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Questions
Q:
Which of the following is not true of an oligopoly?A) They advertise their product.B) The firms recognize their interdependence.C) A few firm account for a large portion of the total output.D) Firms are price takers.
Q:
One of the main problems with the arbitrage pricing theory is __________.
A. its use of several factors instead of a single market index to explain the risk-return relationship
B. the introduction of nonsystematic risk as a key factor in the risk-return relationship
C. that the APT requires an even larger number of unrealistic assumptions than does the CAPM
D. the model fails to identify the key macroeconomic variables in the risk-return relationship
Q:
When a capital lease is used to lease fixed assets for the general government, the governmental fund acquiring the fixed assets debits ________ at the ________.A) expenditures; future value of the minimum lease paymentsB) fixed assets; future value of the minimum lease paymentsC) expenditures, present value of the minimum lease paymentsD) fixed assets; present value of the minimum lease payments
Q:
In the short run, a firm operating as a monopolistic competitor will produce to the point at whichA) MR = ATC. B) MC = ATC. C) P = MC. D) MR = MC.
Q:
Standard deviation of portfolio returns is a measure of ___________.
A. total risk
B. relative systematic risk
C. relative nonsystematic risk
D. relative business risk
Q:
A monopolist is producing at an output level at which ATC = $5, P = $6, MC = $4, and MR = $3.We can conclude thatA) economic profit could be increased by producing more.B) economic profit could be increased by producing less. C) economic profit cannot be increased.D) the firm is earning $10 in economic profits.
Q:
The measure of unsystematic risk can be found from an index model as _________.
A. residual standard deviation
B. R-square
C. degrees of freedom
D. sum of squares of the regression
Q:
The following are transactions for the city of Salem.a. Incurred salaries of $44,000 to be paid next month.b. Tax bills totaling $500,000 mailed to city residents.c. Paid salaries above.d. Computer equipment received in the amount of $11,000, to be paid in 30 days.Required:Analyze the above transactions by using the accounting equation for a proprietary fund.
Q:
A stock's alpha measures the stock's ____________________.
A. expected return
B. abnormal return
C. excess return
D. residual return
Q:
For a perfectly competitive firm at its long -run competitive equilibrium point,A) P = AR = MR = LATC = SATC = MC. B) P = AR = MR = LATC > SATC = MC. C) P = AR = MR = MC = LATC = AVC. D) P > MR > AR > MC > LATC > SATC.
Q:
Match the following definitions to the appropriate government accounting terms (numbered below).A. Legally separate organization for which primary government is financially accountableB. The use of governmental fund working capitalC. Appropriation for a specific time periodD. Governmental and Proprietary fund revenues and expenses presented using full accrual accountingE. Approved or authorized expendituresF. Revenues recognized when available to meet current obligationsG. Self-balancing set of accountsH. Each state government and each general-purpose local governmentI. The responsibility to demonstrate compliance with public decisions with regard to the use of financial resourcesJ. Governmental and Internal Service Funds assets and liabilities presented together_____1. Modified Accrual Basis_____2. Fund_____3. Primary Government_____4. Appropriation_____5. Statement of Net Assets_____6. Fiscal Accountability_____7. Allotment_____8. Component Unit_____9. Statement of Activities_____10. Expenditures
Q:
Which of the following is always true in the short run for a perfectly competitive firm that is maximizing economic profits?A) P = d = MR = MC = AVC B) P = d = MR = MC C) P = d = MR = Q D) MR = MC = Q
Q:
Arbitrage is __________________________.
A. an example of the law of one price
B. the creation of riskless profits made possible by relative mispricing among securities
C. a common opportunity in modern markets
D. an example of a risky trading strategy based on market forecasting
Q:
The most significant conceptual difference between the arbitrage pricing theory (APT) and the capital asset pricing model (CAPM) is that the CAPM _____________.
A. places less emphasis on market risk
B. recognizes multiple unsystematic risk factors
C. recognizes only one systematic risk factor
D. recognizes multiple systematic risk factors
Q:
Using the revenue types shown below, match each of the revenue sources to a revenue type. Each revenue type may be used more than once.A. Derived Tax RevenuesB. Imposed Nonexchange RevenuesC. Government-Mandated Nonexchange TransactionsD. Voluntary Nonexchange Transactions_____1. Corporate income tax_____2. Sales taxes_____3. Liquor taxes_____4. Fines and penalties paid to a government entity_____5. Cigarette taxes_____6. Personal income tax_____7. Donation made to a government entity_____8. Motor fuel tax_____9. Property tax
Q:
In the table below, what are the marginal costs of the fourth unit of output?A) $10,000 B) $20,000 C) $30,000 D) $40,000
Q:
According to the CAPM, investors are compensated for all but which of the following?
