Q&A Hero

Q: For markets to be in equilibrium (that is, for there to be no strong pressure for prices to depart from their current levels),a. The past realized rate of return must be equal to the expected rate of return; that is, .b. The required rate of return must equal the realized rate of return; that is, r = .c. All companies must pay dividends.d. No companies can be in danger of declaring bankruptcy.e. The expected rate of return must be equal to the required rate of return; that is, = r.

Q: Documents that are created at the beginning of the transaction are called __________________________.

Q: If investors are risk averse and hold only one stock, we can conclude that the required rate of return on a stock whose standard deviation is 0.21 will be greater than the required return on a stock whose standard deviation is 0.10. However, if stocks are held in portfolios, it is possible that the required return could be higher on the low standard deviation stock. a. True b. False

Q: List two of the three transaction cycles.

Q: You plan to invest in Stock X, Stock Y, or some combination of the two. The expected return for X is 10% and X = 5%. The expected return for Y is 12% and Y = 6%. The correlation coefficient, rXY, is 0.75.a. Calculate rp and p for 100%, 75%, 50%, 25%, and 0% in Stock X.b. Use the values you calculated for rp and p to graph the attainable set of portfolios. Which part of the attainable set is efficient? Also, draw in a set of hypothetical indifference curves to show how an investor might select a portfolio comprised of Stocks X and Y. Let an indifference curve be tangent to the efficient set at the point where rp = 11%.c. Now suppose we add a riskless asset to the investment possibilities. What effects will this have on the construction of portfolios?d. Suppose rM = 12%, M = 4%, and rRF = 6%. What would be the required and expected return on a portfolio with P = 10%?e. Suppose the correlation of Stock X with the market, rXM, is 0.8, while rYM = 0.9. Use this information, along with data given previously, to determine Stock X's and Stock Y's beta coefficients.f. What is the required rate of return on Stocks X and Y? Do these stocks appear to be in equilibrium? If not, what would happen to bring about an equilibrium?

Q: XBRL a. is the basic protocol that permits communication between Internet sites. b. controls Web browsers that access the Web. c. is the document format used to produce Web pages. d. was designed to provide the financial community with a standardized method for preparing e. is a low-level encryption scheme used to secure transmissions in higher-level (HTTP) format.

Q: With a limited work force and a desire to maintain strong internal control, which combination of duties performed by a single individual presents the least risk exposure? a. maintaining the inventory ledger and recording the inventory journal voucher in the general ledger b. recording the inventory journal voucher in the general ledger and maintaining custody of inventory c. maintaining the cash disbursements journal and recording direct labor costs applied to specific jobs d. preparing the accounts payable journal voucher and recording it in the general ledger

Q: You are given the following returns on "the market" and Stock F during the last three years. We could calculate beta using data for Years 1 and 2 and then, after Year 3, calculate a new beta for Years 2 and 3. How different are those two betas, i.e., what's the value of beta 2 - beta 1? (Hint: You can find betas using the Rise-Over-Run method, or using your calculator's regression function.) Year Market Stock F1 6.10% 6.50%2 12.90% -3.70%3 16.20% 21.71%a. 7.89b. 8.30c. 8.74d. 9.20e. 9.66

Q: Which situation indicates an internal control risk in the General Ledger/Financial Reporting Systems (GL/FRS)? a. the employee who maintains the cash journal computes depreciation expense b. the cash receipts journal voucher is approved by the Treasurer c. the cash receipts journal vouchers are prenumbered and stored in a locked safe d. the employee who maintains the cash receipts journal records transactions in the accounts receivable subsidiary ledger

Q: Assume that the market is in equilibrium and that stock betas can be estimated with historical data. The returns on the market, the returns on United Fund (UF), the risk-free rate, and the required return on the United Fund are shown below. Based on this information, what is the required return on the market, rM? Year Market UF2011 -9% -14%2012 11% 16%2013 15% 22%2014 5% 7%2015 -1% -2%rRF: 7.00%; rUnited: 15.00%a. 10.57%b. 11.13%c. 11.72%d. 12.33%e. 12.95%

