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Q:
In practice, the Fed's policy of targeting _________ in the 1960s proved to be _________, destabilizing the economy.A)money market conditions; countercyclicalB)money market conditions; procyclicalC)monetary aggregates; countercyclicalD)monetary aggregates; procyclical
Q:
Which of the following are true statements?A)The FOMC usually meets every six weeks to set monetary policy.B)The FOMC issues directives to the trading desk at the New York Fed.C)Designers of the Federal Reserve Act did not envision the use of discount lending as a monetary policy tool.D)All of the above are true statements.E)Only A and B of the above are true statements.
Q:
A policy of targeting free reserves is likely to beA)procyclical.B)stabilizing.C)too difficult to implement practically.D)none of the above.
Q:
The Federal Reserve entity that determines monetary policy strategy is theA)board of governors.B)Federal Open Market Committee.C)Chairman of the board of governors.D)Shadow Open Market Committee.
Q:
A procyclical monetary policy causes the money supply to _________ during recessions and to _________ when the economy is growing.A)increase; increaseB)decrease; decreaseC)increase; decreaseD)decrease; increase
Q:
The Federal Open Market Committee consists ofA)the five senior members of the seven-member board of governors.B)the seven members of the board of governors and seven presidents of the regional Fed banks.C)the seven members of the board of governors and five presidents of the regional Fed banks.D)the twelve regional Fed bank presidents and the chairman of the board of governors.
Q:
Which of the following are true statements?A)The FOMC usually meets every six weeks to set monetary policy.B)The FOMC issues directives to the trading desk at the New York Fed.C)Designers of the Federal Reserve Act did not envision the use of open market operations as a monetary policy tool.D)All of the above are true statements.E)Only A and B of the above are true statements.
Q:
Although the Federal Open Market Committee does not have formal authority to set _________ and the _________, it does possess the authority in practice.A)margin requirements; discount rateB)margin requirements; federal funds rateC)reserve requirements; discount rateD)reserve requirements; federal funds rate
Q:
Although neither _________ nor the _________ is officially set by the Federal Open Market Committee, decisions concerning these policy tools are effectively made by the committee.A)margin requirements; discount rateB)margin requirements; federal funds rateC)reserve requirements; discount rateD)reserve requirements; federal funds rate
Q:
The board of governorsA)establishes, within limits, reserve requirements.B)effectively sets the discount rate.C)sets margin requirements.D)does all of the above.E)does only A and B of the above.
Q:
Each member of the seven-member board of governors is appointed by the president and confirmed by the Senate to serveA)4-year terms.B)6-year terms.C)14-year terms.D)as long as the appointing president remains in office.
Q:
Members of the board of governors areA)chosen by the Federal Reserve Bank presidents.B)appointed by the newly elected President of the United States, as are cabinet positions.C)appointed by the President of the United States and confirmed by the Senate as members resign.D)never allowed to serve more than seven-year terms.
Q:
The chairman of the Board of Governors of the Federal Reserve System exercises a high degree of control over the boardA)through his ability to set the agenda of the board and the FOMC.B)through his role as spokesman for the Fed with the President and before Congress.C)because he can veto decisions made by a majority of the other board members.D)because of all of the above.E)because of only A and B of the above.
Q:
Of the four theories that explain how interest rates on bonds with different terms to maturity are related, the one that views long-term interest rates as equaling the average of future short-term rates expected to occur over the life of the bond is theA)pure expectations theory.B)preferred habitat theory.C)liquidity premium theory.D)segmented markets theory.
Q:
Which of the following are not duties of the Board of Governors of the Federal Reserve System?A)Setting margin requirements, the fraction of the purchase price of securities that has to be paid for with cash.B)Setting the maximum interest rates payable on certain types of time deposits under Regulation Q.C)Approving the discount rate "established" by the Federal Reserve banks.D)Representing the United States in negotiations with foreign governments on economic matters.
