Questions and Answers of Public Finance A contemporary Application

A chi-square test is most appropriate for tests concerning:A. a single variance.B. differences between two population means with variances assumed to be equal.C. differences between two population
Which of the following tests should be used to test the difference between the variances of two normally distributed populations with random independent samples?A. t-test B. F-test C. Paired
A nonparametric test is most appropriate when the:A. data consist of ranked values.B. validity of the test depends on many assumptions.C. sample sizes are large but are drawn from a population that
In which of the following situations would a nonparametric test of a hypothesis most likely be used?A. The sample data are ranked according to magnitude.B. The sample data come from a normally
An analyst is examining the monthly returns for two funds over one year. Both funds’ returns are non-normally distributed. To test whether the mean return of one fund is greater than the mean
An analyst is examining the annual returns for Investment One and Investment Two over 33 years, as displayed in Exhibit 2. Although this time series plot provides some useful information, the
Jill Batten is analyzing how the returns on the stock of Stellar Energy Corp. are related with the previous month’s percentage change in the US Consumer Price Index for Energy (CPIENG). Based on
An analyst gathers exchange rate data for five currencies relative to the US dollar. Upon inspection of the distribution of these exchange rates, she observes a departure from normality, especially
Which of the following statements is correct regarding the chi-square test of independence?A. The test has a one-sided rejection region.B. The null hypothesis is that the two groups are dependent.C.
Consider the contingency table in Exhibit 11, which classifies 500 randomly selected companies on the basis of two environmental, social, and governance (ESG) rating dimensions: environmental rating
The predicted value of the company’s ROE if its GO is 10 percent is closest to:A. 1.8 percent.B. 15.8 percent.C. 22.0 percent.An analyst has estimated a model that regresses a company’s return on
The change in ROE for a change in GO from 5 percent to 6 percent is closest to:A. 1.8 percent.B. 4.0 percent.C. 5.8 percent.An analyst has estimated a model that regresses a company’s return on
The residual in the case of a GO of 8 percent and an observed ROE of 21 percent is closest to:A. −1.8 percent.B. 2.6 percent.C. 12.0 percent.An analyst has estimated a model that regresses a
The variable SHIFT is best described as:A. an indicator variable.B. a dependent variable.C. a continuous variable.An analyst is examining the annual growth of the money supply for a country over the
Homoskedasticity is best described as the situation in which the variance of the residuals of a regression is:A. zero.B. normally distributed.C. constant across observations.
The interpretation of the intercept is the mean of the annual growth rate of the money supply:A. before the shift in policy.B. over the entire period.C. after the shift in policy.An analyst is
The interpretation of the slope is the:A. change in the annual growth rate of the money supply per year.B. average annual growth rate of the money supply after the shift in policy.C. difference in
Testing whether there is a change in the money supply growth after the shift in policy, using a 0.05 level of significance, we conclude that there is:A. sufficient evidence that the money supply
The coefficient of determination is closest to:A. 0.7436.B. 0.8261.C. 0.8623.Kenneth McCoin, CFA, is a challenging interviewer. Last year, he handed each job applicant a sheet of paper with the
The correlation between X and Y is closest to:A. −0.7436.B. 0.7436.C. 0.8623.Kenneth McCoin, CFA, is a challenging interviewer. Last year, he handed each job applicant a sheet of paper with the
If the ratio of net income to sales for a restaurant is 5 percent, the predicted ratio of cash flow from operations (CFO) to sales is closest to:A. −4.054.B. 0.524.C. 4.207.Kenneth McCoin, CFA, is
Is the relationship between the ratio of cash flow to operations and the ratio of net income to sales significant at the 0.05 level?A. No, because the R2 is greater than 0.05 B. No, because the
Which of the following best describes Batten’s regression?A. Time-series regression B. Cross-sectional regression C. Time-series and cross-sectional regression Howard Golub, CFA, is preparing to
Based on the regression, if the CPIENG decreases by 1.0 percent, the expected return on Stellar common stock during the next period is closest to:A. 0.0073 (0.73 percent).B. 0.0138 (1.38 percent).C.