Q: Risk exposures in the General Ledger and Financial Reporting Systems include all of the following except a. loss of the audit trail b. unauthorized access to the general ledger c. loss of physical assets d. general ledger account out of balance with the subsidiary account

Q: Consider the information below for Postman Builders Inc. Suppose that the expected inflation rate and thus the inflation premium increase by 2.0 percentage points, and Postman acquires risky assets that increase its beta by the indicated percentage. What is the firm's new required rate of return?Beta: 1.50Required return (rs) 10.20%RPM: 6.00%Percentage increase in beta: 20%a. 14.00%b. 14.70%c. 15.44%d. 16.21%e. 17.02%

Q: Calculate the required rate of return for the Wagner Assets Management Group, which holds 4 stocks. The market's required rate of return is 15.0%, the risk-free rate is 7.0%, and the Fund's assets are as follows:Stock Investment BetaA $ 200,000 1.50B 300,000 −0.50C 500,000 1.25D 1,000,000 0.75a. 10.67%b. 11.23%c. 11.82%d. 12.45%e. 13.10%

Q: Which report is not an output of the Financial Reporting System (FRS)? a. variance analysis report b. statement of cash flows c. tax return d. comparative balance sheet

Q: A stock you are holding has a beta of 2.0 and the stock is currently in equilibrium. The required rate of return on the stock is 15% versus a required return on an average stock of 10%. Now the required return on an average stock increases by 30.0% (not percentage points). The risk-free rate is unchanged. By what percentage (not percentage points) would the required return on your stock increase as a result of this event?a. 36.10%b. 38.00%c. 40.00%d. 42.00%e. 44.10%

Q: What type of data is found in the general ledger master file? a. a chronological record of all transactions b. the balance of each account in the chart of accounts c. budget records for each account in the chart of accounts d. subsidiary details supporting a control account

Q: Which statement is not true?a) The journal voucher is the only source of input into the general ledger.b) A journal voucher can be used to represent summaries of similar transactions or a single unique transaction.c) Journal vouchers are not used to make adjusting entries and closing entries in the general ledger.d) Journal vouchers offer a degree of control against unauthorized general ledger entries.

Q: Suppose that (1) investors expect a 4.0% rate of inflation in the future, (2) the real risk-free rate is 3.0%, (3) the market risk premium is 5.0%, (4) Talcott Inc.'s beta is 1.00, and (5) its realized rate of return has averaged 15.0% over the last 5 years. Calculate the required rate of return for Talcot Inc.a. 10.29%b. 10.83%c. 11.40%d. 12.00%e. 12.60%

Q: Your mother's well-diversified portfolio has an expected return of 12.0% and a beta of 1.20. She is in the process of buying 100 shares of Safety Corp. at $10 a share and adding it to her portfolio. Safety has an expected return of 15.0% and a beta of 2.00. The total value of your current portfolio is $9,000. What will the expected return and beta on the portfolio be after the purchase of the Safety stock? rp bpa. 11.69%; 1.22b. 12.30%; 1.28c. 12.92%; 1.34d. 13.56%; 1.41e. 14.24%; 1.48

Q: The most important advantage of an alphabetic code is that a. meaning is readily conveyed to users b. sorting is simplified c. the capacity to represent items is increased d. missing documents can be identified

Q: You hold a portfolio consisting of a $5,000 investment in each of 20 different stocks. The portfolio beta is equal to 1.12. You have decided to sell a coal mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a mineral rights company stock (b = 2.00). What is the new beta of the portfolio?a. 1.1139b. 1.1700c. 1.2311d. 1.2927e. 1.3573

Q: When a firm wants its coding system to convey meaning without reference to any other document, it would choose a. an alphabetic code b. a mnemonic code c. a group code d. a block code

Q: Which of the following statements is CORRECT? a. The characteristic line is the regression line that results from plotting the returns on a particular stock versus the returns on a stock from a different industry. b. The slope of the characteristic line is the stock's standard deviation. c. The distance of the plot points from the characteristic line is a measure of the stock's market risk. d. The distance of the plot points from the characteristic line is a measure of the stock's diversifiable risk. e. "Characteristic line" is another name for the Security Market Line.