Q:
Which of the following theories of the term structure is (are) able to explain the fact that interest rates on bonds of different maturities tend to move together over time?A)The pure expectations hypothesisB)The segmented markets theoryC)The preferred habitat theoryD)Both A and B of the aboveE)Both A and C of the above
Q:
_________ cannot explain the empirical fact that interest rates on bonds of different maturities tend to move together.A)The market segmentation theoryB)The expectations theoryC)The liquidity premium theoryD)Both A and B of the aboveE)Both A and C of the above
Q:
Since yield curves are usually upward sloping, the _________ indicates that, on average, people tend to prefer holding short-term bonds to long-term bonds.A)market segmentation theoryB)expectations theoryC)liquidity premium theoryD)both A and B of the aboveE)both A and C of the above
Q:
Which theory of the term structure proposes that bonds of different maturities are not substitutes for one another?A)market segmentation theoryB)expectations theoryC)liquidity premium theoryD)separable markets theory
Q:
In actual practice, short-term interest rates are just as likely to fall as to rise; this is the major shortcoming of theA)market segmentation theory.B)expectations theory.C)liquidity premium theory.D)separable markets theory.
Q:
According to the liquidity premium theory of the term structure, when the yield curve has its usual slope, the market expectsA)short-term interest rates to rise sharply.B)short-term interest rates to drop sharply.C)short-term interest rates to stay near their current levels.D)none of the above.
Q:
According to the liquidity premium theory of the term structure, a downward-sloping yield curve indicates that short-term interest rates are expected toA)rise in the future.B)remain unchanged in the future.C)decline moderately in the future.D)decline sharply in the future.
Q:
If the yield curve has a mild upward slope, the liquidity premium theory indicates that the market is predictingA)a rise in short-term interest rates in the near future and a decline further out in the future.B)constant short-term interest rates in the near future and further out in the future.C)a decline in short-term interest rates in the near future and a rise further out in the future.D)a decline in short-term interest rates in the near future and an even steeper decline further out in the future.
Q:
When the price of a bond is _________ the equilibrium price, there is an excess supply of bonds and the price will _________.A)above; riseB)above; fallC)below; fallD)below; rise
Q:
If the yield curve slope is flat, the liquidity premium theory indicates that the market is predictingA)a mild rise in short-term interest rates in the near future and a mild decline further out in the future.B)constant short-term interest rates in the near future and further out in the future.C)a mild decline in short-term interest rates in the near future and a continuing mild decline further out in the future.D)constant short-term interest rates in the near future and a mild decline further out in the future.
Q:
When the price of a bond is below the equilibrium price, there is excess _________ in the bond market and the price will _________.A)demand; riseB)demand; fallC)supply; fallD)supply; rise
Q:
According to the liquidity premium theory of the term structure,A)because buyers of bonds may prefer bonds of one maturity over another, interest rates on bonds of different maturities do not move together over time.B)the interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds plus a term premium.C)because of the positive term premium, the yield curve cannot be downward-sloping.D)all of the above.E)only A and B of the above.
Q:
When the price of a bond is above the equilibrium price, there is excess _________ in the bond market and the price will _________.A)demand; riseB)demand; fallC)supply; fallD)supply; rise
Q:
The supply curve for bonds has the usual upward slope, indicating that as the price _________, ceteris paribus, the _________ increases.A)falls; supplyB)falls; quantity suppliedC)rises; supplyD)rises; quantity supplied
Q:
As the price of a bond _________ and the expected return _________, bonds become more attractive to investors and the quantity demanded rises.A)falls; risesB)falls; fallsC)rises; risesD)rises; falls
Q:
Bonds with a maturity that is longer than the holding period have no interest-rate risk.
Q:
Changes in interest rates make investments in long-term bonds risky.
Q:
The current yield goes up as the price of a bond falls.
Q:
The real interest rate is equal to the nominal rate minus inflation.