Based on Batten’s regression model, the coefficient of determination indicates that:A. Stellar’s returns explain 2.11 percent of the variability in CPIENG.B. Stellar’s returns explain 14.52
For Batten’s regression model, 0.0710 is the standard deviation of:A. the dependent variable.B. the residuals from the regression.C. the predicted dependent variable from the regression.Howard
For the analysis run by Batten, which of the following is an incorrect conclusion from the regression output?A. The estimated intercept from Batten’s regression is statistically different from zero
Based on Exhibit 1 and Exhibit 2, if Liu were to graph the 50 observations, the scatter plot summarizing this relation would be best described as:A. horizontal.B. upward sloping.C. downward
Based on Exhibit 1, the sample covariance is closest to:A. −9.2430.B. −0.1886.C. 8.4123.Anh Liu is an analyst researching whether a company’s debt burden affects investors’ decision to short
Based on Exhibit 1 and Exhibit 2, the correlation between the debt ratio and the short interest ratio is closest to:A. −0.3054.B. 0.0933.C. 0.3054.Anh Liu is an analyst researching whether a
Which of the interpretations best describes Liu’s findings?A. Interpretation 1 B. Interpretation 2 C. Interpretation 3 Anh Liu is an analyst researching whether a company’s debt burden affects
The dependent variable in Liu’s regression analysis is the:A. intercept.B. debt ratio.C. short interest ratio.Anh Liu is an analyst researching whether a company’s debt burden affects
Based on Exhibit 2, the number of degrees of freedom for the t-test of the slope coefficient in this regression is:A. 48.B. 49.C. 50.Anh Liu is an analyst researching whether a company’s debt
Which of the following should Liu conclude from the results shown in Exhibit 2?A. The average short interest ratio is 5.4975.B. The estimated slope coefficient is different from zero at the 0.05
Based on Exhibit 2, the short interest ratio expected for MQD Corporation is closest to:A. 3.8339.B. 5.4975.C. 6.2462.Anh Liu is an analyst researching whether a company’s debt burden affects
Based on Liu’s regression results in Exhibit 2, the F-statistic for testing whether the slope coefficient is equal to zero is closest to:A. −2.2219.B. 3.5036.C. 4.9367.Anh Liu is an analyst
Based on Exhibit 1, Olabudo should:A. conclude that the inflation predictions are unbiased.B. reject the null hypothesis that the slope coefficient equals one.C. reject the null hypothesis that the
Based on Exhibit 1, Olabudo should calculate a prediction interval for the actual US CPI closest to:A. 2.7506 to 2.7544.B. 2.7521 to 2.7529.C. 2.7981 to 2.8019.Doug Abitbol is a portfolio manager for
Which of Olabudo’s observations of forecasting is correct?A. Only Observation 1 B. Only Observation 2 C. Both Observation 1 and Observations 2 Doug Abitbol is a portfolio manager for Polyi
Which of Vasileva’s assumptions regarding regression analysis is incorrect?A. Assumption 1 B. Assumption 2 C. Assumption 3 Elena Vasileva recently joined EnergyInvest as a junior portfolio analyst.
Based on Exhibit 1, the standard error of the estimate is closest to:A. 0.04456.B. 0.04585.C. 0.05018.Elena Vasileva recently joined EnergyInvest as a junior portfolio analyst. Vasileva’s
Based on Exhibit 2, Vasileva should reject the null hypothesis that:A. the slope is less than or equal to 0.15.B. the intercept is less than or equal to zero.C. crude oil returns do not explain Amtex
Based on Exhibit 2 and Vasileva’s prediction of the crude oil return for Month 37, the estimate of Amtex share return for Month 37 is closest to:A. −0.0024.B. 0.0071.C. 0.0119.Elena Vasileva
Using information from Exhibit 2, the 99 percent prediction interval for Amtex share return for Month 37 is best described as:A. Ŷƒ ± 0.0053.B. Ŷƒ ± 0.0469.C. Ŷƒ ± 0.1279.Elena Vasileva
The coefficient of determination is closest to:A. 0.0211.B. 0.9789.C. 0.9894.Espey Jones is examining the relation between the net profit margin (NPM) of companies, in percent, and their fixed asset
The standard error of the estimate is closest to:A. 0.2631.B. 1.7849.C. 38.5579.Espey Jones is examining the relation between the net profit margin (NPM) of companies, in percent, and their fixed
At a 0.01 level of significance, Jones should conclude that:A. the mean net profit margin is 0.5987 percent.B. the variation of the fixed asset turnover explains the variation of the natural log of
The predicted net profit margin for a company with a fixed asset turnover of 2 times is closest to:A. 1.1889 percent.B. 1.8043 percent.C. 3.2835 percent.Espey Jones is examining the relation between
A characteristic of Big Data is that:A. it involves formats with diverse structures.B. one of its traditional sources is business processes.C. real-time communication of it is uncommon due to vast
Which of the following statements is true in the use of ML:A. some techniques are termed “black box” due to data biases.B. human judgment is not needed because algorithms continuously learn from
Text analytics is appropriate for application to:A. large, structured datasets.B. public but not private information.C. identifying possible short-term indicators of coming trends.
