Chapter 12 Test Bank - Static PDF

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Chapter 12 Test Bank - Static Student: _______________________________________________________________________________________

1. A. B. C. D.

2.

A. B. C. D.

3. A. B. C. D.

4.

A top-down analysis of a firm's prospects starts with an analysis of the ____. firm's position in its industry U.S. economy or even the global economy industry specific firm under consideration

In 1980 the dollar-yen exchange rate was about $.0045. In 2012 the yen-dollar exchange rate was about 80 yen per dollar. A Japanese producer would have had to increase the dollar price of a good sold in the United States by approximately _____ to maintain the same yen price in 2012. 178% 79.5% 265.4% 36%

An increase in the value of the yen against the U.S. dollar can cause the Japanese automaker Toyota to either _____________ on its U.S. sales. lose market share or reduce its profit margin gain market share or reduce its profit margin lose market share or increase its profit margin gain market share or increase its profit margin

You estimate that the present value of a firm's cash flow is valued at $15 million. The break up value of the firm if you were to sell the major assets and divisions separately would be $20 million. This is an example of what Peter Lynch would call ___________.

A. B. C. D.

a stalwart slow growth a star an asset play

5. Between 2003 and 2013, the purchasing power of the U.S. dollar increased relative to the purchasing power of _______. A. B. C. D.

6. A. B. C. D.

7. A. B. C. D.

8. A. B. C. D. 9. A. B. C. D.

Japan the Euro Switzerland Canada

If you believe the economy is about to go into a recession, you might change your asset allocation by selling _______ and buying ______. growth stocks; long-term bonds long-term bonds; growth stocks defensive stocks; growth stocks defensive stocks; long-term bonds

The yield curve spread between the 10-year T-bond yield and the federal funds rate is a _______ economic indicator. leading lagging coincident mixed

The Conference Board's Consumer Confidence Index is released ______. daily weekly monthly quarterly You can earn abnormal returns on your investments via macro forecasting ______. if you can forecast the economy at all if you can forecast the economy as well as the average forecaster if you can forecast the economy better than the average forecaster only if you can forecast the economy with perfect accuracy

10. Which of the following industries would most analysts classify as mature? A. internet service providers B. biotechnology C. wireless communication D. auto manufacturing 11. Which one of the following stocks represents industries with below-average sensitivity to the state of the economy? A. financials B.technology C.food and beverage D.cyclicals 12. The most widely used monetary policy tool is _________. A. B. C. D.

altering the discount rate altering reserve requirements open market operations increasing the budget deficit

13. According to __________ economists, the growth of the U.S. economy in the 1980s can be attributed to lower marginal tax rates, which improved the incentives for people to work. A. B. C. D.

Keynesian monetarist supply-side demand-side

14. The market value of all final goods and services produced during a given time period is called ______. A. B. C. D.

GDP industrial production capacity utilization factory orders

15. A big increase in government spending is an example of a _________. A. B. C. D.

positive demand shock positive supply shock negative demand shock negative supply shock

16. GDP refers to _________. A. B. C. D.

the amount of personal disposable income in the economy the difference between government spending and government revenues the total manufacturing output in the economy the total production of goods and services in the economy

17. Portfolio manager Peter Lynch would classify Coca-Cola as _________. A. B. C. D.

an asset play a slow grower a stalwart a turnaround

18. Attempting to forecast future earnings and dividends is consistent with which of the following approaches to securities analysis? A. technical analysis B. fundamental analysis C. both technical analysis and fundamental analysis D.indexing 19. The analysis of the determinants of firm value is called _____________. A. B. C. D.

fundamental analysis technical analysis momentum analysis indexing

20. Which of the following companies is the best example of a turnaround? A. B. C. D.

Coca-Cola Microsoft ExxonMobil Kmart

21. Inflation is caused by ________________. A. B. C. D.

unions rapid growth of the money supply excess supply low rates of capacity utilization

22. Everything else equal, if you expect a larger interest rate increase than other market participants, you should _________. A. B. C. D.

buy long-term bonds buy short-term bonds buy common stocks buy preferred stocks

23. To obtain an approximate estimate of the real interest rate, one must _________ the __________ the nominal risk-free rate. A. B. C. D.

add; default premium to subtract; default premium from add; expected inflation to subtract; expected inflation from

24. Which of the following would not be considered a supply shock? A. a change in the price of imported oil B. frost damage to the orange crop C. a change in the level of education of the average worker D. an increase in the level of government spending

25. If economic conditions are such that very slow growth is expected in the foreseeable future, one would want to invest in industries with __________ sensitivity to economic conditions. A. B. C. D.

below-average average above-average Since growth is expected to be slow, sensitivity to economic conditions is not an issue.

