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Question 1 of 10
1. Question
What are the features of Financial ratios?
I. They are a comparison of two specific pieces of numerical data from a given company’s financial statement.
II. They are often used to quantify data and allow a more valuable comparison of data between companies.
III. They are very useful when used to compare data from the financial statements of companies that vary greatly in size.
IV. They also very useful when comparing the performance of an individual company to the entire industry to which the company belongs.
Correct
Financial ratios are a comparison of two specific pieces of numerical data from a given company’s financial statement. They are often used to quantify data and allow a more valuable comparison of data between companies. Financial ratios are very useful when used to compare data from the financial statements of companies that vary greatly in size. A ratio comparing two companies’ debt to cash will be much easier to interpret than simply looking at the numbers on the financial statements. This is also very useful when comparing the performance of an individual company to the entire industry to which the company belongs.
Incorrect
Financial ratios are a comparison of two specific pieces of numerical data from a given company’s financial statement. They are often used to quantify data and allow a more valuable comparison of data between companies. Financial ratios are very useful when used to compare data from the financial statements of companies that vary greatly in size. A ratio comparing two companies’ debt to cash will be much easier to interpret than simply looking at the numbers on the financial statements. This is also very useful when comparing the performance of an individual company to the entire industry to which the company belongs.
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Question 2 of 10
2. Question
How can current ratios be calculated?
Correct
The current ratio, also known as the liquidity ratio, is a measurement of a company’s current assets versus its current liabilities. The current ratio is calculated as follows: Current ratio = (Current Assets)/(Current Liabilities). This is helpful to investors in determining a company’s ability to meet immediate obligations such as utilities to run its facilities, payroll, maintenance on equipment, etc. The current ratio is useful to investors to help determine if a company has a hard time turning inventory, and if the company would remain sound if its debts and obligations were called.
Incorrect
The current ratio, also known as the liquidity ratio, is a measurement of a company’s current assets versus its current liabilities. The current ratio is calculated as follows: Current ratio = (Current Assets)/(Current Liabilities). This is helpful to investors in determining a company’s ability to meet immediate obligations such as utilities to run its facilities, payroll, maintenance on equipment, etc. The current ratio is useful to investors to help determine if a company has a hard time turning inventory, and if the company would remain sound if its debts and obligations were called.
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Question 3 of 10
3. Question
Why and how is current ratio useful?
I. it is helpful to investors in determining a company’s ability to meet immediate obligations such as utilities to run its facilities, payroll, maintenance on equipment, etc
II. It is useful to investors to help determine if a company has a hard time turning inventory.
III. It is useful to investors to help determine if the company would remain sound if its debts and obligations were called.
IV. They are most useful when used to compare companies that are in the same industry, as business cycles and product liquidity vary greatly between industries.
Correct
The current ratio, also known as the liquidity ratio, is a measurement of a company’s current assets versus its current liabilities. The current ratio is calculated as follows: Current ratio = (Current Assets)/(Current Liabilities). This is helpful to investors in determining a company’s ability to meet immediate obligations such as utilities to run its facilities, payroll, maintenance on equipment, etc. The current ratio is useful to investors to help determine if a company has a hard time turning inventory, and if the company would remain sound if its debts and obligations were called. Current ratios are most useful when used to compare companies that are in the same industry, as business cycles and product liquidity vary greatly between industries.
Incorrect
The current ratio, also known as the liquidity ratio, is a measurement of a company’s current assets versus its current liabilities. The current ratio is calculated as follows: Current ratio = (Current Assets)/(Current Liabilities). This is helpful to investors in determining a company’s ability to meet immediate obligations such as utilities to run its facilities, payroll, maintenance on equipment, etc. The current ratio is useful to investors to help determine if a company has a hard time turning inventory, and if the company would remain sound if its debts and obligations were called. Current ratios are most useful when used to compare companies that are in the same industry, as business cycles and product liquidity vary greatly between industries.
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Question 4 of 10
4. Question
What is not true about Quick ratio?
Correct
The quick ratio is similar to the current ratio in that it is a measurement of a company’s current assets compared to its current liabilities, but it is a more accurate representation of the company’s current situation in that it subtracts the company’s inventory from their current assets. As inventories are not usually liquid, they do not actually contribute to a company’s immediate ability to meet its obligations. The quick ratio is calculated as follows: (Current Assets – Inventories)/(Current Liabilities).
Incorrect
The quick ratio is similar to the current ratio in that it is a measurement of a company’s current assets compared to its current liabilities, but it is a more accurate representation of the company’s current situation in that it subtracts the company’s inventory from their current assets. As inventories are not usually liquid, they do not actually contribute to a company’s immediate ability to meet its obligations. The quick ratio is calculated as follows: (Current Assets – Inventories)/(Current Liabilities).
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Question 5 of 10
5. Question
What is Debt-to-equity ratio?
Correct
The debt-to-equity ratio is a measurement of the amount of debt that a company uses to finance its operations. It is calculated by dividing total liabilities by shareholders equity, or (Total Liabilities)/(Shareholders Equity). A high debt-to-equity ratio indicates a firm that uses a lot of debt to finance its operations and that could have difficulty raising cash if its debts are called.
Incorrect
The debt-to-equity ratio is a measurement of the amount of debt that a company uses to finance its operations. It is calculated by dividing total liabilities by shareholders equity, or (Total Liabilities)/(Shareholders Equity). A high debt-to-equity ratio indicates a firm that uses a lot of debt to finance its operations and that could have difficulty raising cash if its debts are called.
