Question 1

The expected portfolio return decreases as risk increases.

Accepted Answer

A) True 
 B)False  False

Question 2

Accounting information ranks at the top on surveys that ask investors to weigh the importance of different types of investment information.

Accepted Answer

A) True 
 B)False  False

Question 3

. The calculation of residual income recognizes that equity, but not debt, has a cost.

Accepted Answer

A) True 
 B)False  False

Question 4

Most testing of the efficient markets hypothesis has dealt only with past information reflected in security prices.

Accepted Answer

A) True 
 B)False

Question 5

When accounting numbers are used to monitor agency contracts, there can be indirect consequences from changes in accounting policies.

Accepted Answer

A) True 
 B)False

Question 6

The study by Lev that examined earnings numbers and stock returns found a high explanatory relationship between earnings and stock returns.

Accepted Answer

A) True 
 B)False

Question 7

Surveys of individual investors have generally indicated a high readership of accounting information.

Accepted Answer

A) True 
 B)False

Question 8

The relationship between earnings and stock prices has diminished over the years, but the ability of earnings to forecast futures cash flows has not.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements applies to the capital asset pricing model?

Accepted Answer

A) It assumes that individual securities are priced solely on unsystematic risk. 
B) It uses beta to represent unsystematic risk of individual securities. 
C) It assumes that if the rate of return on an individual security is greater than the market average, systematic risk of the security must be smaller. 
D) It assumes that if beta equals 1, the systematic risk of an individual security is equal to the average risk of the market as a whole. 
A) It assumes that individual securities are priced solely on unsystematic risk. 
B) It uses beta to represent unsystematic risk of individual securities. 
C) It assumes that if the rate of return on an individual security is greater than the market average, systematic risk of the security must be smaller. 
D) It assumes that if beta equals 1, the systematic risk of an individual security is equal to the average risk of the market as a whole.

Question 10

Which of the following is an assumption of fundamental analysis?

Accepted Answer

A) Securities markets are efficient. 
B) Prices of securities rapidly reflect all publicly available information. 
C) The strong form of the efficient-markets hypothesis is true. 
D) Under-priced shares can be found in the securities market by means of financial statement analysis. 
A) Securities markets are efficient. 
B) Prices of securities rapidly reflect all publicly available information. 
C) The strong form of the efficient-markets hypothesis is true. 
D) Under-priced shares can be found in the securities market by means of financial statement analysis.

Question 11

What is the underlying premise of clean surplus theory and how is it applied in determining the valuation of a firm's equity?

Accepted Answer

The underlying premise of clean surplus

Question 12

Which of the following is true regarding the term residual income?

Accepted Answer

A) Residual income is the income over and above the amount needed to cover current expenses. 
B) Residual income is the income in excess of a charge for the capital that is employed to generate that income. 
C) Residual income is equal to economic income. 
D) Residual income is called abnormal earnings when applied to the enterprise's operating income and invested capital. 
A) Residual income is the income over and above the amount needed to cover current expenses. 
B) Residual income is the income in excess of a charge for the capital that is employed to generate that income. 
C) Residual income is equal to economic income. 
D) Residual income is called abnormal earnings when applied to the enterprise's operating income and invested capital.

Question 13

Which of the following ranks below annual reports on surveys that ask investors to weigh the importance of different types of investment information?

Accepted Answer

A) Information from company reports 
B) Information about general economic conditions 
C) Company announcements on products and markets 
D) None of the above rank below annual reports 
A) Information from company reports 
B) Information about general economic conditions 
C) Company announcements on products and markets 
D) None of the above rank below annual reports

Question 14

Research studies have predominantly supported the naive-investor hypothesis.

Accepted Answer

A) True 
 B)False

Question 15

Post-earnings-announcement drift refers to the fact that it takes up to 90 days for security prices to react significantly to earnings announcements.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is $\underline{not}$ a possible cause of post-earnings-announcement drift?

Accepted Answer

A) Financial analysts over-react to fundamental signals stemming from securities. 
B) Shareholders do not distinguish well between the cash flow portions and the accrual portions of earnings. 
C) Financial analysts' forecast errors lead to incomplete security price adjustments. 
D) Transaction costs are too high relative to the potential gain that can be earned from the mispricing of the securities. 
A) Financial analysts over-react to fundamental signals stemming from securities. 
B) Shareholders do not distinguish well between the cash flow portions and the accrual portions of earnings. 
C) Financial analysts' forecast errors lead to incomplete security price adjustments. 
D) Transaction costs are too high relative to the potential gain that can be earned from the mispricing of the securities.

Question 17

Residual income refers to income in excess of a charge for the capital that is employed to generate that income.

Accepted Answer

A) True 
 B)False

Question 18

Discuss whether alternative accounting policies have a systematic effect on security prices and what this implies about the information content of accounting policy changes. Include a discussion of previous research in this area.

