Q&A Hero

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: 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: 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: 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: 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: 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: 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: 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: 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: 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: Government-wide financial statements exclude theA) general fund.B) fiduciary funds.C) proprietary funds.D) special revenue funds.

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: 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: 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: 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: 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: What basis of accounting is used to prepare Government-wide financial statements?A) Modified accrual basisB) Accrual basisC) Cash basisD) Fiduciary basis

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: 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: 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: What funds are reported in Government-wide financial statements?A) Governmental onlyB) Proprietary onlyC) Governmental and proprietaryD) Governmental, proprietary and fiduciary

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: 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: 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: 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: 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: 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: 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 modified accrual basis of accounting is used forA) governmental funds.B) proprietary funds.C) internal service funds.D) both A and C.

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: 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: 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.

Q: Consider the one-factor APT. The variance of the return on the factor portfolio is .08. The beta of a well-diversified portfolio on the factor is 1.2. The variance of the return on the well-diversified portfolio is approximately _________.A. .1152B. .1270C. .1521D. .1342

Q: Which type of fund is used to account for a government activity that sells goods or services either solely or almost solely to external customers?A) A temporary fundB) A general fundC) An agency fundD) An enterprise fund

Q: Consider the multifactor APT with two factors. Portfolio A has a beta of .5 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the factor 1 and 2 portfolios are 1% and 7%, respectively. The risk-free rate of return is 7%. The expected return on portfolio A is __________ if no arbitrage opportunities exist. A. 13.5% B. 15% C. 16.25% D. 23%

Q: The cross price elasticity of demand is defined asA) the percentage change in the supply for one good (a shift in the supply curve) divided by the percentage change in price of a related good.B) the percentage change in demand for two different commodities.C) the percentage change in the demand for one good (a shift in the demand curve) divided by the percentage change in price of a related good.D) the percentage change in price for two different commodities.

Q: Consider the single factor APT. Portfolio A has a beta of .2 and an expected return of 13%. Portfolio B has a beta of .4 and an expected return of 15%. The risk-free rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _________. A. A; A B. A; B C. B; A D. B; B

Q: Which fund would most likely report depreciation expense?A) A special revenue fundB) An enterprise fundC) A capital projects fundD) A debt service fund

Q: Price elasticity of demand basically measuresA) the reliability of a product.B) the responsiveness of consumers to price changes. C) the variability of price changes.D) the percentage change in market price as a result of a change in demand.

Q: Consider the single factor APT. Portfolio A has a beta of 1.3 and an expected return of 21%. Portfolio B has a beta of .7 and an expected return of 17%. The risk-free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _________. A. A; A B. A; B C. B; A D. B; B

Q: When examining revenue transactions, which of the following transactions is classified as an exchange transaction?A) When a homeowner pays property taxesB) When a university receives a federal grant that mandates a certain type of research activityC) When an aquatic center receives cash for a group swimD) When an employer deducts money for state tax withholding

Q: The costs associated with reaching and enforcing agreements are calledA) private property costs. B) common property costs.C) transaction costs. D) public costs.

Q: Under the modified accrual basis of accounting, revenues are recognized in the periodA) when the relevant service is done.B) when they are collected.C) when the paying entity is billed.D) when they become both measurable and available.

Q: In a world where the CAPM holds, which one of the following is not a true statement regarding the capital market line? A. The capital market line always has a positive slope. B. The capital market line is also called the security market line. C. The capital market line is the best-attainable capital allocation line. D. The capital market line is the line from the risk-free rate through the market portfolio.

Q: One problem with third-party financing of health care is thatA) people have more incentive to utilize health care.B) demand falls so that suppliers cannot take advantage of economies of scale. C) it reduces the quality of health care people receive.D) it discourages people from relying on their physiciansʹ advice in making health care decisions.

Q: Internal Service Funds differ from Enterprise Funds because Internal Service FundsA) are a proprietary fund.B) are intended to show a profit.C) charge for their services.D) provide goods and services primarily to other government agencies.

