Q&A Hero

Q: Henry Ford once said, If I had asked people what they wanted, they would have said faster horses. The invention of the car is an early example of: a. the march of globalization. b. rapid technological diffusion. c. disruptive technologies. d. products that were not imitated by competitors.

Q: An investor is considering in which of two start-up companies to invest. The investor has faith in the industrial organization model of above-average returns and is using that as a guideline to make a decision. Both start-up companies propose to manufacture health-focused foods with low salt, low sugar, high fiber, and no artificial additives. RexRich Foods has a business strategy of producing a differentiated product for which consumers will pay more. Green Pastures Foods is in the health-foods industry because of its internal culture and commitment to healthy lifestyles, but it does not have any executives with experience in food production. Which firm will the investor feel is most consistent with the model of industrial organization? a. Green Pastures Foods b. RexRich Foods c. Both firms are consistent with the I/O approach. d. At the entrepreneurial stage, the model that companies follow is not important.

Q: The Princeton Alliance Church states in its website that "PAC exists to help you live life to the fullest by knowing God, developing community and bringing hope." This pronouncement is most precisely a statement of organizational: a. values. b. structure. c. vision. d. culture.

Q: The rate of technological diffusion is increasing. Which of the following was fastest in penetrating 25 percent of homes in the U.S. market? a. Mobile Phone b. Television c. Personal Computer d. Internet

Q: The strategic management process is; a. a set of activities that will assure a sustainable competitive advantage and above-average returns for the firm. b. a decision-making activity concerned with a firm's internal resources, capabilities, and competencies, independent of the conditions in its external environment. c. a process directed by top-management with input from other stakeholders that seeks to achieve above-average returns for investors through effective use of the organization's resources. d. the formulation and implementation of a full set of commitments, decisions, and actions required for the firm to achieve above-average returns and strategic competitiveness.

Q: All of the following are assumptions of the resource-based model EXCEPT: a. each firm is a unique collection of resources and capabilities. b. the industry's structural characteristics have little impact on a firm's performance over time. c. capabilities are highly mobile across firms. d. differences in resources and capabilities are the basis of competitive advantage.

Q: A key purpose of a mission statement is to inform _________what a firm is, what it seeks to accomplish and who it seeks to serve. a. CEOs b. stakeholders c. regulators d. former employees

Q: ​To implement a firms strategies, the firm takes actions to with the goal of achieving strategic competitiveness and above average returns. a. True b. False Indicate the answer choice that best completes the statement or answers the question.

Q: Developed countries still have major advantages in their access to information technology when compared to emerging economies because of the significant cost of the infrastructure needed for computing power. a. True b. False

Q: Alligator Enterprises has earned above-average returns since its founding five years ago. No other firm has challenged Alligator in its particular market niche; therefore, the firm's owners can feel secure that Alligator has established a competitive advantage. a. True b. False

Q: The goal of strategy implementation is to develop a permanent competitive advantage. a. True b. False

Q: Six years ago, Colette Smith founded a successful catering company that specializes in providing a wide assortment of miniature cheesecakes for corporate and social events. Although Ms. Smith is no longer active in the actual production of the cheesecakes, she continues as president of the catering company. Ms. Smith could be considered a strategic leader of this firm. a. True b. False

Q: Returns can only be measured in accounting terms such as return on assets, return on equity, or return on sales. a. True b. False

Q: Hourly workers on the production line of a chicken-processing plant are considered organizational stakeholders. a. True b. False

Q: The new CEO of Opacity Enterprises is determined to make the long-established firm strategically flexible. The CEO feels that the employees of the company have the ability, training, and resources to engage in continuous learning. The CEO must encourage ambidextrous learning, absorbing new knowledge and building incremental knowledge. a. True b. False

Q: Although organizational cultures vary considerably, one cannot make an objective judgment that some organizational cultures are more or less functional than others in terms of ethical considerations. a. True b. False

Q: Average returns are those in excess of what an investor expects to earn from other investments with a similar amount of risk. a. True b. False

Q: When a firm earns lower-than-average returns, the highest priority is given to satisfying the needs of capital market stakeholders over the needs of product market and organizational shareholders. a. True b. False

Q: Relative power is the most critical element for prioritizing the demands of stakeholders. a. True b. False

Q: A firm's mission tends to be enduring while its vision can change in light of changing environmental conditions. a. True b. False

Q: The CEO of Twin Spires, Inc., is committed to using the expertise and resources currently in the firm to serve the needs of the natural gardening community by providing rare and native plants to individuals and nurseries around the United States. The perspective of the CEO of Twin Spires is consistent with the assumptions of the industrial organization (I/O) model. a. True b. False

Q: The uniqueness of a firm's resources and capabilities is the basis for a firm's strategy and determines its ability to earn above-average returns under the I/O view. a. True b. False

Q: If a firm is dependent on a specific stakeholder group, that group has less influence on the firms strategic decision making. a. True b. False