Q: The most important advantage of sequential coding is that a. missing or unrecorded documents can be identified b. the code itself lacks informational content c. items cannot be inserted d. deletions affect the sequence

Q: Which of the following statements is CORRECT? a. The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is about 0.6. b. The typical R2 for a stock is about 0.3 and the typical R2 for a large portfolio is about 0.94. c. The typical R2 for a stock is about 0.94 and the typical R2 for a portfolio is also about 0.94. d. The typical R2 for a stock is about 0.6 and the typical R2 for a portfolio is also about 0.6. e. The typical R2 for a stock is about 0.3 and the typical R2 for a portfolio is also about 0.3.

Q: The coding scheme most appropriate for a chart of accounts is a. sequential code b. block code c. group code d. mnemonic code

Q: You have the following data on (1) the average annual returns of the market for the past 5 years and (2) similar information on Stocks A and B. Which of the possible answers best describes the historical betas for A and B? Years Market Stock A Stock B1 0.03 0.16 0.052 -0.05 0.20 0.053 0.01 0.18 0.054 -0.10 0.25 0.055 0.06 0.14 0.05a. bA > +1; bB = 0.b. bA = 0; bB = -1.c. bA < 0; bB = 0.d. bA < -1; bB = 1.e. bA > 0; bB = 1.

Q: Operational inefficiencies occur because a. accounts both common and unique to many concurrent transactions need to be updated in real time. b. accounts common to many concurrent transactions need to be updated in real time. c. accounts unique to many concurrent transactions need to be updated in real time. d. None of the above are true statements

Q: Which accounting application is least suited to batch processing? a. general ledger b. vendor payments c. sales order processing d. payroll

Q: In a portfolio of three different stocks, which of the following could NOT be true? a. The riskiness of the portfolio is greater than the riskiness of one or two of the stocks. b. The beta of the portfolio is less than the betas of each of the individual stocks. c. The beta of the portfolio is greater than the beta of one or two of the individual stocks' betas. d. The beta of the portfolio cannot be equal to 1. e. The riskiness of the portfolio is less than the riskiness of each of the stocks if they were held in isolation.

Q: Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true about these securities? (Assume market equilibrium.) a. Stock B must be a more desirable addition to a portfolio than Stock A. b. Stock A must be a more desirable addition to a portfolio than Stock B. c. The expected return on Stock A should be greater than that on Stock B. d. The expected return on Stock B should be greater than that on Stock A. e. When held in isolation, Stock A has greater risk than Stock B.

Q: Real-time processing would be most beneficial in handling a firm's a. fixed asset records b. retained earnings information c. merchandise inventory d. depreciation records

Q: Which of the following is NOT a potential problem with beta and its estimation? a. Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different than the "true" or "expected future" beta. b. The beta of "the market," can change over time, sometimes drastically. c. Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed. d. There is a wide confidence interval around a typical stock's estimated beta. e. Sometimes a security or project does not have a past history which can be used as a basis for calculating beta.

Q: Sequential storage means a. data is stored on tape b. access is achieved through an index c. access is direct d. reading record 100 requires first reading records 1 to 99

Q: Which is the best measure of risk for an asset held in isolation, and which is the best measure for an asset held in a diversified portfolio? a. Standard deviation; correlation coefficient. b. Beta; variance. c. Coefficient of variation; beta. d. Beta; beta. e. Variance; correlation coefficient.

Q: A file that stores data used as a standard when processing transactions is a. a reference file b. a master file c. a transaction file d. an archive file

Q: You have the following data on three stocks:Stock Standard Deviation BetaA 0.15 0.79B 0.25 0.61C 0.20 1.29As a risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.a. A; B.b. B; C.c. C; A.d. C; B.e. A; A.

Q: Which symbol represents a decision? a. b. c. d.

Q: Which symbol represents a document? a. b. c. d.

Q: We will almost always find that the beta of a diversified portfolio is less stable over time than the beta of a single security. a. True b. False

Q: Which symbol represents accounting records? a. b. c. d.

Q: In portfolio analysis, we often use ex post (historical) returns and standard deviations, despite the fact that we are interested in ex ante (future) data. a. True b. False

Q: It is possible for a firm to have a positive beta, even if the correlation between its returns and those of another firm are negative. a. True b. False

Q: Which symbol represents a manual operation? a. b. c. d.