Accepted Answer

If security prices do not respond to art

Question 19

The strongest evidence from capital market research concerns the information content of annual accounting earnings numbers.

Accepted Answer

A) True 
 B)False

Question 20

What is post-earnings-announcement drift, and what are possible causes for this phenomenon?

Accepted Answer

Post-earnings-announcement drift refers

The expected portfolio return decreases as risk increases.

Accounting information ranks at the top on surveys that ask investors to weigh the importance of different types of investment information.

. The calculation of residual income recognizes that equity, but not debt, has a cost.

Most testing of the efficient markets hypothesis has dealt only with past information reflected in security prices.

When accounting numbers are used to monitor agency contracts, there can be indirect consequences from changes in accounting policies.

The study by Lev that examined earnings numbers and stock returns found a high explanatory relationship between earnings and stock returns.

Surveys of individual investors have generally indicated a high readership of accounting information.

The relationship between earnings and stock prices has diminished over the years, but the ability of earnings to forecast futures cash flows has not.

Which of the following statements applies to the capital asset pricing model?

Which of the following is an assumption of fundamental analysis?

What is the underlying premise of clean surplus theory and how is it applied in determining the valuation of a firm's equity?

Which of the following is true regarding the term residual income?

Which of the following ranks below annual reports on surveys that ask investors to weigh the importance of different types of investment information?

Research studies have predominantly supported the naive-investor hypothesis.

Post-earnings-announcement drift refers to the fact that it takes up to 90 days for security prices to react significantly to earnings announcements.

Which of the following is $\underline{not}$ a possible cause of post-earnings-announcement drift?

Residual income refers to income in excess of a charge for the capital that is employed to generate that income.

Discuss whether alternative accounting policies have a systematic effect on security prices and what this implies about the information content of accounting policy changes. Include a discussion of previous research in this area.

The strongest evidence from capital market research concerns the information content of annual accounting earnings numbers.

What is post-earnings-announcement drift, and what are possible causes for this phenomenon?

An Introduction to Accounting Theory

Accounting Theory and Accounting Research

Development of Institutional Structure of Financial Accounting

The Economics of Financial Reporting Regulation

Postulates, Principles, and Concepts

The Search for Objectives

The Fasbs Conceptual Framework

Uniformity and Disclosure: Some Policy-Making Directions

International Accounting

The Balance Sheet

The Income Statement

Statement of Cash Flows

Income Taxes and Financial Accounting

Pensions and Other Postretirement Benefits

Leases

Intercorporate Equity Investments

Filters

Exam 8: Usefulness of Accounting Information to Investors and Creditors

The expected portfolio return decreases as risk increases.

Accounting information ranks at the top on surveys that ask investors to weigh the importance of different types of investment information.

. The calculation of residual income recognizes that equity, but not debt, has a cost.

Most testing of the efficient markets hypothesis has dealt only with past information reflected in security prices.

When accounting numbers are used to monitor agency contracts, there can be indirect consequences from changes in accounting policies.

The study by Lev that examined earnings numbers and stock returns found a high explanatory relationship between earnings and stock returns.

Surveys of individual investors have generally indicated a high readership of accounting information.

The relationship between earnings and stock prices has diminished over the years, but the ability of earnings to forecast futures cash flows has not.

Which of the following statements applies to the capital asset pricing model?

Which of the following is an assumption of fundamental analysis?

What is the underlying premise of clean surplus theory and how is it applied in determining the valuation of a firm's equity?

Which of the following is true regarding the term residual income?

Which of the following ranks below annual reports on surveys that ask investors to weigh the importance of different types of investment information?

Research studies have predominantly supported the naive-investor hypothesis.

Post-earnings-announcement drift refers to the fact that it takes up to 90 days for security prices to react significantly to earnings announcements.

Which of the following is not‾\underline{not}not​ a possible cause of post-earnings-announcement drift?

Residual income refers to income in excess of a charge for the capital that is employed to generate that income.

Discuss whether alternative accounting policies have a systematic effect on security prices and what this implies about the information content of accounting policy changes. Include a discussion of previous research in this area.

The strongest evidence from capital market research concerns the information content of annual accounting earnings numbers.

What is post-earnings-announcement drift, and what are possible causes for this phenomenon?

An Introduction to Accounting Theory

Accounting Theory and Accounting Research

Development of Institutional Structure of Financial Accounting

The Economics of Financial Reporting Regulation

Postulates, Principles, and Concepts

The Search for Objectives

The Fasbs Conceptual Framework

Uniformity and Disclosure: Some Policy-Making Directions

International Accounting

The Balance Sheet

The Income Statement

Statement of Cash Flows

Income Taxes and Financial Accounting

Pensions and Other Postretirement Benefits

Leases

Intercorporate Equity Investments

Filters

Which of the following is $\underline{not}$ a possible cause of post-earnings-announcement drift?