FINC 341 Exam 1 Theory Guyton
Stock prices have increased significantly since President Trump was elected due to
expectations that the U.S. economy will gain strength in the future from lower corporate
tax rates, repatriation of corporate cash from abroad, and some deregulation of
business - CORRECT ANSWER-True
From World War I to 2000, the economy grew at a an average growth rate of 3.5 % per
year. From 2000 until today, it has grown at about 1.5% on average per year -
CORRECT ANSWER-False
When interest rates are high, an investor should consider buying bonds and then selling
them once interest rates go back down if they want to make capital gains on bonds -
CORRECT ANSWER-True
As U.S. rates go up, the dollar should strengthen and help U.S. companies that import
goods - CORRECT ANSWER-True
The repeal of the Glass Steagall Act of 1933 under President Clinton's administration
has been partially blamed for the 2008-09 crisis - CORRECT ANSWER-True
In 2015, the U.S. had a trade deficit of about $800 million - CORRECT ANSWER-True
The Volcker Rule has never actually taken affect, even though it's in the Dodd Frank
Bill. It was supposed to keep big banks from taking on investments that could put the bill
in bankruptcy - CORRECT ANSWER-True
When a company buys it's own stock, its P/E ratio is decreased, thus making its stock
price decrease - CORRECT ANSWER-False
The NASDAQ has acquired the Philadelphia Stock Exchange and 25% of the London
Stock Exchange - CORRECT ANSWER-True
If a stock's market price is more than the perceived intrinsic value of the stock, investor
demand for purchasing the stock will decrease and the stock's market price will rise to
seek equilibrium - CORRECT ANSWER-False
The DJIA began with just 10 stocks, was expanded in 1916 to 20 stocks, and then was
increased to 30 stocks in 1928. It is adjusted for stock splits - CORRECT ANSWER-
True
Since the NASDAQ is value-weighted, stock price movement of Apple, Microsoft,
Google, Facebook, and/or Intel can move the entire index - CORRECT ANSWER-True
, The S&P 500 Index is made up of the leading companies in the leading industries, and
the largest companies (value-wise) have the greatest influence on the index -
CORRECT ANSWER-True
When the Fed fights inflation by raising the interest rates, that is known as "shooting the
gun" - CORRECT ANSWER-False
If expected inflation decreases more than some foreign country than the United States,
the value of that country's currency is likely to decrease compared to U.S. dollar -
CORRECT ANSWER-False
If the yield curve for treasury bonds is downward sloping, then inflation could be
expected to decrease or increase in the future, depending on MRP - CORRECT
ANSWER-False
In trying to stimulate the economy after the 2008 Crisis, the Fed conducted three
quantitative easing programs, with the last one ending in October of 2014 - CORRECT
ANSWER-True
The spread between yield curves of corporate bonds and treasury bonds in smaller the
longer the maturity because the MRP increases for both corporate and treasury bonds -
CORRECT ANSWER-False
If EVA is positive, then after-tax operating income exceeds the cost of the capital
needed to produce that income, and management's actions are adding value for
stockholdres - CORRECT ANSWER-True
On Yahoo Finance, a recommendation rating of 5.0 indicates that the stock is a strong
buy - CORRECT ANSWER-False
A company does not want it's PEG to be greater than 1.0 - CORRECT ANSWER-False
A firm's MVA must be a positive value - CORRECT ANSWER-False
Although EVA is important, ROA is still a better measure for establishing upper
executives' bonuses - CORRECT ANSWER-False
If a wealthy corporation owns real estate for 3 years and then sells it, the tax on the
profit would be capped at 20% and most likely the corporation would have to pay an
additional 3.8% on the profit for the healthcare tax - CORRECT ANSWER-False
If an individual has $4,000 of capital gains and $17k of capital losses this year, that
person will pay no tax on the capital gains, and will be able to keep $3,000 of his salary
from being taxed this year and then carry $10k of capital losses for the next year -