A. expected inflation
B. systematic risk
C. time value of money
D. residual risk
Q:
The following are transactions for the city of Greenville.a. Issued $50,000 10-year bonds.b. Used $30,000 of the cash to buy a truck.c. Sold the truck that was replaced which had cost $28,000, for $2,000. The old truck was fully depreciated. Residual value is zero.d. Computed depreciation on the new truck for the year of $6,000.Required:Analyze the above transactions by using the accounting equation for a proprietary fund.
Q:
For a wheat farmer in the middle of harvesting system, a fixed input would beA) workers hired. B) combines rented.C) the land that had been planted. D) trucks rented to haul the wheat.
Q:
The expected return of the risky-asset portfolio with minimum variance is _________.
A. the market rate of return
B. zero
C. the risk-free rate
D. The answer cannot be determined from the information given.
Q:
Any business wanting to attract financial capital must expect toA) earn a positive economic profit.B) keep implicit costs as close to zero as possible. C) pay a normal rate of return.D) pay a below normal rate of return in order to make a positive rate of return itself.
Q:
According to capital asset pricing theory, the key determinant of portfolio returns is _________.
A. the degree of diversification
B. the systematic risk of the portfolio
C. the firm-specific risk of the portfolio
D. economic factors
Q:
The following are transactions for the city of Clinton.a. Borrowed $100,000 by issuing a one-year, 5% note, three months before year-end.b. Accrued interest at year end, but did not pay the interest at year end.c. Charges for services rendered of $2,500 were billed and collected immediately.d. Incurred salary costs of $5,000, unpaid.Required:Analyze the above transactions by using the accounting equation for a proprietary fund.
Q:
An increase in income willA) shift the budget constraint to the right.B) make the budget constraint steeper. C) make the budget constraint flatter.D) make the budget constraint more bowed.
Q:
Beta is a measure of ______________.
A. total risk
B. relative systematic risk
C. relative nonsystematic risk
D. relative business risk
Q:
Glasses of WaterTotal UtilityMarginal Utility1100 2175 3225 4250 5260 6255 Using the above table, diminishing marginal utility begins after the glass of water is consumed.A) 1st B) 2nd C) 6th D) 5th
Q:
Liquidity is a risk factor that __________.
A. has yet to be accurately measured and incorporated into portfolio management
B. is unaffected by trading mechanisms on various stock exchanges
C. has no effect on the market value of an asset
D. affects bond prices but not stock prices
Q:
For each of the following events or transactions, identify the type of fund(s) that will be affected.1. A central purchasing department was established to handle all the purchasing needs of a county government.2. A county government levies sales taxes restricted as to use for job creation.3. A county government receives a large contribution specifying that income from the contribution be distributed each year to the county zoo. The principal is to remain intact indefinitely.4. A city government paid construction costs of $12,000 on city hall building.5. A city government paid general operating costs.
Q:
If the price of one good increases, and as a result the demand for another good increases, the goods areA) substitutes. B) normal goods. C) complements. D) inferior goods.
Q:
The SML is valid for _______________, and the CML is valid for ______________.
A. only individual assets; well-diversified portfolios only
B. only well-diversified portfolios; only individual assets
C. both well-diversified portfolios and individual assets; both well-diversified portfolios and individual assets
D. both well-diversified portfolios and individual assets; well-diversified portfolios only
Q:
If the price of gasoline increased by 10 % and consumers responded by purchasing 2 % less gasoline, the absolute value of price elasticity of demand for gasoline would equalA) 0.1. B) 0.5. C) 1.5. D) 0.2.
Q:
For each of the following events or transactions, identify the fund or funds that will be affected.1.A city government charges a fee for the use of the municipal golf course.2. Interest is paid on state government revenue bonds.3. A motor pool was established to handle the vehicle needs of a county government.4. Paid salaries for general governmental employees.5. Accrued salaries for general governmental employees.
