1.
Which of the following is part of the primary equity capital market: a.
Company issuing debenture bonds b.
Initial public offering of common stock c.
Buying General Electric on the New York Stock Exchange d.
Commercial bank loan e.
All of the above
2.
The quarterly report issued by a corporation to the SEC is the: a.
10-K b.
10-Q c.
Stockholders’ quarterly report d.
Proxy statement e.
None of the above
3.
To pass a new pronouncement, the FASB requires: a.
A majority vote by Congress b.
A super-majority of 5 votes after extensive due process c.
Extensive due process and a majority vote of the Financial Accounting
Foundation d.
A majority vote of the FASB e.
None of the above
4.
A ß > 2 means: a.
A security is high risk and stock price is expected to move more than twice as fast as the overall market b.
Above prime rate interest rates are expected c.
A low risk security d.
Evidence of market inefficiency e.
None of the above
5.
If the Chief Financial Officer of a corporation lies on the 10-K to increase cash bonuses for managers, this is an example of: a.
Opportunism b.
Market efficiency c.
Random Walk d.
Bounded Rationality e.
None of the above

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5
6.
A corporation’s initial public offering of stock is part of the: a.
Primary equity market b.
Primary debt market c.
Secondary equity market d.
Secondary debt market e.
None of the above
7.
What is a Exposure Draft issued by the Financial Accounting Standards Board (FASB)? a.
The proposed solution to a specific accounting issue before an actual pronouncement is issued b.
Defines the problem, scope of the project, & alternative solutions c.
The set of financial statements issued by the FASB d.
The current stock price and stock chart for the last year for the FASB securities e.
All of the above
8.
Bounded rationality suggests that: a.
Stock prices go up most of the time b.
Investors make irrational decisions c.
Professional managers cannot outperform a randomly selected stock portfolio d.
Individuals have limited knowledge & limited ability to process information e.
None of the above
9.
Income smoothing indicates that: a.
Markets are not efficient b.
Earnings management is used to reduce erratic revenues & earnings c.
Earnings management techniques cannot be analyzed by portfolio managers d.
Investors should concentrate on only a few, high performance stocks e.
None of the above
10.
The Capital Asset Pricing Model describes: a.
FASB’s due process b.
Portfolio irrationality & proves that markets are inefficient c.
The relationship between individual security returns & market returns d.
Earnings manipulation e.
None of the above
11.
Low earnings quality is usually associated with:
Giroux • F INANCIAL S TATEMENT A NALYSIS

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6 a.
Full disclosure b.
Conservative reporting c.
Earnings manipulation d.
Stable or growing earnings e.
None of the above
12.
Walmart as a Beta (ß) of 1.2 and expected 5 year earnings of 14.2% annually (12.8% is average). Therefore, Walmart should be part of what type of stock portfolio? a.
Low risk b.
High risk c.
High tech d.
Primary debt market e.
None of the above
13.
No Profit, Inc. has a current ratio of 1.2x. The financial analyst rates this a 3 on a 10point scale, since it is much less than 2 (a standard rule of thumb). This is an example of: a. b.
Trend analysis
Comparing industry averages c. d.
Irrationality
Benchmarking
None of the above e.
14.
A company borrows $100,000 from a bank; this is part of the: a. Primary equity market b. Secondary equity market c. Primary debt market d. Secondary debt market e. All of the above
15.
The primary mission of the SEC is to: a. Provide auditing services to corporations b. Regulate the banking community and determine short-term interest rates c. Protect investors and maintain the integrity of the securities markets d Provide all federal and state regulations of business e. All of the above
16.
The FASB is:
Giroux • F INANCIAL S TATEMENT A NALYSIS

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7 a. A committee of Congressional members to establish all commercial laws b. A seven member board appointed by the Financial Accounting Foundation c. Part of the Securities & Exchange Commission d. Part of the Federal Reserve System dealing with short-term interest rates e .None of the above
17.
Financial markets are efficient if: a. Stock prices always go up b. Security analysts can beat the market consistently c. All corporations are audited annually d. Information is impounded immediately in price and in an unbiased fashion e. None of the above
18.
In the market model R m
is:
Solutions
1
2
3
4
5
6
7
8
9 a.
The rate of return on the market b.
A risk-free rate of return c.
A random walk d.
A term representing bounded rationality e.
None of the above
B
B
B
A
A
A
A
D
B
10
11
12
13
14
15
16
17
18
C
C
B
D
C
C
B
D
A
Giroux • F INANCIAL S TATEMENT A NALYSIS