Q:
Interest-rate risk is the uncertainty that an investor faces because the interest rate at which a bond's future coupon payments can be invested is unknown.
Q:
Which of the following government regulations has the chief purpose of improving control of the money supply?A)deposit insuranceB)restrictions on entry into banking or insuranceC)reserve requirementsD)restrictions on the assets financial intermediaries can hold
Q:
All else being equal, the greater the interest rate the greater is the duration.
Q:
The government regulates financial markets for three main reasons:A)to ensure soundness of the financial system, to improve control of monetary policy, and to increase the information available to investors.B)to improve control of monetary policy, to ensure that financial intermediaries earn a normal rate of return, and to increase the information available to investors.C)to ensure that financial intermediaries do not earn more than the normal rate of return, to ensure soundness of the financial system, and to improve control of monetary policy.D)to ensure soundness of financial intermediaries, to increase the information available to investors, and to prevent financial intermediaries from earning less than the normal rate of return.
Q:
Which of the following are investment intermediaries?A)Finance companiesB)Mutual fundsC)Pension fundsD)All of the aboveE)Only A and B of the above
Q:
Which of the following are not investment intermediaries?A)A life insurance companyB)A pension fundC)A mutual fundD)Only A and B of the above
Q:
Which of the following is a contractual savings institution?A)A life insurance companyB)A credit unionC)A savings and loan associationD)A mutual fund
Q:
Which of the following financial intermediaries are depository institutions?A)A savings and loan associationB)A commercial bankC)A credit unionD)All of the aboveE)Only A and C of the above
Q:
The largest depository institution at the end of 2004 wasA)life insurance companies.B)pension funds.C)state retirement funds.D)none of the above.
Q:
In financial markets, lenders typically have inferior information about potential returns and risks associated with any investment project. This difference in information is calledA)comparative informational disadvantage.B)asymmetric information.C)variant information.D)caveat venditor.
Q:
Successful financial intermediaries have higher earnings on their investments because they are better equipped than individuals to screen out good from bad risks, thereby reducing losses due toA)moral hazard.B)adverse selection.C)bad luck.D)financial panics.
Q:
Financial institutions expect thatA)moral hazard will occur, as the least desirable credit risks will be the ones most likely to seek out loans.B)opportunistic behavior will occur, as the least desirable credit risks will be the ones most likely to seek out loans.C)borrowers will commit moral hazard by taking on too much risk, and this is what drives financial institutions to take steps to limit moral hazard.D)none of the above will occur.
Q:
In recent years, financial markets have become more stable and less risky.
Q:
When the least desirable credit risks are the ones most likely to seek loans, lenders are subject to theA)moral hazard problem.B)adverse selection problem.C)shirking problem.D)free-rider problem.E)principal-agent problem.
Q:
Holding everything else constant, as the dollar weakens vacations abroad become less attractive.
Q:
Interest rates can be accurately described as the rental price of money.
Q:
The government organization responsible for the conduct of monetary policy in the United States is the U.S. Treasury.
Q:
Monetary policy affects interest rates but has little effect on inflation or business cycles.
Q:
A stock is a debt security that promises to make periodic payments for a specific period of time.
Q:
Interest rates are determined in the bond markets.
Q:
Money is anything accepted by anyone as payment for services or goods.
Q:
Monetary policy affectsA)interest rates.B)inflation.C)business cycles.D)all of the above.
Q:
____ are considered a financial institutions.A)BanksB)Insurance companiesC)Finance companiesD)Investment banks
Q:
A securityA)is a claim or price of property that is subject to ownership.B)promises that payments will be made periodically for a specified period of time.C)is the price paid for the usage of funds.D)is a claim on the issuer's future income.
Q:
How does a decrease net working capital affect FCF?
A. Overstates FCF
B. Does not affect FCF
C. Understates FCF
D. It depends
Q:
Which of the following is considered a use of cash?
