars most likely to be absent?A. Mature.B. Decline.C. Growth.
When graphically depicting the life-cycle model for an industry as a curve, the variables on the axes are:A. Price and time.B. Demand and time.C. Demand and stage of the life cycle.
Which of the following is most likely a characteristic of a concentrated industry?A. Infrequent, tacit coordination.B. Difficulty in monitoring other industry members.C. Industry members attempting
Which of the following industry characteristics is generally least likely to produce high returns on capital?A. High barriers to entry.B. High degree of concentration.C. Short lead time to build new
An industry with high barriers to entry and weak pricing power most likely has:A. High barriers to exit.B. Stable market shares.C. Significant numbers of issued patents.
Economic value is created for an industry’s shareholders when the industry earns a return:A. Below the cost of capital.B. Equal to the cost of capital.C. Above the cost of capital.
Which of the following is not one of Porter’s five forces?A. Intensity of rivalry.B. Bargaining power of suppliers.C. Threat of government intervention.
Which of the following industries is most likely to be characterized as concentrated with strong pricing power?A. Asset management.B. Alcoholic beverages.C. Household and personal products.
Which of the following industries is most likely to be considered to have the lowest barriers to entry?A. Oil services.B. Confections and candy.C. Branded pharmaceuticals.
With respect to competitive strategy, a company with a successful cost leadership strategy is most likely characterized by:A. A low cost of capital.B. Reduced market share.C. The ability to offer
When conducting a company analysis, the analysis of demand for a company’s product is least likely to consider the:A. Company’s cost structure.B. Motivations of the customer base.C. Product’s
Which of the following statements about company analysis is most accurate?A. The complexity of spreadsheet modeling ensures precise forecasts of financial statements.B. The interpretation of
An analyst estimates the intrinsic value of a stock to be in the range of €17.85 to €21.45.The current market price of the stock is €24.35. This stock is most likely:A. Overvalued.B.
An analyst determines the intrinsic value of an equity security to be equal to $$55$. If the current price is $$47$, the equity is most likely:A. Undervalued.B. Fairly valued.C. Overvalued.
1. An analyst finds that all the securities analyzed have estimated values higher than their market prices. The securities all appear to be:A. Overvalued.B. Undervalued.C. Fairly valued.2. An analyst
Company data for dividend per share (DPS), earnings per share (EPS), share price, and price-to-earnings ratio (P/E) for the most recent five years are presented in Exhibit 10-9.In addition, estimates
The best model to use when valuing a young dividend-paying company that is just entering the growth phase is most likely the:A. Gordon growth model.B. Two-stage dividend discount model.C. Three-stage
1. An analyst is estimating the intrinsic value of a new company. The analyst has one year of financial statements for the company and has calculated the average values of a variety of price
In asset-based valuation models, the intrinsic value of a common share of stock is based on the:A. Estimated market value of the company’s assets.B. Estimated market value of the company’s assets
For the next three years, the annual dividends of a stock are expected to be €2.00,€2.10, and €2.20. The stock price is expected to be h20.00 at the end of three years. If the required rate of
Case 1: Noncallable, Nonconvertible, Perpetual Preferred Shares The following facts concerning the Union Electric Company 4.75 percent perpetual preferred shares (CUSIP identifier: 906548821) are as
Which of the following is most likely used in a present value model?A. Enterprise value.B. Price to free cash flow.C. Free cash flow to equity.
1. An investor expects a share to pay dividends of $3.00 and $3.15 at the end of Years 1 and 2, respectively. At the end of the second year, the investor expects the shares to trade at $40.00. The

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