Revenue and cost information for a future period including all opportunity costs is presented in Exhibit 6 for WR International, a newly formed corporation that engages in the manufacturing of
The short-term shutdown point of production for a firm operating under perfect competition will most likely occur when:A. price is equal to average total cost.B. marginal revenue is equal to marginal
Under conditions of perfect competition, a company will break even when market price is equal to the minimum point of the:A. average total cost curve.B. average variable cost curve.C. short-run
1. Levels of capacity utilization are one of the factors that determine companies’ aggregate need for additional capital expenditure. Which of the following is another factor that affects the
Which of these is most likely to be described as an event risk?A. An earthquakeB. An electionC. An ongoing civil war
True or False: Higher-velocity geopolitical risks are most likely to have a prolonged impact on investor inputs. Explain your selection.A. TrueB. False
For the most recent financial reporting period, a London-based business has revenue of GBP2 million and TC of GBP2.5 million, which are or can be broken down into TFC of GBP1 million and TVC of
Exhibit 12 displays the long-run average total cost curve (LRACUS) and the short-run average total cost curves for three hypothetical US-based automobile manufacturers—Starr Vehicles (Starr),
A company will shut down production in the short run if total revenue is less than total:A. fixed costs.B. variable costs.C. opportunity costs.
A company has total variable costs of $4 million and fixed costs of $3 million.Based on this information, the company will stay in the market in the long term if total revenue is at least:A. $3.0
Suppose a market has 10 suppliers, each of them with 10 percent of the market. What are the concentration ratio and the HHI of the top four firms?A. Concentration ratio 4 percent and HHI 40B.
Based on typical labor utilization patterns across the business cycle, productivity (output per hours worked) is most likely to be highest:A. at the peak of a boom.B. into a maturing expansion.C. at
When total revenue is greater than total variable costs but less than total costs, in the short term, a firm will most likely:A. exit the market.B. stay in the market.C. shut down production.
Under conditions of perfect competition, in the long run, firms will most likely earn:A. normal profits.B. positive economic profits.C. negative economic profits.
A firm that increases its quantity produced without any change in per-unit cost is experiencing:A. economies of scale.B. diseconomies of scale.C. constant returns to scale.
A company is experiencing economies of scale when:A. cost per unit increases as output increases.B. it is operating at a point on the LRAC curve at which the slope is negative.C. it is operating
Diseconomies of scale most likely result from:A. specialization in the labor force.B. overlap of business functions and product lines.C. discounted prices on resources when buying in larger
A firm is operating beyond minimum efficient scale in a perfectly competitive industry. To maintain long-term viability, the most likely course of action for the firm is to:A. operate at the current
Companies most likely have a well-defined supply function when the market structure is:A. oligopoly.B. perfect competition.C. monopolistic competition.
Aquarius, Inc. is the dominant company and the price leader in its market. One of the other companies in the market attempts to gain market share by undercutting the price set by Aquarius. The market
Over time, the market share of the dominant company in an oligopolistic market will most likely:A. increase.B. decrease.C. remain the same.