A. Amortization
B. Depreciation
C. Decrease in net working capital
D. Increase in net working capital
Q:
Capex is expensed over its useful life through which of the following?
A. Depreciation
B. Amortization
C. EBIAT
D. Goodwill
Q:
Which expense reduces the life of an intangible asset?
A. Depreciation
B. Accelerated Depreciation
C. Amortization
D. Capex
Q:
Calculate the companys free cash flow given the following information. A. $250.0mm
B. $340.0mm
C. $500.0mm
D. $300.0mm
Q:
In a DCF analysis, the targets projected FCF and terminal value are discounted to the present and summed to calculate the targets:
A. Enterprise value
B. Market cap
C. Equity value
D. Current value
Q:
In which calculation is the exit multiple method or the perpetuity growth method used?
A. Present value
B. Terminal value
C. WACC
D. FCF
Q:
In a DCF analysis, what is used to capture the remaining value of the target beyond the projection period?
A. Intrinsic value
B. Terminal Value
C. WACC
D. Enterprise Value
Q:
When there are limited (or no) pure play peer companies, which valuation method should be used?
A. Comparable companies analysis
B. Precedent transaction analysis
C. Vertical analysis
D. Discounted cash flow analysis
Q:
A DCF analysis is premised on the principle that the value of a company can be derived from the present value of which of the following?
A. Revenues
B. Gross profits
C. Free cash flow
D. Net working capital
Q:
In which document can one find recommendation from the targets board of directors on how shareholders should respond to a tender offer?
A. 8-K
B. Schedule 13E-3
C. 10-Q
D. Schedule 14D-9
Q:
Which of the following is a negative feature of debt financing?
A. Tax deductibility
B. ROE
C. Covenants
D. EPS accretion
Q:
Which of the following is the cheapest form of financing?
A. Cash on hand
B. Debt financing
C. Equity financing
D. Stock sale
Q:
All of the following are intangible assets EXCEPT:
A. Brand
B. Patents
C. PP&E
D. Copyrights
Q:
Which section of the Internal Revenue Code allows an acquirer to treat the purchase of the targets stock as an asset sale for tax purposes?
A. Section 225 election
B. Section 338
C. Section 338(h)(10) election
D. There is no such revenue code
Q:
Acquirer share price volatility after a deal is announced is a reason why a targets shareholders may find:
A. Equity financing less desirable
B. Debt financing less desirable
C. Equity financing more desirable
D. A mix of debt and equity financing is less desirable
Q:
Which type of corporation is taxed separately from its shareholders?
A. S corporation
B. C corporation
C. LLC
D. All corporations
Q:
When is goodwill created?
A. Purchase price exceeds the net identifiable assets
B. Acquirers P/E is higher than targets
C. Purchase price exceeds the net identifiable assets
D. Acquirers P/E is lower than targets
Q:
When is a merger accretive?
A. Acquirers pro forma EPS is lower
B. Targets P/E is higher than acquirers
C. Acquirers P/E is lower than targets
D. Acquirers P/E is higher than targets
Q:
Assuming this is a stock deal, calculate the goodwill created in the M&A transaction given the following details.
Details:
Shareholders equity: $5,000.0m
Existing goodwill: $1,500.0m
Equity purchase price: $6,600.0m
Tangible and intangible asset write-ups: $1,200.0m
Deferred tax liabilities: $800.0m
A. $2,000.0m
B. $1,500.0m
C. $2,700.0m
D. $3,200.0m
Q:
Which of the following in a buy-side M&A transaction employs analysis at different prices to help analyze and frame valuation?
A. Football field
B. AVP
C. Contribution analysis
D. Consequences analysis
Q:
In a football field graphic for an M&A transaction, which of the following is a proxy for what a financial buyer would be willing to pay for the company?
A. Precedent transactions analysis
B. DCF
C. LBO
D. Comparable companies analysis