26. Which of the following is not an example of fiscal policy? A. B. C. D.

Social Security spending Medicare spending Fed purchases of Treasury securities changes in the tax rate

27. Supply-side economics tends to focus on _______________. A. B. C. D.

government spending price controls monetary policy increasing productive capacity

28. Which one of the following describes the amount by which government spending exceeds government revenues? A. balance of trade B. budget deficit C. gross domestic product D. output gap 29. Which one of the following is probably the most direct and immediate way to stimulate or slow the economy, although it is not very useful for fine-tuning economic performance? A. fiscal policy B. monetary policy C. supply-side policy D. rising minimum wages 30. In macroeconomic terms, an increase in the price of imported oil or a decrease in the availability of oil is an example of a _________. A. B. C. D.

demand shock supply shock monetary shock refinery shock

31. ______________ in interest rates are associated with stock market declines. A. B. C. D.

Anticipated increases Unanticipated increases Anticipated decreases Unanticipated decreases

32. The average duration of unemployment is _________. A. B. C. D.

a leading economic indicator a coincidental economic indicator a lagging economic indicator both a coincidental indicator and a lagging indicator

33. The ratio of the purchasing power of two economies is termed the _______. A. B. C. D.

balance of trade real exchange rate real interest rate nominal exchange rate

34. Everything else equal, an increase in the government budget deficit would: I. Increase the government's demand for funds II. Shift the demand curve for funds to the left III. Increase the interest rate in the economy A. B. C. D.

II only I and II only I and III only I, II, and III

35. Which of the following affects a firm's sensitivity of its earnings to the business cycle? I. Financial leverage II. Operating leverage III. Type of product A. B. C. D.

II only I and II only I and III only I, II, and III

36. Which of the following describes the rate at which your ability to purchase grows while you hold an interest-earning investment? A. the nominal exchange rate B. the nominal interest rate C. the real exchange rate D. the real interest rate 37. An example of a highly cyclical industry is the _________. A. B. C. D.

automobile industry tobacco industry pharmaceutical industry utility industry

38. The stock price index and contracts and orders for nondefense capital goods are _________. A. B. C. D.

leading economic indicators coincidental economic indicators lagging economic indicators leading and coincidental indicators, respectively

39. Which one of the following is not a demand shock? A. increase in government spending B. increases in the money supply C. reductions in consumer spending D. improvements in education of U.S. workers

40. Which one of the following is not a U.S. supply shock? A. unions force an increase in national wage rates. B. the oil supply from the Middle East drops 30%. C. extended droughts reduce U.S. food production 25%. D. chinese purchases of U.S. exports increase. 41. Pharmaceuticals, food, and other necessities would be good performers during the ____ stage of the business cycle. A. B. C. D.

peak contraction trough expansion

42. Capital goods industries such as industrial equipment, transportation, and construction would be good investments during the _____ stage of the business cycle. A. B. C. D.

peak contraction trough expansion

43. If you are going to earn abnormal returns based on your macroeconomic analysis, it will most likely have to be because __________. A. B. C. D.

you have more information than others you are a better analyst than others you have the same information as others you are an equally good analyst as others

44. If the economy is going into a recession, a good industry to invest in would be the __________ industry. A. B. C. D.

automobile banking construction medical services

45. Members of the Board of Governors of the Federal Reserve System are appointed by ____________ to serve _____________ terms. A. B. C. D.

the Senate; 10-year the House of Representatives; 8-year the President; 14-year the Secretary of the Treasury; 6-year

46. A firm in the early stages of its industry life cycle will likely have _________. A. B. C. D.

low dividend payout rates low rates of investment low rates of return on investment low R&D spending

47. Which of the following describes the percentage of the total labor force that has yet to find work? A. the capacity utilization rate B. the participation rate C. the unemployment rate D. the natural rate 48. Which of the following is the rate at which the general level of prices for goods and services is rising? A. the exchange rate B. the gross domestic product growth rate C. the inflation rate D. the real interest rate 49. An analyst starts by examining the broad economic environment and then considers the implications of the economy on the industry in which the firm operates. Finally, the firm's position within the industry is examined. This is called __________ analysis. A. B. C. D.

bottom-up outside-inside top-down upside-down

50. Assume that the Federal Reserve increases the money supply. This will cause: I. Interest rates to decrease II. Consumption and investment to decrease III. Inflation to fall A. B. C. D.

I only I and II only II and III only I, II, and III

51. The discount rate is the ________. A. B. C. D.

interest rate banks charge each other for overnight loans of deposits on reserve at the Fed interest rate the Fed charges commercial banks on short-term loans interest rate that the U.S. Treasury pays on its bills interest rate that banks charge their best corporate customers

52. If the currency of your country is depreciating, this should __________ exports and __________ imports. A. B. C. D.

stimulate; stimulate stimulate; discourage discourage; stimulate discourage; discourage

53. If interest rates increase, business investment expenditures are likely to __________ and consumer durable expenditures are likely to _________. A. B. C. D.

increase; increase increase; decrease decrease; increase decrease; decrease

54. Increases in the money supply will cause demand for investment and consumption goods to __________ in the short run and may cause prices to __________ in the long run. A. B. C. D.

increase; increase increase; decrease decrease; increase decrease; decrease

55. The nominal interest rate is 6%. The inflation rate is 3%. The exact real interest rate must be _________. A. B. C. D.