Q: Which method of processing does not use the destructive update approach? a. batch processing using direct access files b. real-time processing c. batch processing using sequential files d. all of the above use the destructive update approach

Q: A stock with a beta equal to -1.0 has zero systematic (or market) risk.a. Trueb. False

Q: Stock A has an expected return rA = 10% and σA = 10%. Stock B has rB = 14% and σB = 15%. rAB = 0. The rate of return on riskless assets is 6%.a. Construct a graph that shows the feasible and efficient sets, giving consideration to the existence of the riskless asset.b. Explain what would happen to the CML if the two stocks had (a) a positive correlation coefficient or (b) a negative correlation coefficient.c. Suppose these were the only three securities (A, B, and riskless) in the economy, and everyone's indifference curves were such that they were tangent to the CML to the right of the point where the CML was tangent to the efficient set of risky assets. Would this represent a stable equilibrium? If not, how would an equilibrium be produced?

Q: All of the following can provide evidence of an economic event except a. source document b. turn-around document c. master document d. product document

Q: Both the revenue and the expenditure cycle can be viewed as having two key parts. These are a. manual and computerized b. physical and financial c. input and output d. batch and real-time

Q: Which of the following statements is CORRECT?a. The slope of the CML is (M - rRF)/bM.b. All portfolios that lie on the CML to the right of M are inefficient.c. All portfolios that lie on the CML to the left of M are inefficient.d. The slope of the CML is (M - rRF)/M.e. The Capital Market Line (CML) is a curved line that connects the risk-free rate and the market portfolio.

Q: In contrast to a batch processing system, in a real-time system a. a lag occurs between the time of the economic event and when the transaction is recorded b. relatively fewer hardware, programming, and training resources are required c. a lesser resource commitment per unit of output is required d. processing takes place when the economic event occurs

Q: The Y-axis intercept of the SML indicates the return on an individual asset when the realized return on an average (b = 1) stock is zero. a. True b. False

Q: System flowcharts a. depict logical tasks that are being performed, but not who is performing them b. illustrate the relationship between database entities in systems. c. represent relationships between key elements of both manual and computer systems. d. describe the internal logic of computer applications in systems. .

Q: The SML relates required returns to firms' systematic (or market) risk. The slope and intercept of this line can be influenced by managerial actions.a. Trueb. False

Q: If you plotted the returns of Selleck & Company against those of the market and found that the slope of your line was negative, the CAPM would indicate that the required rate of return on Selleck's stock should be less than the risk-free rate for a well-diversified investor, assuming that the observed relationship is expected to continue in the future. a. True b. False

Q: Data flow diagrams a. depict logical tasks that are being performed, but not who is performing them b. illustrate the relationship between processes, and the documents that flow between them and trigger activities c. represent relationships between key elements of the computer system d. describe in detail the logic of the process

Q: A journal is used in manual accounting environments. What file is comparable to a journal in a computerized environment? a. archive file b. reference file c. transaction file d. master file

Q: Which of the following statements is most CORRECT? a. The primary test of feasibility in a reorganization is whether every claimant agrees with the reorganization plan. b. The basic doctrine of fairness states that all debtholders must be treated equally. c. Since the primary issue in bankruptcy is to determine the sharing of losses between owners and creditors, the "public interest" is not a relevant concern. d. While a firm is in bankruptcy, the existing management is always allowed to retain control, though the court will monitor its actions closely. e. To a large extent, the decision to dissolve a firm through liquidation versus keeping it alive through reorganization depends on a determination of the value of the firm if it is rehabilitated versus the value of its assets if they are sold off individually.

Q: Which of the following statements is most CORRECT? a. Federal bankruptcy law deals only with corporate bankruptcies. Municipal and personal bankruptcy are governed solely by state laws. b. All bankruptcy petitions are filed by creditors seeking to protect their claims against firms in financial distress. Thus, all bankruptcy petitions are involuntary as viewed from the perspective of the firm's management. c. Chapters 11 and 7 are the most important bankruptcy chapters for financial management purposes. If a reorganization plan cannot be worked out under Chapter 11, then the company will be liquidated as prescribed in Chapter 7 of the Act. d. "Restructuring" a firm's debt can involve forgiving a certain portion of the debt, but it cannot call for changing the debt's maturity or its contractual interest rate. e. Our bankruptcy laws were enacted in the 1800s, revised in the 1930s, and have remained unaltered since that time.

