Gleim CIA Test Prep: Part 3: Business Analysis and Information Technology
(128 questions)
[1] An entity has made the decision to finance next years capital projects through debt
rather than additional equity. The benchmark cost of capital for these projec
Gleim CIA Test Prep: Part 3: Business Analysis and Information Technology
(156 questions)
[1] To avoid invalid data input, a bank added an extra number at the end of each account
number and subjected the new number to an algorithm. This technique is known
Gleim CIA Test Prep: Part 3: Business Analysis and Information Technology
(140 questions)
[1] What is the journal entry recorded upon the sale of an item of property, plant, and
equipment (PPE) that was sold for cash in excess of its carrying amount?
A. D
Gleim CIA Test Prep: Part 3: Business Analysis and Information Technology
(109 questions)
[1] Entity A acquires all of the voting shares of Entity B for US $1,000,000. At the time
of the acquisition, the net fair value of the identifiable assets acquired
Gleim CIA Test Prep: Part 3: Business Analysis and Information Technology
(103 questions)
[1] An auditor has just completed a physical security audit of a data center. Because the
center engages in top-secret defense contract work, the auditor has chosen
average risk of cash, bonds, and stocks? What time period are your
numbers from? Q 7.23 How good are historical statistics as indicators of
future statistics? Which kinds of statistics are better? Which kinds are
worse? Q 7.24 Does the market beta of stoc
() S3 () S4 () Reward Risk MC 1.5% +2.5% +5.5% +11.5% 4.5%
4.74% The left graph in Figure 8.3 plots the MC rates of return, plus the
rates of return for both M and C by themselves. The magenta area is the
range of portfolio C, the gray area is the range o
Currency there are now exchange-traded futures on stocks that make
this even easier.) Forwards and Interest Rate Parity, p. 945 solve now!
Q 7.10 What are the two main functions of brokerage firms? Q 7.11
How does a prime broker differ from a retail broke
Variance Risk Market Beta Alpha Correlation Covariance A Investor
Choice, Sample Spreadsheet B C D E F GH I J K L M 1.0% 2.0% 4.0%
11.0% 2.0% 11.0% 1.0% 4.0% 2.0% 3.0% 7.0% 12.0% 14.0% 6.0%
0.0% 12.0% 1.0% 1.0% 1.0% 1.0% 4.0% 0.1950% 4.42% 4.0%
0.1950% 4.
orders immediately but have to delay until a whole range of buy orders
and sell orders have accumulated. The advantage is that this eliminates
the risk that an (expensive) intermediary would otherwise have to bear.
Thus, auctions generally offer lower tra
(and thus standard deviations): (a) The variance of rC was 26.5%.
The variance of rD was 90.0%. The value-weighted average of one
part variance of C and two parts variance of D is wC . rC + wD . rD =
1/3 . 26.5% + 2/3 . 90.0% 68.83%. (b) The actual varian
less? Historical risk: Standard deviations and correlations (how stock
movements tend to be related or unrelated) tend to be fairly stable,
especially for large asset classes and diversified portfolios. That is, for
2008 to 2010, you can reasonably expect
OTC (over-the-counter). dling stock options, commodities, insurance
contracts, and so on. A huge segment is the over-the-counter (OTC)
markets. Over-the-counter means call around, usually to a set of traders
well known to trade in the asset, until you fin
the over-the-counter (OTC) market, which is a network of
geographically dispersed dealers who are making markets in various
securities. Q 7.16 In an open-end fund, you should purchase fund shares
and request redemption. (You could short the underlying hol
The variance is (0.7% 4%)2 + (2.9% 4%)2 + (3.5% 4%)2 +
(10.3% 4%)2 4 22.09% + 1.21% + 0.25% + +39.69% 4 =
15.81% The standard deviation is 15.81% 3.98%. SOLVE NOW!