Q: According to the CAPM, which of the following is not a true statement regarding the market portfolio. A. All securities in the market portfolio are held in proportion to their market values. B. It includes all risky assets in the world, including human capital. C. It is always the minimum-variance portfolio on the efficient frontier. D. It lies on the efficient frontier.

Q: According to the text, the lower half of U.S. households earn about what percentage of total income?A) 4 percent B) 9 percent C) 15 percent D) 28 percent

Q: Because a fund is an accounting entity, each fund hasI. its own accounting equation.II. its own journals, ledgers, and other accounting records.III. its own separate auditor.A) I onlyB) II onlyC) I and IID) I, II and III

Q: According to the capital asset pricing model, in equilibrium _________. A. all securities' returns must lie below the capital market line B. all securities' returns must lie on the security market line C. the slope of the security market line must be less than the market risk premium D. any security with a beta of 1 must have an excess return of zero

Q: A right-to-work law makes it illegalA) to prevent union members from working in any firm.B) to fire a worker who has joined a union or who tries to organize a union at any firm. C) to inquire whether a prospective employee is a member of a union or not.D) for union membership to be a requirement for continued employment in any firm.

Q: Research has revealed that regardless of what the current estimate of a firm's beta is, beta will tend to move closer to ______ over time. A. 1 B. 0 C. -1 D. .5

Q: Approved or authorized expenditures that provide legislative control over the expenditure budget are referred to asA) appropriations.B) allotments.C) allocations.D) encumbrances

Q: Which of the following statements is true about the market demand curve for labor?A) The market demand curve is the sum of the individual firmʹs demand curve.B) The market demand curve will be perfectly inelastic since firms need labor.C) The market demand curve shows the quantities of labor demanded by all firms in the industry at various marginal products.D) The market demand curve depends upon labor productivity, the wage rate and the price of the final product.

Q: The graph of the relationship between expected return and beta in the CAPM context is called the _________. A. CML B. CAL C. SML D. SCL

Q: Governmental accounting differs from corporate financial accounting primarily becauseA) the size of the government and the various levels would make it unreasonable to use corporate GAAP.B) governments lack a profit motive and must focus on accountability to the public they serve.C) the government has no stakeholders who require financial reporting.D) the government has too many types of organizations to use one type of corporate GAAP.

Q: Why is antitrust legislation necessary? A) Monopolies tend to misallocate resources. B) All monopolies are unlawful in the United States. C) Monopolies tend to allocate resources in a socially optimal manner. D) Monopolies will always make a profit in the long run.

Q: Governmental fund financial statements are prepared on the ________ basis of accounting. Proprietary fund financial statements are prepared on the ________ basis of accounting.A) modified accrual; modified accrualB) accrual; fundC) modified accrual; accrualD) blended; discrete

Q: You have a $50,000 portfolio consisting of Intel, GE, and Con Edison. You put $20,000 in Intel, $12,000 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have betas of 1.3, 1, and .8, respectively. What is your portfolio beta? A. 1.048 B. 1.033 C. 1 D. 1.037

Q: In which market structures does a firm have at least some ability to set the market price?A) Perfect competition and monopolistic competition.B) Monopolistic competition and oligopoly. C) Oligopoly and monopoly.D) Monopolistic competition, oligopoly and monopoly.

Q: The key focus of government fund accounting concernsA) capital expenditures.B) intergovernmental transfers from the general fund.C) income measurement.D) the current ability to provide and fund services and goods.

Q: According to the capital asset pricing model, fairly priced securities have _________. A. negative betas B. positive alphas C. positive betas D. zero alphas

Q: Oligopoly is a situation when thereA) is one firm in the industry that is fairly large.B) are a few large firms in the industry.C) are too many firms in the industry and there is excess capacity.D) is one giant firm and many smaller firms forming a competitive fringe.