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Question 6 of 10
6. Question
How is price-to-earnings calculated?
Correct
The price-to-earnings, or P/E, ratio helps the investor compare a security’s market value (price per share) to the company’s earnings per share. It is calculated as market value per share/earnings per share. A higher P/E may indicate that investors predict larger earnings in the future than a company with a lower P/E.
Incorrect
The price-to-earnings, or P/E, ratio helps the investor compare a security’s market value (price per share) to the company’s earnings per share. It is calculated as market value per share/earnings per share. A higher P/E may indicate that investors predict larger earnings in the future than a company with a lower P/E.
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Question 7 of 10
7. Question
What can be attributed to Systematic risk?
I. Systematic risk is also known as market risk.
II. They may not be negated through diversification, as other securities are also part of the market as a whole.
III. There is no single investment strategy that is completely able to negate systematic risk.
IV. It refers to the risk of an investment decreasing in value for the sole reason that it is a part of the market as a whole.
Correct
Systematic risk, otherwise known as market risk, refers to the risk of an investment decreasing in value for the sole reason that it is a part of the market as a whole, and often when the market moves up or down, the security moves as a part of the whole. Systematic risk may not be negated through diversification, as other securities are also part of the market as a whole. There is no single investment strategy that is completely able to negate systematic risk.
Incorrect
Systematic risk, otherwise known as market risk, refers to the risk of an investment decreasing in value for the sole reason that it is a part of the market as a whole, and often when the market moves up or down, the security moves as a part of the whole. Systematic risk may not be negated through diversification, as other securities are also part of the market as a whole. There is no single investment strategy that is completely able to negate systematic risk.
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Question 8 of 10
8. Question
Which is not a type of systematic risk?
Correct
The three types of systematic risks are:
Market risk (the synonym for systematic risk)
Interest rate risk:Inflation risk. None of these factors can be avoided, as the investor has no direct control over them.
Interest rate risk: Interest rate risk describes the possibility that interest rates will increase over time.Incorrect
The three types of systematic risks are:
Market risk (the synonym for systematic risk)
Interest rate risk:Inflation risk. None of these factors can be avoided, as the investor has no direct control over them.
Interest rate risk: Interest rate risk describes the possibility that interest rates will increase over time. -
Question 9 of 10
9. Question
What is not true regarding Interest rate risk?
I. It describes the possibility that interest rates will increase over time.
II. When interest rates move up, the value of fixed-income assets decreases.
III. Interest rates are benchmarked to the Federal Reserve Rate.
IV. Interest rate risk does not describe the downward movement of interest rates.
Correct
Interest rate risk describes the possibility that interest rates will increase over time. Since decreasing interest rates provide an increase in the value of fixed-income assets, interest rate risk does not describe the downward movement of interest rates. When interest rates move up, the value of fixed-income assets decreases. An investment with a long duration will be more susceptible to interest rate risk due to the greater likelihood of interest rate movement during the lifetime of the investment compared to a short-duration investment. Because interest rates are benchmarked to the Federal Reserve Rate, an increase in rates at the Federal Reserve affects the fixed assets market as a whole. Individual investors do not hold sway over the Federal Reserve, making systematic risk unavoidable. It may not be eliminated completely, but may be reduced through diversification.
Incorrect
Interest rate risk describes the possibility that interest rates will increase over time. Since decreasing interest rates provide an increase in the value of fixed-income assets, interest rate risk does not describe the downward movement of interest rates. When interest rates move up, the value of fixed-income assets decreases. An investment with a long duration will be more susceptible to interest rate risk due to the greater likelihood of interest rate movement during the lifetime of the investment compared to a short-duration investment. Because interest rates are benchmarked to the Federal Reserve Rate, an increase in rates at the Federal Reserve affects the fixed assets market as a whole. Individual investors do not hold sway over the Federal Reserve, making systematic risk unavoidable. It may not be eliminated completely, but may be reduced through diversification.
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Question 10 of 10
10. Question
What are the features of Bullet strategy?
I. The bullet strategy of diversifying against interest rate risk is so called because it is used to hit a target.
II. the targets typically take the form of a major life event such as the purchase of a house or saving to pay for a child’s higher education.
III. Once the target date is set, the investor buys fixed assets at regular intervals that mature at or near the target date.
IV. The “bullet” strategy allows the investor access to interest rates as they change instead of risking a move in rates by locking the whole investment into a single rate at the beginning of the investment period.
Correct
The “bullet” strategy of diversifying against interest rate risk is so called because it is used to “hit” a target. These targets typically take the form of a major life event such as the purchase of a house or saving to pay for a child’s higher education. Once the target date is set, the investor buys fixed assets at regular intervals that mature at or near the target date. If the investor plans to buy a house in ten years, the investor would buy a bond with a ten- year maturity and then at selected intervals (usually one or two years) buy bonds that mature at the same target date. This results in multiple bonds being purchased at different times but maturing at the same time. This can be viewed as the polar opposite of the “ladder” strategy.
Incorrect
The “bullet” strategy of diversifying against interest rate risk is so called because it is used to “hit” a target. These targets typically take the form of a major life event such as the purchase of a house or saving to pay for a child’s higher education. Once the target date is set, the investor buys fixed assets at regular intervals that mature at or near the target date. If the investor plans to buy a house in ten years, the investor would buy a bond with a ten- year maturity and then at selected intervals (usually one or two years) buy bonds that mature at the same target date. This results in multiple bonds being purchased at different times but maturing at the same time. This can be viewed as the polar opposite of the “ladder” strategy.