Q:
In a study conducted by Jagannathan and Wang, it was found that the performance of beta in explaining security returns could be considerably enhanced by:
I. Including the unsystematic risk of a stock
II. Including human capital in the market portfolio
III. Allowing for changes in beta over time
A. I and II only
B. II and III only
C. I and III only
D. I, II, and III
Q:
With defined property rights, an externalityA) can only be corrected with government intervention. B) will not lead to a misallocation of resources.C) may be internalized with voluntary contracting, under certain circumstances. D) must lead to society producing inside its production possibilities frontier.
Q:
Which of the following variables do Fama and French claim do a better job explaining stock returns than beta?
I. Book-to-market ratio
II. Unexpected change in industrial production
III. Firm size
A. I only
B. I and II only
C. I and III only
D. I, II, and III
Q:
What impact do private insurance companies and Medicare have on national medical costs?
A) Medical costs go up because insurance leads to an increase in the quantity demanded of medical services.
B) Medical costs go up because insurance will lead to the reduction in the supply of medical services due to the amount of paperwork required.
C) Medical cost are unaffected by insurance companies.
D) Medical costs go down because the insurance company pays the bill.
Q:
The following are transactions for the city of Franklin.a. Borrowed $20,000 by issuing a two-year note.b. Purchased equipment for $6,000 cash.c. Licenses for $700 were billed on account.d. Accrued employee salary costs of $7,000.e. Depreciation expense on equipment for year, $1,000.Required:Analyze the above transactions by using the accounting equation for a proprietary fund.
Q:
In his famous critique of the CAPM, Roll argued that the CAPM ______________.
A. is not testable because the true market portfolio can never be observed
B. is of limited use because systematic risk can never be entirely eliminated
C. should be replaced by the APT
D. should be replaced by the Fama-French three-factor model
Q:
The Lorenz curve shows what portion of total money income is accounted for byA) different proportions of a countryʹs households.B) only the wealthiest citizens. C) only poor people.D) taxpaying citizens only.
Q:
According to the CAPM, the risk premium an investor expects to receive on any stock or portfolio is _______________.
A. directly related to the risk aversion of the particular investor
B. inversely related to the risk aversion of the particular investor
C. directly related to the beta of the stock
D. inversely related to the alpha of the stock
Q:
The following are transactions for the city of Springfield.a. Borrowed $20,000 by issuing a three-month, 5% note.b. Paid $4,000 for equipment.c. Services for $1,000 were billed and collected.d. Year-end accrual of 3 months interest on note in (a).Required:Analyze the above transactions by using the accounting equation for a proprietary fund.
Q:
Legislation that makes it illegal to require union membership as a condition of continuing employment is theA) National Labor Relations Act. B) Wagner Act.C) Congress of Industrial Organizations. D) collection of right-to-work laws.
Q:
Consider two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.2. Stock B has an expected return of 14% and a beta of 1.8. The expected market rate of return is 9% and the risk-free rate is 5%. Security __________ would be considered the better buy because_________.A. A; it offers an expected excess return of .2%B. A; it offers an expected excess return of 2.2%C. B; it offers an expected excess return of 1.8%D. B; it offers an expected return of 2.4%
Q:
Suppose there are 1000 firms in a market and all are identical. Firm A will hire 20 workers when the wage rate is $10, 25 workers when the wage rate is $9, and 30 workers when the wage rate is $8. The equilibrium wage rate for a number of years has been $9. If the wage rate falls to $8, we know thatA) the quantity demanded for the market will increase to 30,000 workers.B) the quantity demanded for the market will increase to more than 30,000 workers. C) the quantity demanded for the market will increase to less than 30,000 workers.D) the quantity demanded for the market will increase, but we canʹt tell which of the above answers is correct.
Q:
The risk-free rate and the expected market rate of return are 6% and 16%, respectively. According to the capital asset pricing model, the expected rate of return on security X with a beta of 1.2 is equal to _________.A. 12%B. 17%C. 18%D. 23%
Q:
For each of the following transactions that could be introduced to fund the maintenance of the city park, state the type of fund(s) that would be affected. Assume that a capital project fund will be used to handle any long-term improvements or additions to the park.1. Resources used to make 60 monthly installments on outstanding long-term debt.2. Implemented a tax on alcohol purchases specifically designated for the park upkeep.3. A local sports organization that uses the park raises funds and donates the money, stating that the principal may not be spent, but designating earnings to the park upkeep.4. City council approves the funds from existing resources for the upkeep required in the upcoming year.5. Resources used only to pay principal and interest of debt outstanding to finance park maintenance.
