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NEW QUESTION # 1317
If two events A and B are mutually exclusive, what does the special rule of addition state?
- A. P(A and B) = P(A) + P(B)
- B. P(A and/or B) = P(A) +P(B)
- C. P(A or B) = P(A) + P(B)
Answer: C
Explanation:
The key word is that these events are mutually exclusive. So P(A or B) = P(A) + P(B). The probabilities stand alone.
NEW QUESTION # 1318
Consider a 5-year, 5% coupon, semi-annual payment bond and a 10-year, 5% coupon, semi-annual payment bond. The price and required return of both are $1,000 and 5%, respectively. If the level of market rates increases such that both bonds have required returns of 6%:
- A. the price of the 5-year bond will decrease by 4.26%
- B. the price of the 10-year bond will decrease by 7.36%
- C. the price of the 5-year bond will decrease by 4.49%
Answer: A
Explanation:
The new price of the 5-year bond is $957.35, and the new price of the 10-year bond is
$ 925.61.
NEW QUESTION # 1319
Purchasing factory equipment on credit results in a
- A. debit to an asset account and a credit to a liability account.
- B. debit to an expense account and a credit to a liability account.
- C. debit to a liability account and a credit to an asset account.
Answer: A
Explanation:
This transaction results in an increase to an asset account and an increase to a liability account. Assets are increased with debits and liabilities are increased with credits.
NEW QUESTION # 1320
It is estimated that 70% of motorists on a certain stretch of highway exceed the speed limit. A highway patrolman with a radar device randomly selects 15 motorists on this part of the highway and checks their speed. What is the probability that at least 13 are caught speeding?
- A. 0.908
- B. 0.128
- C. 0.092
Answer: B
Explanation:
We use the binomial distribution with n = 15 and pai = 0.7 to get P(X>= 13) = p(13) + p(14) + p(15) = 0.092 + 0.031 + 0.005 = 0.128.
NEW QUESTION # 1321
It is important for any firm to determine its appropriate target cash balance:
- A. because there is a trade-off between the benefit and cost of liquidity.
- B. because of the fluctuation in interest rates on marketable securities.
- C. since most firms follow flexible policies of working capital management.
Answer: A
NEW QUESTION # 1322
An item of inventory with an invoice price of $80, on which 50% is added as markup, has a current replacement cost of $82. Under LCM, which amount should be used to determine the value of this item of inventory?
- A. $123.
- B. $82.
- C. $80.
Answer: C
Explanation:
Under LCM, the lower of cost or market is used. In this case, cost ($80) is lower than market
($82).
NEW QUESTION # 1323
Which of the following statements is least accurate with respect to the price volatility characteristics for option-free bonds?
- A. A convexity adjustment really won't have any impact on estimating the new bond price, unless the yield change is fairly significant.
- B. At very high or very low levels of yield, the convexity adjustment will be the greatest.
- C. The convexity adjustment to the duration estimate will always be positive for option free bonds.
Answer: B
Explanation:
At very high or very low levels of yield, the price curve of a bond flattens out. However, convexity measures the curvature. Thus, when the pricing curve is flat, there will be less curvature and hence the convexity adjustment will be the least.
NEW QUESTION # 1324
Which of the following is NOT a hedge fund classification?
- A. Speculative fund
- B. Event based fund
- C. Macro fund
Answer: A
Explanation:
While different hedge funds have varying degrees of risk and they take positions in risky derivatives which may be quite speculative, this is not one of their classifications, however.
NEW QUESTION # 1325
This is an example of:
- A. Candlestick chart.
- B. Bar chart.
- C. Point and figure chart.
Answer: A
Explanation:
Price moves are clearly visible in the candlestick chart (compared to a bar chart).