Q: The I/O (industrial organization) model assumes that the uniqueness of a firm's resources and capabilities is the main source of above-average returns. a. True b. False

Q: Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. a. True b. False

Q: Examples of incremental innovations include iPods, PDAs, Wi-Fi, and web browser software. a. True b. False

Q: Corporate-level strategy in a diversified organization requires a common business strategy for each component business. a. True b. False

Q: The five forces model suggests that firms should target the industry with the highest potential for above-average returns and then implement either a cost-leadership strategy or a differentiation strategy. a. True b. False

Q: The two primary drivers of hypercompetition are the emergence of the global economy and technology. a. True b. False

Q: While patents may be an effective way of protecting proprietary technology, many firms competing in the electronics industry do not apply for patents to prevent competitors from utilizing the technological knowledge that would be included in the patent application. a. True b. False

Q: The resource-based model assumes that firms must have resources that are rare or costly to imitate to form a basis for competitive advantage. a. True b. False

Q: The rapid rate of technological diffusion has increased the competitive benefits of patents. a. True b. False

Q: An effective vision stretches and challenges people and can result in increased innovation. This is illustrated by Apple's CEO Steve Jobs, who was known to think bigger and differently than most people ("putting a dent in the universe"). a. True b. False

Q: The assumptions of the industrial organization model and the resource-based model are contradictory. Therefore, organizational strategists must choose one or the other model as the basis for developing a strategic plan. a. True b. False

Q: Customers, suppliers, unions, and local governments are examples of capital market stakeholders. a. True b. False

Q: Strategic leaders must have a strong strategic orientation while embracing change in the dynamic competitive landscape. a. True b. False

Q: Resources are considered rare when they have no structural equivalent. a. True b. False

Q: The rate of growth of Internet-based applications could be affected by strategies of Internet service providers charging users for downloading those applications. a. True b. False

Q: Organizational mission statements typically do not include statements about profitability and earning above-average returns. a. True b. False

Q: An effective vision statement must specify the industry in which a company will operate. a. True b. False

Q: Economies of scale and huge advertising budgets are just as effective in the new competitive landscape as they were in the past. a. True b. False

Q: Organizational stakeholders are the firm's internal resources, capabilities, and core competencies that are used to accomplish what may appear to be unattainable goals in the competitive environment. a. True b. False

Q: ​Above average returns are those in excess of what an investor expects to earn from other investments with similar stock prices. a. True b. False

Q: Research shows that a greater percentage of a firm's profitability is explained by the I/O rather than the resource-based model. a. True b. False

Q: Risk in terms of financial returns reflects an investor's uncertainty about economic gains or losses that will result from a particular investment. a. True b. False

Q: An organization's willingness to tolerate or encourage unethical behavior is a reflection of its core values. a. True b. False

Q: The rate of technology diffusion has been steadily increasing over the last two decades. a. True b. False

Q: Indicate whether the statement is true or false.

Q: Generally speaking, countries with ______ capitalization of equities ________. A. larger; have higher GDP B. smaller; are wealthier C. larger; have smaller GDP D. larger; are higher-growth countries

Q: Which one of the following allows you to purchase the stock of a specific foreign company? A. WEBS B. MSCI C. ADR D. EAFE

Q: WEBS are ____________________. A. investments in country-specific portfolios B. traded exactly like mutual funds C. identical to ADRs D. designed to give investors foreign currency exposure to multiple countries

Q: Limiting your investments to the top six countries in the world in terms of market capitalization may make sense for _________ investor but probably does not make sense for ________ investor. A. an active; a passive B. a passive; an active C. a security selection expert; a market timer D. a fundamental; a technical

Q: If you limit your investment opportunity set to only the largest six countries in the world in terms of equity capitalization as a percentage of total global equity capital, you will include about _______ of the world's equity. A. 34% B. 44% C. 54% D. 64%

Q: Total capitalization of corporate equity in the United States in 2011 was about _______ trillion. A. $13.9 B. $23.4 C. $30.2 D. $45.5

Q: _____ has the highest market capitalization of listed corporations among developed markets. A. The United States B. Japan C. The United Kingdom D. Switzerland

Q: In 2011, U.S. securities represented ______ of the world market for equities. A. less than 25% B. more than two-thirds C. between 30% and 40% D. a consistent 50%

Q: A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is Jensen's alpha of the portfolio if the risk-free rate is 6%? A. .017 B. .028 C. .036 D. .078

Q: A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of 17%. The market index return is 14% and has a standard deviation of 21%. What is Jensen's alpha of the portfolio if the risk-free rate is 5%? A. .017 B. .034 C. .067 D. .078

Q: A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is the Sharpe ratio of the portfolio if the risk-free rate is 6%? A. .4757 B. .5263 C. .6842 D. .7252