Q:
Which of the following will NOT be true if the antitrust laws are successful?A) Producers will earn zero economic profits in the long -run. B) Firms will not restrict output.C) Firms will produce the competitive output.D) Firms will produce the quantity at which marginal cost equals marginal revenue and charge a price that is greater than marginal cost.
Q:
Consider the one-factor APT. The standard deviation of return on a well-diversified portfolio is 20%. The standard deviation on the factor portfolio is 12%. The beta of the well-diversified portfolio is approximately _________.
A. .60
B. 1
C. 1.67
D. 3.20
Q:
In which market structures do firms engage in nonprice competition?
A) Perfect competition and monopolistic competition
B) Monopolistic competition and oligopoly
C) Oligopoly and monopoly
D) Perfect competition and monopoly
Q:
Identify the fund type of the fund being described.1. A fund used to account for the external portion of investment pools reported by the sponsoring government.2. A fund used to account for resources that are legally restricted to use of the earnings only for government programs or activities.3. A fund used to account for resources used to pay for a new stadium.4. A fund used to account for local taxes withheld on behalf of another county.5. A fund used to account for resources used to pay interest on a long-term bond issue.6. A fund used to account for specific revenues that are restricted in use.7. A fund used to account for the local swimming pool that is owned by the city and used by residents for a membership fee.8. A fund used to account for the centralized data processing services of the state government.9. A fund used to account for all funds except those required to be accounted for in another fund.10. A fund that accounts for government pension plans if the government is the trustee
Q:
The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of .8 to offer a rate of return of 12%, then you should _________.
A. buy stock X because it is overpriced
B. buy stock X because it is underpriced
C. sell short stock X because it is overpriced
D. sell short stock X because it is underpriced
Q:
Match each of the following fund types to one of the following three fund categories as indicated. Each fund category may be used more than once.A. Governmental FundB. Proprietary FundC. Fiduciary Fund_____1. Debt Service Fund_____2. Internal Service Fund_____3. Agency Fund_____4. General Fund_____5. Permanent Fund_____6. Enterprise Fund_____7. Capital Projects Fund_____8. Trust Fund_____9. Special Revenue Fund_____10. Pension Fund
Q:
Which of the following is true of an oligopoly?A) They engage in nonprice competition.B) They do not react to actions of their competitors.C) Each firm produces a small portion of the total output. D) Firms do not care what their competitors do.
Q:
The variance of the return on the market portfolio is .04 and the expected return on the market portfolio is 20%. If the risk-free rate of return is 10%, the market degree of risk aversion, A, is _________.
A. .5
B. 2.5
C. 3.5
D. 5
Q:
Government-wide financial statements exclude theA) general fund.B) fiduciary funds.C) proprietary funds.D) special revenue funds.
Q:
The monopolistically competitive firm maximizes profit by producing to the point at whichA) ATC = AVC. B) MC = MR. C) MR = AR. D) MC = AR.
Q:
Security A has an expected rate of return of 12% and a beta of 1.1. The market expected rate of return is 8%, and the risk-free rate is 5%. The alpha of the stock is _________.A. -1.7%B. 3.7%C. 5.5%D. 8.7%
Q:
A comprehensive annual financial report has the following three major sections:A) introductory, financial, and management's discussion and analysis.B) introductory, financial, and statistical.C) transmittal, financial, and statistical.D) transmittal, financial, and management's discussion and analysis.
Q:
A monopolist is producing at an output level at which ATC = $5, P = $6, MC = $3, and MR = $4. We can conclude thatA) economic profit could be increased by producing more. B) economic profit could be increased by producing less. C) economic profit cannot be increased.D) the firm is earning $10 in economic profits.
Q:
In a single-factor market model the beta of a stock ________.
A. measures the stock's contribution to the standard deviation of the market portfolio
B. measures the stock's unsystematic risk
C. changes with the variance of the residuals
D. measures the stock's contribution to the standard deviation of the stock
Q:
Government-wide financial statements include aA) balance sheet, an income statement, and a statement of cash flows.B) statement of net assets, a statement of activities, and a statement of cash flows.C) statement of net assets and a statement of activities.D) statement of activities and a statement of cash flows.