CORRECT ANSWER-True
Stock prices have increased significantly since President Trump was elected due to
expectations that the U.S. economy will gain strength in the future from lower corporate
tax rates, repatriation of corporate cash from abroad, and some deregulation of
business - CORRECT ANSWER-True
From World War I to 2000, the economy grew at a an average growth rate of 3.5 % per
year. From 2000 until today, it has grown at about 1.5% on average per year -
CORRECT ANSWER-False
When interest rates are high, an investor should consider buying bonds and then selling
them once interest rates go back down if they want to make capital gains on bonds -
CORRECT ANSWER-True
As U.S. rates go up, the dollar should strengthen and help U.S. companies that import
goods - CORRECT ANSWER-True
The repeal of the Glass Steagall Act of 1933 under President Clinton's administration
has been partially blamed for the 2008-09 crisis - CORRECT ANSWER-True
In 2015, the U.S. had a trade deficit of about $800 million - CORRECT ANSWER-True
The Volcker Rule has never actually taken affect, even though it's in the Dodd Frank
Bill. It was supposed to keep big banks from taking on investments that could put the bill
in bankruptcy - CORRECT ANSWER-True
When a company buys it's own stock, its P/E ratio is decreased, thus making its stock
price decrease - CORRECT ANSWER-False
The NASDAQ has acquired the Philadelphia Stock Exchange and 25% of the London
Stock Exchange - CORRECT ANSWER-True
If a stock's market price is more than the perceived intrinsic value of the stock, investor
demand for purchasing the stock will decrease and the stock's market price will rise to
seek equilibrium - CORRECT ANSWER-False
The DJIA began with just 10 stocks, was expanded in 1916 to 20 stocks, and then was
increased to 30 stocks in 1928. It is adjusted for stock splits - CORRECT ANSWER-
True
Since the NASDAQ is value-weighted, stock price movement of Apple, Microsoft,
Google, Facebook, and/or Intel can move the entire index - CORRECT ANSWER-True
, The S&P 500 Index is made up of the leading companies in the leading industries, and
the largest companies (value-wise) have the greatest influence on the index -
CORRECT ANSWER-True
When the Fed fights inflation by raising the interest rates, that is known as "shooting the
gun" - CORRECT ANSWER-False
If expected inflation decreases more than some foreign country than the United States,
the value of that country's currency is likely to decrease compared to U.S. dollar -
CORRECT ANSWER-False
If the yield curve for treasury bonds is downward sloping, then inflation could be
expected to decrease or increase in the future, depending on MRP - CORRECT
ANSWER-False
In trying to stimulate the economy after the 2008 Crisis, the Fed conducted three
quantitative easing programs, with the last one ending in October of 2014 - CORRECT
ANSWER-True
The spread between yield curves of corporate bonds and treasury bonds in smaller the
longer the maturity because the MRP increases for both corporate and treasury bonds -
CORRECT ANSWER-False
If EVA is positive, then after-tax operating income exceeds the cost of the capital
needed to produce that income, and management's actions are adding value for
stockholdres - CORRECT ANSWER-True
On Yahoo Finance, a recommendation rating of 5.0 indicates that the stock is a strong
buy - CORRECT ANSWER-False
A company does not want it's PEG to be greater than 1.0 - CORRECT ANSWER-False
A firm's MVA must be a positive value - CORRECT ANSWER-False
Although EVA is important, ROA is still a better measure for establishing upper
executives' bonuses - CORRECT ANSWER-False
If a wealthy corporation owns real estate for 3 years and then sells it, the tax on the
profit would be capped at 20% and most likely the corporation would have to pay an
additional 3.8% on the profit for the healthcare tax - CORRECT ANSWER-False
If an individual has $4,000 of capital gains and $17k of capital losses this year, that
person will pay no tax on the capital gains, and will be able to keep $3,000 of his salary
from being taxed this year and then carry $10k of capital losses for the next year -
CORRECT ANSWER-True