Q: In general, a special journal would not be used to record a. sales b. cash disbursements c. depreciation d. purchases

Q: The order of the entries made in the general journal is by a. date b. account number c. user d. customer number

Q: Chapter 7 of the Bankruptcy Act is designed to do which of the following? a. Establish the rules of reorganization for firms with projected cash flows that eventually will be sufficient to meet debt payments. b. Ensure that the firm is viable after emerging from bankruptcy. c. Allow the firm to negotiate with each creditor individually. d. Provide safeguards against the withdrawal of assets by the owners of the bankrupt firm and allow insolvent debtors to discharge all of their obligations and to start over unhampered by a burden of prior debt. e. Protect shareholders against creditors.

Q: What would be the priority of the claims as to the distribution of assets in a liquidation under Chapter 7 of the Bankruptcy Act? 1 is the highest claim, 5 is the lowest. (1) Trustees' costs to administer and operate the firm. (2) Common stockholders. (3) General, or unsecured, creditors. (4) Secured creditors, who have a claim to the proceeds from the sale of specific property pledged to secure a loan. (5) Taxes due to federal and state governments. a. 5, 4, 1, 3, 2 b. 4, 1, 5, 3, 2 c. 5, 1, 4, 2, 3 d. 1, 5, 4, 3, 2 e. 1, 4, 3, 5, 2

Q: Which of the following is a turn-around document? a. remittance advice b. sales order c. purchase order d. payroll check

Q: Bankruptcy laws have been used to help reach settlements in major product liability lawsuits. By using financial projections to show that contingent claims against the company jeopardize its existence, agreements are reached, partially satisfying claimants, and allowing the firm to continue operating. a. True b. False

Q: Which system produces information used for inventory valuation, budgeting, cost control, performance reporting, and make-buy decisions? a. sales order processing b. purchases/accounts payable c. cash disbursements d. cost accounting

Q: Which system is not part of the expenditure cycle? a. cash disbursements b. payroll c. production planning/control d. purchases/accounts payable

Q: Bankruptcy plays no role in settling labor disputes and product liability suits. Such issues are outside the bounds of bankruptcy law and are covered by other statutes. a. True b. False

Q: Each account in the chart of accounts has a separate record in the general ledger master file.

Q: One of the actions that can be taken in bankruptcy under the standard of feasibility is to replace existing management with a new team if the quality of management is judged to have been substandard. a. True b. False

Q: Even if a firm's cash flow projections indicate that it will soon be unable to meet its interest payments, a bankruptcy case cannot begin until the firm actually defaults on a scheduled payment. a. True b. False

Q: Individuals with access authority to general ledger accounts should not prepare journal vouchers.

Q: The most common means of making entries in the general ledger is via the journal voucher.

Q: The primary test of feasibility in a reorganization is whether the firm's fixed charges after reorganization can be covered by its projected cash flows. a. True b. False

Q: The basic doctrine of fairness under bankruptcy provisions states that claims must be recognized in the order of their legal and contractual priority. a. True b. False

Q: Mnemonic codes are appropriate for items in either an ascending or descending sequence, such as the numbering of checks or source documents.

Q: In the event of bankruptcy under the federal bankruptcy laws, debtholders have a prior claim to a firm's income and assets before both common and preferred stockholders. Moreover, in a bankruptcy all debtholders are treated equally as a single class of claimants. a. True b. False

Q: For a given field size, a system that uses alphabetic codes can represent far more situations than a system with that uses numeric codes.

Q: Sequential codes may be used to represent complex items or events involving two or more pieces of related data.

Q: A central question that must be addressed in bankruptcy proceedings is whether the firm's inability to meet scheduled interest payments results from a temporary cash flow problem or from a potentially permanent problem caused by falling asset values. a. True b. False