Q: A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of 17%. The market index return is 14% and has a standard deviation of 21%. What is the Sharpe measure of the portfolio if the risk-free rate is 5%? A. .3978 B. .4158 C. .4563 D. .4706

Q: A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is the Treynor measure of the portfolio if the risk-free rate is 6%? A. .0833 B. .1083 C. .1114 D. .1163

Q: A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of 17%. The market index return is 14% and has a standard deviation of 21%. What is the Treynor measure of the portfolio if the risk-free rate is 5%? A. .1143 B. .1233 C. .1354 D. .1477

Q: A portfolio generates an annual return of 17%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is the M2 measure of the portfolio if the risk-free rate is 4%? A. 2.15% B. 2.76% C. 2.94% D. 3.14%

Q: A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of 17%. The market index return is 14% and has a standard deviation of 21%. What is the M2 measure of the portfolio if the risk-free rate is 5%? A. .58% B. .68% C. .78% D. .88%

Q: Empirical tests to date show ______________. A. that many investors have earned large rewards by market timing B. little evidence of market-timing ability C. clear-cut evidence of substantial market-timing ability D. evidence that absolutely no market-timing ability exists

Q: The information ratio is equal to the stock's ____ divided by its ______. A. diversifiable risk; beta B. beta; alpha C. alpha; beta D. alpha; diversifiable risk

Q: The Treynor-Black model assumes that security markets are _________. A. completely efficient B. nearly efficient C. very inefficient D. random walks

Q: Morningstar's RAR produce results that are similar but not identical to ________. A. Jensen's alpha B. M2 C. the Treynor ratio D. the Sharpe ratio

Q: The table presents the actual return of each sector of the manager's portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column 4.What is the contribution of asset allocation to relative performance? A. -.18%B. .18%C. -.15%D. .15%

Q: The table presents the actual return of each sector of the manager's portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column 4. What was the manager's over- or underperformance for the month? A. Underperformance = .03%B. Overperformance = .03%C. Overperformance = .14%D. Underperformance = 3%

Q: The table presents the actual return of each sector of the manager's portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column 4. What is the contribution of security selection to relative performance? A. -.15%B. .15%C. -.3%D. .3%

Q: The table presents the actual return of each sector of the manager's portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column 4. What was the bogey's return in the month? A. 2.07%B. 2.21%C. 2.24%D. 4.8%

Q: The table presents the actual return of each sector of the manager's portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column 4. What was the manager's return in the month? A. 2.07%B. 2.21%C. 2.24%D. 4.8%

Q: Assume you purchased a rental property for $100,000 and sold it 1 year later for $115,000 (there was no mortgage on the property). At the time of the sale, you paid $3,000 in commissions and $1,000 in taxes. If you received $10,000 in rental income (all received at the end of the year), what annual rate of return did you earn? A. 6% B. 11% C. 21% D. 25%

Q: A mutual fund invests in large-capitalization stocks. Its performance should be measured against which one of the following? A. Russell 2000 Index B. S&P 500 Index C. Wilshire 5000 Index D. Dow Jones Industrial Average

Q: Douglass, an imperfect forecaster, correctly predicts 57% of all bull markets and 68% of all bear markets. Simmonds is a perfect forecaster. If Douglass is able to charge a fee of $125,000, the fee that Roy Simmonds should charge is __________. Assume that both forecasters manage similar-size funds. A. $31,250 B. $200,000 C. $500,000 D. $625,000

Q: Portfolio managers Martin and Krueger each manage $1 million funds. Martin has perfect foresight, and the call option value of his perfect foresight is $150,000. Krueger is an imperfect forecaster and correctly predicts 50% of all bull markets and 70% of all bear markets. The value of Krueger's imperfect forecasting ability is __________. A. $30,000 B. $67,500 C. $108,750 D. $217,500

Q: Portfolio managers Martin and Krueger each manage $1 million funds. Martin has perfect foresight, and the call option value of his perfect foresight is $150,000. Krueger is an imperfect forecaster and correctly predicts 50% of all bull markets and 70% of all bear markets. The correct measure of timing ability for Krueger is __________. A. 20% B. 60% C. 75% D. 120%

Q: The term alpha transport refers to _____. A. establishing alpha and then using index products to hedge market exposure and reduce exposure to particular sectors. B. establishing alpha and then using sector mutual funds to hedge market exposure and reduce exposure to the general market. C. establishing alpha and then using sector mutual funds to hedge market exposure and gain exposure to the general market. D. establishing alpha and then using index products to hedge market exposure and gain exposure to particular sectors.

Q: It is very hard to statistically verify abnormal fund performance because of all of the following except which one? A. Inevitably, some fund managers experience streaks of good performance that may just be due to luck. B. The noise in realized rates of return is so large as to make it hard to identify abnormal performance in competitive markets. C. Portfolio composition is rarely stable long enough to identify abnormal performance. D. Even if successful, there is really not much value to be added by active strategies such as market timing.