1. Although a small part of the overall economy, changes in inventories can influence economic growth measures significantly because they:A. reflect general business sentiment.B. tend to move
As the expansion phase of the business cycle advances from early stage to late stage, businesses most likely experience a decrease in:A. labor costs.B. capital investment.C. availability of qualified
An analyst writes in an economic report that the current phase of the business cycle is characterized by accelerating inflationary pressures and borrowing by companies. The analyst is most likely
The indicator indexes created by various organizations or research agencies:A. include only leading indicators to compute their value.B. are highly reliable signals on the phase of business cycles.C.
Which one of the following trends in various economic indicators is most consistent with a recovery from a recession?A. A declining inventory–sales ratio and stable industrial production index B.
Which of the following statements gives the best description of nowcasting?A. This method is used to forecast future trends in economic variables based on their past and current values.B. This method
Which of the following statements is the best description of the characteristics of economic indicators?A. Leading indicators are important because they track the entire economy.B. Lagging
When the spread between 10-year US Treasury yields and the short-term federal funds rate narrows and at the same time the prime rate stays unchanged, this mix of indicators most likely forecasts
Current economic statistics indicating little change in services inflation, rising residential building permits, and increasing average duration of unemployment are best interpreted as:A. conflicting
If relative to prior values of their respective indicators, the inventory–sales ratio has risen, unit labor cost is stable, and real personal income has decreased, it is most likely that a peak in
When aggregate real personal income, industrial output, and the S&P 500 Index all increase in a given period, it is most accurate to conclude that a cyclical upturn is:A. occurring.B. about to end.C.
Which of the following is most likely to increase after an increase in aggregate real personal income?A. Equity prices B. Building permits for new private housing units C. The ratio of consumer
Which of the following indicators is most appropriate in predicting a turning point in the economy?A. The Industrial Production Index B. The average bank prime lending rate C. Average weekly hours,
The unemployment rate is considered a lagging indicator because:A. new job types must be defined to count their workers.B. multiworker households change jobs at a slower pace.C. businesses are slow
During an economic recovery, a lagging unemployment rate is most likely attributable to:A. businesses quickly rehiring workers.B. new job seekers entering the labor force.C. underemployed workers
Crowding out refers to a:A. fall in interest rates that reduces private investment.B. rise in private investment that reduces private consumption.C. rise in government borrowing that reduces the
A contractionary fiscal policy will always involve which of the following? A. Balanced budgetB. Reduction in government spendingC. Fall in the budget deficit or rise in the surplus.
Which one of the following statements is most accurate? A. Ricardian equivalence refers to individuals having no idea of future tax liabilities.B. Governments do not allow political pressures to
Which statement regarding fiscal policy is most accurate?A. Cyclically adjusted budget deficits are appropriate indicators of fiscal policy.B. To raise business capital spending, personal income
The least likely explanation for why fiscal policy cannot stabilize aggregate demand completely is that:A. private sector behavior changes over time.B. policy changes are implemented very quickly.C.
When a central bank announces a decrease in its official policy rate, the desired impact is an increase in:A. investment.B. interbank borrowing rates.C. the national currency’s value in exchange
Which action is a central bank least likely to take if it wants to encourage businesses and households to borrow for investment and consumption purposes?A. Sell long-dated government securitiesB.
A central bank’s repeated open market purchases of government bonds:A. decreases the money supply.B. is prohibited in most countries.C. is consistent with an expansionary monetary policy.
A prolonged period of an official interest rate very close to zero without an increase in economic growth most likely suggests:A. quantitative easing must be limited to be successful.B. the
Raising the reserve requirement is most likely an example of which type of monetary policy? A. Neutral B. Expansionary C. Contractionary
Which of the following is a limitation on the ability of central banks to stimulate growth in periods of deflation?A. Ricardian equivalenceB. Interaction of monetary and fiscal policyC. Interest
The least likely limitation to the effectiveness of monetary policy is that central banks cannot: accurately determine the neutral rate of interest.A. regulate the willingness of financial
Quantitative easing, the purchase of government or private securities by the central banks from individuals or institutions, is an example of which monetary policy stance?A. NeutralB. ExpansionaryC.

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