SOLUTIONS 227 (b) Figure 8.2 on page 207 showed that the risk
(standard deviation) of the 5
investors want to give me their money for investment into my firms
project, given that my investors are currently already holding the broad
overall stock market portfolio? The answer will be as follows: 1. Your
investors should like projects that offer mo
even the NYSE now conducts much of its trading electronically. In
contrast to the NYSEs hybrid human-electronic process primarily in one
physical location on Wall Street, NASDAQ has always been a purely
electronic exchange without specialists. (For securi
for CDD from the rates of return for the entire firm CDD. (a) The second
and third columns in the following table show the rates of return on the
market and on CDD in each of the four states: Original Base Rates Netof-Mean Rates Scenario rM rCDD rM rCDD C
specialist? What is a market maker? When trading, what advantage do
the two have over you? Q 7.15 Describe some alternatives to trading on
the main stock exchanges. 7.2C INVESTMENT COMPANIES AND
VEHICLES The SEC regulates many investment vehicles that are
only a mediocre predictor of your next weeks payoff. And you should
definitely not trust your most recent realization to be indicative of the
future. Just because 5, 10, 12, 33, 34, 38 won last week does not mean
that it will likely win again. To make lif
formula. . covar(range-1,range-2) computes the population covariance
between two series. If Excel was consistent, this function should be
called covarp rather than covar. . correl(range-1,range-2) computes the
correlation between two series. . slope(range
although some are much larger (e.g., privatizations, like British
Telecom). About two-thirds of all such IPO 196 CHAPTER 7 A FIRST
LOOK AT INVESTMENTS ANECDOTE Trading Volume in the Tech
Bubble During the tech bubble of 1999 and 2000, IPOs appreciated by
return of 4%. Because each outcome is equally likely, you can compute
this faster as a simple average: E(rA) = (1%) + (+2%) + (+4%) +
(+11%) 4 = 4% 8.1B MEASURING RISK: THE STANDARD
DEVIATION OF THE RATE OF RETURN Measure risk with the
standard A good mea
markets. Publicly traded companies In 1933/1934, Congress established
the Securities and Exchange Commission must follow rules. For
example, they must report their financials, and restrict insider trading.
(SEC) through the Securities Exchange Acts. It fu
Var(rA) = 19.5% 4.42% (8.1) The standard deviation of the
portfolios rate of return is the most common measure of overall
portfolio risk. Looking at Figure 8.1, you can see that this standard
deviation of 4.42% seems like a reasonable measure of how far t
view, and see a high put-call ratio as a buy signal. Contrarian analysts
base their analysis on the belief that investors are usually wrong.
Technical analysis is often, though regarded as an essential tool of
investment analysis by market practitioners,
fee for managing the fund. Exit strategies are similar to the ones used by
venture capital funds. Leveraged buyouts are company equity purchases
by individual or institutional investors, which are financed by a minor
portion of share capital and a major p
persistent overpricing of risk premium on stocks. 99 If the equity
premium puzzle is the result of security mispricing, then there is an
arbitrage opportunity. It means that investor can gain by borrowing at
the Treasury bill rate and investing in stocks.
investors can borrow money to purchase stock, allowing them to
purchase more securities than they could afford on a pure cash basis),
and to facilitate selling securities short, which allows investors to
speculate that a stock will go down. Many large ins
history, not just one, two, or threeand certainly not the 6-week
investment performance touted by some funds or friends (who also often
display remarkable selective memory!). The flip side of this argument is
that you cannot reliably say what the rate of
stock market (the S&P 500) was about zero; the correlation between
long-term bond returns and the stock market was around 25%; and the
correlation between individual stocks and the stock market was around
30% to 70%. The fact that investment rates of retu
(co)variance formula divides by N1. When working with the
population, the (co)variance formula divides by N. cians often use a
covariance formula that divides by N 1, not N. Strictly speaking,
dividing by N 1 is appropriate if you work with historical dat
1986 saw the Nikkei-225 stock market index rise from 10,000 to 40,000
by 1990a 40% rate of return per year. If they had believed that history
was a good guide, they would have expected 40,000 . 1.4013 3.2
million by the end of 2002. Instead, the Nikkei ha