Finance Answers

Financial Management (Explain how answer was reached)

4. Which of the following statements is CORRECT?

a. A good goal for a firm’s management is maximization of expected EPS.

b. Most business in the U.S. is conducted by corporations, and corporations’ popularity results primarily from their favorable tax treatment.

c. Because most stock ownership is concentrated in the hands of a relatively small segment of society, firms' actions to maximize their stock prices have little benefit to society.

d. Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited.

e. The potential exists for agency conflicts between stockholders and managers.

Financial Management (Explain how answer was reached)

3. Which of the following statements is CORRECT?

a. If General Electric were to issue new stock this year it would be considered a secondary market transaction since the company already has stock outstanding.

b. Capital market transactions only include preferred stock and common stock transactions.

c. The distinguishing feature between spot markets versus futures markets transactions is the maturity of the investments. That is, spot market transactions involve securities that have maturities of less than one year, whereas futures markets transactions involve securities with maturities greater than one year.

d. Both Nasdaq "dealers" and NYSE “specialists” hold inventories of stocks.

e. An electronic communications network (ECN) is a physical location exchange.

Financial Management (Explain how answer was reached)

2. Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?

a. Households start saving a larger percentage of their income.
b. The economy moves from a boom to a recession.
c. The level of inflation begins to decline.
d. Corporations step up their expansion plans and thus increase their demand for capital.
e. The Federal Reserve uses monetary policy in an attempt to stimulate the economy.

Financial Management (Explain how answer was reached)
1. Which of the following statements is CORRECT?

a. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability.
b. It is generally easier to transfer one’s ownership interest in a partnership than in a corporation.

c. One of the advantages of the corporate form of organization is that it avoids double taxation.

d. One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., “one person, one vote.”

e. Corporations of all types are subject to the corporate income tax.

You are only allowed to use excel.

Question1
Test conditional asset pricing

The excel file contains:
Monthly returns (including dividends) of the three portfolios constructed .
o Monthly returns (including dividends) of the stock index.
o Monthly returns of a factor representing the exchange rate risk (a mimicking portfolio
constructed based on the SEK/USD exchange rate).
o The riskfree rate: the 30-day t-bill rate per year.
o The 10-year treasury bond yield to maturity, % per year.

1. Use the three equity portfolios as the test assets and perform a test of conditional
multifactor model with the market portfolio (market index) and the mimicking
portfolio for the exchange rate risk as factors and the lagged yield spread as the
instrument. Note that the yield spread is the difference between the yield on a long
term bond and the short term interest rate.

b) Plot the conditional betas in a diagram. What are the risk exposure of the different portfolios on the different factors.

Question2
The Excel file contains daily data on fixed rate swaps of different maturities

a)Compute the first three principal components for the interest rates.

b) Run a multiple regression of the annual interest rates of different maturities on the
computed principal components (one regression for each maturity).
Note: use the function LINEST in Excel to estimate the regressions.

c) For each swap compute the percentage of the total variance explained by each of
the principal components.

what is the relationship between final accounts and budgetary control ?

In vertical analysis, the base amount for each income statement item is

net sales.

net income.

sales.

gross profit.

Each of the following is an extraordinary item except?

losses attributable to labor strikes.

effects of major casualties, if rare in the area.

expropriation of property by a foreign government.

effects of a newly enacted law or regulation.

The disposal of a significant segment of a business is called?
discontinued operations.

an other expense.

an extraordinary item.

a change in accounting principle.

The acid-test (quick) ratio

a. is the same as the current ratio except it is rounded to the nearest whole percent.

b. is used to quickly determine a company's solvency and long-term debt paying ability.

c. relates cash, short-term investments, and net receivables to current liabilities.

d. is calculated by taking one item from the income statement and one item from the balance sheet.