1. An investment, such as a bond, will have a higher expected return (or yield) if it:
a. Has a higher purchase price.
b. Holds a higher rating, such as AAA or AA.
c. Carries greater risk.
d. Has been issued by a well-known company.
Question 2. 2. Revenue recognition rules state which of the following?
a. A sale can only be recognized when cash changes hands.
b. A sale can only be recognized when the title or ownership changes hands.
c. It varies depending on the item and the nature of the sales contract.
d. A sale can only be recognized when the product is received by the buyer.
Question 3. 3. Time is a factor when determining the value of a possible investment. As investors, all else being equal, we value investments:
a. More the longer we have to wait for the payoff.
b. Less the longer we have to wait for the payoff.
c. With predefined wait times for payoff.
d. Regardless of time because a dollar is always a dollar.
Question 4. 4. To test the theory of market efficiency, economists:
a. Look for a trading rule that produces returns higher than the market average.
b. Look for trading rules that can repeatedly produce returns higher than the market average.
c. Use statistical correlations over returns over time.
d. Must have good luck because such results are difficult to find.
Question 5. 5. A company that interprets revenue recognition rules very aggressively will do which of the following?
a. Recognize revenue as quickly as possible.
b. Have a lower chance of overstating sales than other companies.
c. Only recognize revenue after title transfer and payment have been completed.
d. Recognize a sale one month after the customer has received the product so the chance of return is low.
Question 6. 6. Which is not one of the three principles that accrual accounting is based on?
a. The matching principle
b. First-in, first-out inventory management
c. Revenue recognition
d. Depreciation of long-lived assets
Question 7. 7. Wealth is created when a company:
a. Makes investments that are expected to create value greater than their cost.
b. Has a high stock price.
c. Pays regular dividends.
d. Obtains additional assets.