Question 1.Time is a factor when determining the value of a possible investment.  As investors, all else being equal, we value investments:  

•   more the longer we have to wait for the payoff.   
•   less the longer we have to wait for the payoff.   
•   with predefined wait times for payoff.   
•   regardless of time because a dollar is always a dollar.   

Question 2.The income statement shows which of the following? 

•   A company's revenues and profits over some time period.   
•   A company's financial position at a point in time.   
•   The value of inventory.   
•   Accounting results on a cash basis.   

Question 3.Opportunity costs can vary over time and:

•   are almost always close to 10%.   
•   represent the highest possible return you can earn on an investment.   
•   are always based on the interest rate offered on bank savings accounts.   
•   set a return that other investments must equal or exceed to be attractive.   

Question 4.A key component of a product's value is: 

•   the accounting profits the product produces.   
•   the depreciation tax shield the product produces.   
•   the cash flows the product produces.   
•   the market share the product commands.   

Question 5.The accounting method you use in your checkbook is best described as:

•   cash accounting.   
•   accrual accounting.   
•   deficit reduction.   
•   balance sheet accounting.   

Question 6.In an efficient market most investors earn: 

•   higher than average returns because of low transaction costs.   
•   above average returns by following buy-and-hold strategies.   
•   average returns because efficiency makes earning higher returns difficult.   
•   returns of over 12% on NYSE stocks.   

Question 7.To test the theory of market efficiency, economists:

•   look for a trading rule that produces returns higher than the market average.   
•   look for trading rules that can repeatedly produce returns higher than the market average.   
•   use statistical correlations over returns over time.   
•   must have good luck because such results are difficult to find.   

Question 8.Markets are said to be efficient if they: 

•   have very low transaction costs.   
•   quickly process and include new information in prices.   
•   tend to average out overpricing and underpricing.   
•   can forecast the future accurately.   

Question 9.Suppose two investments produce the same expected cash flows.  We would assign a higher value to the investment with: 

•   lower risk.   
•   higher cash flow variability.   
•   higher risk.   
•   the highest possible cash flows under ideal conditions.   

Question 10.Wealth is created when a company:

•   makes investments that are expected to create value greater than their cost.   
•   has a high stock price.   
•   pays regular dividends.   
•   obtains additional assets.