2.91% 3.85% 1.45% 2.12%

56. The nominal interest rate is 10%. The real interest rate is 4%. The inflation rate must be _________. A. B. C. D.

-6% 4% 5.77% 14.4%

57. Order the following stages in the industry life cycle from the earliest to latest to occur after the start-up phase: I. Maturity II. Relative decline III. Consolidation A. B. C. D.

III, I, II I, III, II III, II, I I, II, III

58. An investment strategy that entails shifting the portfolio into industry sectors that are expected to outperform others based on macroeconomic forecasts is termed ______________. A. B. C. D.

sector rotation contraction/expansion analysis life-cycle analysis business-cycle shifting

59. Firm A produces gadgets. The price of gadgets is $2 each. Firm A has total fixed costs of $1,000,000 and variable costs of $1 per gadget. The corporate tax rate is 40%. If the economy is strong, the firm will sell 2,000,000 gadgets. If the economy enters a recession, the firm will sell only half as many gadgets. If the economy enters a recession, the aftertax profit of firm A will be _________. A. $0 B. $90,000 C. $180,000 D. $270,000 60. Firm B produces gadgets. The price of gadgets is $2 each. Firm B has total fixed costs of $300,000 and variable costs of $1.40 per gadget. The corporate tax rate is 30%. If the economy is strong, the firm will sell 2,000,000 gadgets. If the economy enters a recession, the firm will sell only half as many gadgets. If the economy is strong, the after-tax profit of firm B will be _________. A. B. C. D.

$90,000 $210,000 $300,000 $630,000

61. The fed funds rate is the __________. A. B. C. D.

interest rate that banks charge their best corporate customers interest rate banks charge each other for overnight loans of deposits on reserve at the Fed interest rate the Fed charges commercial banks on short-term loans interest rate that the U.S. Treasury pays on its bills

62. 62. Firm B produces gadgets. The price of gadgets is $2 each. Firm B has total fixed costs of $300,000 and variable costs of $1.40 per gadget. The corporate tax rate is 40%. What is the breakeven number of gadgets B must sell to make a zero after-tax profit A. B. C. D.

300,000 400,000 500,000 600,000

63. The goal of supply-side policies is to _______. A. B. C. D.

increase government involvement in the economy create an environment where workers and owners of capital have the maximum incentive and ability to produce and develop goods maximize tax revenues of the government focus more on wealth redistribution policies

64. An industry analysis for manufacturers of a small personal care gadget observed the following characteristics: 1. Industry sales have grown at 15%-20% per year in recent years and are expected to grow at 10%-15% per year over the next 3 years, still well above the economic growth rate. 2. Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets, which remain largely unexploited. 3. Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year. 4. The current penetration rate in the United States is 60% of households and will be difficult to increase. 5. Manufacturers compete fiercely on the basis of price, and price wars within the industry are common. 6. Some manufacturers are able to develop new, unexploited niche markets in the United States based on company reputation, quality, and service. 7. Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase. 8. New manufacturers continue to enter the market. Characteristics 4 and 5 would indicate that the industry is in the _________ stage. A. B. C. D.

start-up consolidation maturity relative decline

65. An industry analysis for manufacturers of a small personal care gadget observed the following characteristics: 1. Industry sales have grown at 15%-20% per year in recent years and are expected to grow at 10%-15% per year over the next 3 years, still well above the economic growth rate. 2. Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets, which remain largely unexploited. 3. Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year. 4. The current penetration rate in the United States is 60% of households and will be difficult to increase. 5. Manufacturers compete fiercely on the basis of price, and price wars within the industry are common. 6. Some manufacturers are able to develop new, unexploited niche markets in the United States based on company reputation, quality, and service. 7. Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase. 8. New manufacturers continue to enter the market. Characteristics _______ would be typical of an industry that is in the start-up stage. A. B. C. D.

4 and 7 1 and 4 2 and 5 none of these options

66. An industry analysis for manufacturers of a small personal care gadget observed the following characteristics: 1. Industry sales have grown at 15%-20% per year in recent years and are expected to grow at 10%-15% per year over the next 3 years, still well above the economic growth rate. 2. Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets, which remain largely unexploited. 3. Some manufacturers have created a new niche in the industry by selling directly to customers through mail order. Sales for this industry segment are growing at 40% per year. 4. The current penetration rate in the United States is 60% of households and will be difficult to increase. 5. Manufacturers compete fiercely on the basis of price, and price wars within the industry are common. 6. Some manufacturers are able to develop new, unexploited niche markets in the United States based on company reputation, quality, and service. 7. Several manufacturers have recently merged, and it is expected that consolidation in the industry will increase. 8. New manufacturers continue to enter the market. Characteristics ____ would be typical of an industry that is in the consolidation stage. A. B. C. D.

6 and 7 1 and 4 5 and 6 2 and 8

67. An industry analysis for manufacturers of a small personal care gadget observed the following characteristics: 1. Industry sales have grown at 15%-20% per year in recent years and are expected to grow at 10%-15% per year over the next 3 years, still well above the economic growth rate. 2. Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets, which remain largely unexploited. 3. Some manufacturers have created a new niche in the industry by selling directly to customer...