Q:
In the long run, all firms in a perfectly competitive industryA) earn economic profits. B) break even.C) suffer economic losses.D) sell differentiated products to earn economic profits.
Q:
You invest $600 in security A with a beta of 1.5 and $400 in security B with a beta of .90. The beta of this portfolio is _________.
A. 1.14
B. 1.2
C. 1.26
D. 1.5
Q:
What basis of accounting is used to prepare Government-wide financial statements?A) Modified accrual basisB) Accrual basisC) Cash basisD) Fiduciary basis
Q:
Which of the following is always true for a perfectly competitive firm?A) P = d = MR B) P = d = AVCC) MC = MR = AVC D) AVC = ATC = P
Q:
Consider the capital asset pricing model. The market degree of risk aversion, A, is 3. The variance of return on the market portfolio is .0225. If the risk-free rate of return is 4%, the expected return on the market portfolio is _________.
A. 6.75%
B. 9%
C. 10.75%
D. 12%
Q:
Use the above figure. At an output equal to ʺQʺ the total variable cost for the firm will be the areaA) OQAB. B) OQEB. C) OQFA. D) OQDC.
Q:
An important characteristic of market equilibrium is _______________.
A. the presence of many opportunities for creating zero-investment portfolios
B. all investors exhibit the same degree of risk aversion
C. the absence of arbitrage opportunities
D. the lack of liquidity in the market
Q:
What funds are reported in Government-wide financial statements?A) Governmental onlyB) Proprietary onlyC) Governmental and proprietaryD) Governmental, proprietary and fiduciary
Q:
The accounting equation for a governmental fund isA) Assets = Liabilities + Equity.B) Current assets + Noncurrent assets - Current liabilities - Noncurrent liabilities = Net assets.C) Current assets - Current liabilities = Fund Balance.D) Assets = Liabilities + Fund Balance.
Q:
Which of the following statements is not true about the short run and the long run?A) The short run for a firm is today while the long run is next week.B) These terms apply to the planning decisions of firms. C) The firm is always operating in the short run.D) In the short run, the firm can change the amount of variable inputs.
Q:
Building a zero-investment portfolio will always involve _____________.
A. an unknown mixture of short and long positions
B. only short positions
C. only long positions
D. equal investments in a short and a long position
Q:
The accounting equation for an agency fund isA) Current assets - Current liabilities = Fund Balance.B) Assets - Liabilities = Equity.C) Assets = Equity + Liabilities.D) Assets = Liabilities.
Q:
What is the relationship between accounting and economic profits?
A) Accounting profits are always larger than economic profits.
B) Economic profits are always larger than accounting profits.
C) There is no relationship between economic and accounting profits.
D) Economic profits are always negative.
Q:
The possibility of arbitrage arises when ____________.
A. there is no consensus among investors regarding the future direction of the market, and thus trades are made arbitrarily
B. mispricing among securities creates opportunities for riskless profits
C. two identically risky securities carry the same expected returns
D. investors do not diversify
Q:
The modified accrual basis of accounting is used forA) governmental funds.B) proprietary funds.C) internal service funds.D) both A and C.
Q:
A budget constraint showsA) all of the combinations of sets of goods that yield the same level of satisfaction.B) all of the possible combinations of goods that can be purchased with a specific budget. C) all of the goods the consumer gets positive marginal utility from when the goods are consumed.D) all of the goods that a consumer substitutes for other goods when prices fall.
Q:
Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5%, and the market expected rate of return is 15%. According to the capital asset pricing model, security X is _________.
A. fairly priced
B. overpriced
C. underpriced
D. none of these answers
Q:
Centralized data processing, central motor pools and garages, centralized risk-financing activities, and central stores typically would be accounted for using what type of fund?A) An agency fundB) An enterprise fundC) An internal service fundD) A trust fund
Q:
When you tell your mother, ʺIʹll never be tired of your cooking,ʺ you are saying theA) total utility of her cooking to you is constant. B) total utility of her cooking to you is equal to 1. C) marginal utility of her cooking to you is 0.D) marginal utility of her cooking to you will never be 0.