Financial Investment Final Exam 3/3

The analysis of the determinants of firm value is called

fundamental analysis

Which of the following is the rate at which the general level of prices for goods and services is rising?

The inflation rate

You buy a call option and a put option on General Electric. Both the call option and the put option have the same exercise price and expiration date. This strategy is called a

long straddle

If a stock price increases, the price of a put option on the stock will ________ and the price of a call option on the stock will __________.

decrease; increase

Firm A is high-risk, and Firm B is low-risk. Everything else equal, which firm would you expect to have a higher P/E ratio?

Both would have the same P/E if they were in the same industry.

The federal funds rate is the interest rate

banks charge each other for overnight loans of deposits on reserve at the Fed

Which of the following valuation measures is often used to compare firms that have no earnings?

Price-to-sales ratio

Which one of the following is a common term for the market consensus value of the required return on a stock?

Market capitalization rate

The initial maturities of most exchange-traded options are generally

less than 1 year

The accounting measure of a firm's equity value generated by applying accounting principles to asset and liability acquisitions is called

book value

If the economy is going into a recession, a good industry to invest in would be the __________ industry.

medical services

According to __________ economists, the growth of the U.S. economy in the 1980s can be attributed to lower marginal tax rates, which improved the incentives for people to work.

supply-side

You buy a call option on Summit Corporation with an exercise price of $40 and an expiration date in September, and you write a call option on Summit Corporation with an exercise price of $40 and an expiration date in October. This strategy is called a

time spread

The Option Clearing Corporation is owned by

the exchanges on which stock options are traded

A firm in the early stages of its industry life cycle will likely have low

dividend payout rates

An example of a highly cyclical industry is the

automobile industry

A firm cuts its dividend payout ratio. As a result, you know that the firm's

earnings retention ratio will increase

The ratio of the purchasing power of two economies is termed the

real exchange rate

The goal of supply-side policies is to

create an environment where workers and owners of capital have the maximum incentive and ability to produce and develop goods

A European put option gives its holder the right to

sell the underlying asset at the exercise price only at the expiration date

The yield curve spread between the 10-year T-bond yield and the federal funds rate is a __________ economic indicator.

leading

In macroeconomic terms, an increase in the price of imported oil or a decrease in the availability of oil is an example of a

supply shock

Strips and straps are variations of

straddles

Inflation is caused by

rapid growth of the money supply

The delta of an option is the

change in the dollar value of an option for a dollar change in the price of the underlying asset

A top-down analysis of a firm's prospects starts with an analysis of the

U.S. economy or even the global economy

An American put option gives its holder the right to

sell the underlying asset at the exercise price on or before the expiration date

__________ is the riskiest transaction to undertake in the stock-index option markets if the stock market is expected to fall substantially after the transaction is completed.

Writing an uncovered put option

An investment strategy that entails shifting the portfolio into industry sectors that are expected to outperform others based on macroeconomic forecasts is termed

sector rotation

Cash cows are typically found in the __________ stage of the industry life cycle.

maturity

The intrinsic value of a call option is equal to the

stock price minus the exercise price