NEW QUESTION # 1326
A 5-year, semi-annual pay, 7-1/2% coupon bond is priced at par. The bond is callable beginning with the first coupon payment date 3 years from the present date. In the absence of default by the bond issuer:
- A. holders of this bond may receive coupon interest as high as 7-1/2% per annum or as low as 3.75% per annum
- B. holders of this bond may receive as many as 10 cash flows or as few as 6
- C. holders of this bond may receive coupon interest as high as 5% per annum or as low as 2.5% per annum
Answer: B
Explanation:
There are two coupon payments per year for a semi-annual pay bond. The bond can be called on the first payment of the 3rd year, payment number 5.
NEW QUESTION # 1327
In which of the following markets are economic profits zero in the long run?
I). price-taking markets
II). monopolistically competitive markets
III). contestable markets
- A. I and II.
- B. I and III.
- C. I, II and III.
Answer: C
Explanation:
In all of these markets, barriers to entry and exit are low so that abnormal economic profits cannot prevail for very long. In the long run, economic profits in all of these markets equal zero so that the firm earn only the normal rate of return on their resources.
NEW QUESTION # 1328
An uptrend is when a security makes ____ lows and _____ highs.
- A. lower, higher.
- B. higher, higher.
- C. higher, lower.
Answer: B
Explanation:
An uptrend for a security is when the price goes to higher highs and higher lows.
NEW QUESTION # 1329
Studies suggest that professional portfolio managers do not beat the market on a risk-adjusted basis because:
- A. transactions costs and research expenses offset much of the gains from timing and analysis
- B. of the restrictions placed upon them by risk-averse shareholders
- C. their ability to analyze individual stocks is not superior most of the time
Answer: A
Explanation:
The most recent studies showed that analysts appear to have superior timing and analysis ability, but they cannot compensate for the higher cost of doing the analysis. Risk aversion of the client should be irrelevant to the performance on a risk-adjusted basis.
NEW QUESTION # 1330
The industry demand curve in an oligopoly market
- A. is more inelastic than the demand curve facing an individual oligopolistic firm.
- B. has the same elasticity as the demand curve facing an individual oligopolistic firm.
- C. is more elastic than the demand curve facing an individual oligopolistic firm.
Answer: A
Explanation:
If an oligopolistic firm changes price alone, the response will be much stronger than the response to the same price change when all of the firm's rivals make the same move. The industry demand curve is relatively inelastic in comparison to the demand curve one firm faces when none of its rivals change price. That is how cheating on collusive agreements pays off, i.e. one firm gains by cutting price because the other firms have not cut price.
NEW QUESTION # 1331
Which instrument may allow an investor to profit from a stock price decline?
- A. Put option.
- B. Call option.
- C. Warrant.
Answer: A
Explanation:
A put option allows the buyer to sell a stock at a predetermined price at some specified date in the future. The purchaser of a put option profits by being able to purchase the stock at a low price and subsequently sell it at the higher exercise price.
NEW QUESTION # 1332
If two companies have identical operating risk, they also have identical
- A. Sensitivity of operating earnings to changes in the number of units produced and sold.
- B. Business risk.
- C. Total leverage.
Answer: A
NEW QUESTION # 1333
Which of the following is NOT a disadvantage of the IRR method?
- A. It is affected by the scale and timing of project cash flows.
- B. It is more difficult to compute than NPV.
- C. It measures the expected rate of return from a project.
Answer: C
Explanation:
The IRR measures the expected rate of return when expected cash flows are used for its calculation. This is not a disadvantage of the IRR method.
NEW QUESTION # 1334
The need for money arises when income is received only occasionally (say once a month) in discrete amounts, but expenditures occur continuously. This type of demand for money is:
- A. transactions-related.
- B. precautionary.
- C. speculative.
Answer: A
Explanation:
Money is needed to use in the purchase of goods and services.
NEW QUESTION # 1335
If the Fed wants to fight inflation, it should:
I). lower the federal funds rate target.
II). raise the federal funds rate target.
III). increase the supply of money.
IV). decrease the supply of money.
- A. II and IV.
- B. II and III.
- C. I and IV.
Answer: A
Explanation:
Raising the federal funds rate target will decrease the supply of money.
NEW QUESTION # 1336
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