PROBABILITY CONCEPTS
An experiment is an activity whose outcome is uncertain.
An event consists of one or more possible outcomes of an experiment. An event is
usually denoted by a capital letter.
A probability is a numerical measure (between 0 and 1, incl
Chapter 8
1. All of the following are anticipated effects of a proposed project. Which of these should be
included in the initial project cash flow related to net working capital?
I. an inventory decrease of $5,000
II. an increase in accounts receivable o
ch1
Student: _
1.
Prior to the financial crisis of 2007-2008, J.P. Morgan Chase was the largest bank holding company in the
world and operations in 60 countries.
True False
2.
As of 2009, U.S. FIs held assets totaling over $35 trillion.
True False
3.
Fina
ch12
Student: _
1.
The concentration limit method of managing credit risk concentration involves estimating the minimum
loan amount to a single customer as a percent of capital.
True False
2.
Concentration limits are used to either reduce or increase expo
ch10
Student: _
1.
Market risk is the uncertainty of an FI's earnings resulting from changes in market conditions such as
interest rates and asset prices.
True False
2.
As securitization of assets continues to expand, the management of market risk will be
Chapter 10 - Making Capital Investment Decisions
Learning Objective: 10-1
Section: 10.2
Topic: Opportunity cost
Multiple Choice Questions
1. The difference between a firm's future cash flows if it
accepts a project and the firm's future cash flows if it d
File: Chapter 008 Making Capital Investment Decisions
1. The cash flows of a new project that come at the expense of a firms existing projects are
called:
a. salvage value expenses.
b. net working capital expenses.
c. sunk costs.
d. opportunity costs.
e.
ch16
Student: _
1.
Two important input factors in financial intermediation are capital and labor.
True False
2.
Technological efficiency focuses exclusively on the cost side of financial intermediation.
True False
3.
According to Hitachi Data Systems, rec
EXERCISE 9-2 (1015 minutes)
Item
D
E
F
G
H
I
Net
Realizable
Value
(Ceiling)
$90*
80
60
55
80
60
Net
Realizabl
e Value
Less
Normal
Replacement
Profit
Cost
(Floor)
$70*
$120
60
72
40
70
35
30
60
70
40
30
Designated
Market
$90
72
60
35
70
40
Cost
$75
80
80
8
EXERCISE 8-3 (1015 minutes)
1.
Include. Merchandise passes to customer only when it is
shipped.
2.
Do not include. Title did not pass until January 3.
3.
Include in inventory. Product belonged to Webber Inc. at
December 31, 2010.
4.
Do not include. Goods
EXERCISE 6-4 (1520 minutes)
(a)
(b)
(c)
(d)
Future value of an ordinary
annuity of $5,000 a period
for 20 periods at 8%
Factor (1 + .08)
Future value of an annuity
due of $5,000 a period at
8%
$228,809.80 ($5,000 X 45.76196)
X
1.08
$247,114.58
Present val
EXERCISE 5-2 (1520 minutes)
1.
h.
11.
b.
2.
d.
12.
f.
3.
f.
13.
a.
4.
f.
14.
h.
5
c.
15.
c.
6.
a.
16.
b.
7.
f.
17.
a.
8.
g.
18.
a.
9.
a.
19.
g.
a.
20.
f.
10.
EXERCISE 5-4 (3035 minutes)
GULISTAN INC.
Balance Sheet
December 31, 2010
Assets
Current assets
C
EXERCISE 4-4 (3035 minutes)
(a)
Multiple-Step Form
WEBSTER COMPANY
Income Statement
For the Year Ended December 31, 2010
(In thousands, except earnings per share)
Sales .
Cost of goods sold .
Gross profit .
$96,500
63,570
32,930
Operating Expenses
Selling
EXERCISE 3-3 (1520 minutes)
The ledger accounts are reproduced below, and corrections
are shown in the accounts.
Cash
Bal.
(1)
5,912 (4)
Accounts Payable
190
Bal.
270
Accounts Receivable
Bal.
5,240 (1)
Common Stock
270
Bal.
Supplies on Hand
Bal.
7,044
8,0
PLEASE NOTE THAT THE FOLLOWING SOLUTIONS HAVE
BEEN MODIFIED TO INCLUDE THE NEW CHANGES. SEE THE
LAST SLIDE OF HANDOUT BEFORE YOU DO THE EXERCISE
AND CHECK SOLUTIONS.
EXERCISE 2-2 (1520 minutes)
(a)
(b)
Comparability.
Confirmatory Value.
(c)
(d)
Comparabil
DISCRETE PROBABILITY DISTRIBUTIONS
REPRESENTING PROBABILITY DISTRIBUTIONS
FOR DISCRETE RANDOM VARIABLES
Example: The following information is available on the number of PCs sold daily at the Quant
Computer Store:
# of PCs
Probability
sold daily
x
0
1
2
3
HYPOTHESIS TESTING FOR THE MEAN OF A POPULATION
TESTING ON THE MEAN OF A POPULATION: ( KNOWN)
Example: A machine is set to fill cartons with 64 ounces of orange juice. However, this machine does not
dispense exactly 64 ounces of orange juice in each carto
INFERENCE PROCEDURES FOR TWO POPULATIONS
Independent versus Dependent Samples
COMPARING TWO MEANS USING TWO INDEPENDENT SAMPLES
(POPULATION STANDARD DEVIATIONS KNOWN)
Constructing a confidence interval for 1-2
Example: The MBA Director at Top State Univer
Homework
1. The MBA Director at Top State University believes that there is a linear relationship between GMAT scores and students
graduate GPA (GGPA). The MBA Director collected data on a number of students and used MINITAB to obtain the least
squares li
Solutions to homework problems
1. a) Step 1
H 0 : 1 = 0
H a : 1 0
Step 2
t=
b1
s
SSx
Step 3 Reject H 0 if t >3.055
Step 4 t * = 14.13 (from MINITAB output)
As 14.13>3.055, reject H 0 .
Step 5 Based on the sample data, there is sufficient evidence to concl
CHAPTER 2 QUIZ
1. Tanner Co. management desires cost information regarding their Rawhide brand. The Rawhide brand
is a(n)
a.
b.
c.
d.
cost object.
cost driver.
cost assignment.
actual cost.
2. The cost of replacement light bulbs on campus would be a direc
CHAPTER 8
FLEXIBLE BUDGETS, OVERHEAD COSTS,
VARIANCES, AND MANAGEMENT CONTROL
TRUE/FALSE
1.
Overhead costs are a major part of costs for most companies more than 50% of
all costs for some companies.
Answer:
Terms to Learn:
2.
True
Difficulty:
total-overhe
CHAPTER 13
Return, Risk, and the Security Market Line
I.
DEFINITIONS
PORTFOLIOS
a
1. A portfolio is:
a. a group of assets, such as stocks and bonds, held as a collective unit by an investor.
b. the expected return on a risky asset.
c. the expected return
Chapter 11 Return and Risk: The Capital Asset Pricing Model (CAPM)
1. The intercept point of the security market line is the rate of return that corresponds to: A. the market rate of return. *B. the risk-free rate of return. C. a value of 1.0. D. a value
Chapter 14 - Cost of Capital
Multiple Choice Questions
another firm which has a similar line of business as
the project, the manager is utilizing the _
approach.
A. subjective risk
B. pure play
C. divisional cost of capital
D. capital adjustment
E. securi
Chapter 12 - Commercial Banks Financial Statements and Analysis
Answers to Chapter 12 Questions
1. The Report of Condition refers to the bank's balance sheet which presents information about
the accumulation of assets, liabilities, and equity as of a spec