Question 1

The grocery industry shows a fairly constant relationship between grocery store sales versus real GDP data.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following is the most significant detriment to the future profitability of the pharmaceutical industry?

Accepted Answer

A) Government regulation 
B) Demographic trends 
C) Generic drugs 
D) Use of too much debt in their capital structure 
A) Government regulation 
B) Demographic trends 
C) Generic drugs 
D) Use of too much debt in their capital structure C

Question 3

Analysis of various industries gives the investor insights into the comparative performance of the entire economy.

Accepted Answer

A) True 
 B)False  True

Question 4

When studying an industry, it is difficult to determine the "best-" and "and" worst-performing companies in that industry.

Accepted Answer

A) True 
 B)False

Question 5

The structure of competition in an industry, and how freely companies can compete with each other, is irrelevant for the analysis of companies.

Accepted Answer

A) True 
 B)False

Question 6

Analyzing the structure of an industry can help an investor to determine the profitability of the companies in that industry.

Accepted Answer

A) True 
 B)False

Question 7

Investors should buy consumer non-cyclical stocks in the early stages of recovery.

Accepted Answer

A) True 
 B)False

Question 8

When companies reach the crossover point,

Accepted Answer

A) they have filed for an initial public offering (IPO). 
B) their stock prices increase, because their earnings are now more predictable. 
C) their stock prices plummet, because price-earnings ratios collapse because of lower growth expectations. 
D) sales expansion and earnings begin to rise at an increasing rate. 
E) sales grow at a rate equal to the economy, as measured by the long-term trend in gross domestic product (GDP). 
A) they have filed for an initial public offering (IPO). 
B) their stock prices increase, because their earnings are now more predictable. 
C) their stock prices plummet, because price-earnings ratios collapse because of lower growth expectations. 
D) sales expansion and earnings begin to rise at an increasing rate. 
E) sales grow at a rate equal to the economy, as measured by the long-term trend in gross domestic product (GDP).

Question 9

A Stage II industry is one that is growing, and thus provides opportunities without much risk.

Accepted Answer

A) True 
 B)False

Question 10

The presence of cash dividends increases the ability of some institutional investors to invest in companies.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is the proper order of the industry life cycle?

Accepted Answer

A) Development, growth, expansion, maturity, decline 
B) Expansion, growth, development, maturity, decline 
C) Development, expansion, growth, maturity, decline 
D) Expansion, development, growth, maturity, decline 
E) Growth, development, expansion, maturity, decline 
A) Development, growth, expansion, maturity, decline 
B) Expansion, growth, development, maturity, decline 
C) Development, expansion, growth, maturity, decline 
D) Expansion, development, growth, maturity, decline 
E) Growth, development, expansion, maturity, decline

Question 12

Firms such as WalMart and McDonald's have a low level of bargaining power over their suppliers.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is the most significant positive factor in the future profitability of the pharmaceutical industry?

Accepted Answer

A) Research and development of new drugs 
B) Government regulation 
C) Generic drugs 
D) Patents 
A) Research and development of new drugs 
B) Government regulation 
C) Generic drugs 
D) Patents

Question 14

The use of stock dividends by industries in the growth stage is for what purpose?

Accepted Answer

A) To dilute the ownership of current holders of equity 
B) To maintain cash to pay off creditors 
C) To signal to investors that the company is profitable 
D) Because cash dividends would signal to investors that the company has reached the crossover point 
A) To dilute the ownership of current holders of equity 
B) To maintain cash to pay off creditors 
C) To signal to investors that the company is profitable 
D) Because cash dividends would signal to investors that the company has reached the crossover point

Question 15

Firms in industries with low barriers to entry are limited in their ability to raise prices.

Accepted Answer

A) True 
 B)False

Question 16

A rotational investor will rotate through stocks that perform well in different stages of the economy in which order (from trough to peak)?

Accepted Answer

A) Basic materials; consumer cyclical; consumer non-cyclical; household durable goods 
B) Consumer cyclical; basic materials; consumer non-cyclical; household durable goods 
C) Basic materials; household durable goods; consumer cyclical; consumer non-cyclical 
D) Household durable goods; consumer cyclical; consumer non-cyclical; basic materials 
E) Household durable goods; basic materials; consumer non-cyclical; consumer cyclical 
A) Basic materials; consumer cyclical; consumer non-cyclical; household durable goods 
B) Consumer cyclical; basic materials; consumer non-cyclical; household durable goods 
C) Basic materials; household durable goods; consumer cyclical; consumer non-cyclical 
D) Household durable goods; consumer cyclical; consumer non-cyclical; basic materials 
E) Household durable goods; basic materials; consumer non-cyclical; consumer cyclical

Question 17

The method that starts the stock valuation process with an economic analysis is called the top-down approach.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following sources of capital is not likely to be used by companies in the development stage?

Accepted Answer

A) Family loans 
B) Bank loans 
C) Venture capital 
D) Corporate bonds 
A) Family loans 
B) Bank loans 
C) Venture capital 
D) Corporate bonds

Question 19

Dividend payout ratios in declining industries can often reach 100% of earnings.

Accepted Answer

A) True 
 B)False

Question 20

When using the top-down approach to company valuation, which is the proper order for an analyst to use?

Accepted Answer

A) Macro-economic environment, company analysis, industry analysis 
B) Company analysis, industry analysis, macro-economic environment 
C) Macro-economic environment, industry analysis, company analysis 
D) Industry analysis, company analysis, macro-economic environment 
E) Company analysis, macro-economic environment, industry analysis 
A) Macro-economic environment, company analysis, industry analysis 
B) Company analysis, industry analysis, macro-economic environment 
C) Macro-economic environment, industry analysis, company analysis 
D) Industry analysis, company analysis, macro-economic environment 
E) Company analysis, macro-economic environment, industry analysis

Exam 6: Industry Analysis

The grocery industry shows a fairly constant relationship between grocery store sales versus real GDP data.

Which of the following is the most significant detriment to the future profitability of the pharmaceutical industry?

Analysis of various industries gives the investor insights into the comparative performance of the entire economy.

When studying an industry, it is difficult to determine the "best-" and "and" worst-performing companies in that industry.

The structure of competition in an industry, and how freely companies can compete with each other, is irrelevant for the analysis of companies.

Analyzing the structure of an industry can help an investor to determine the profitability of the companies in that industry.

Investors should buy consumer non-cyclical stocks in the early stages of recovery.

When companies reach the crossover point,

A Stage II industry is one that is growing, and thus provides opportunities without much risk.

The presence of cash dividends increases the ability of some institutional investors to invest in companies.

Which of the following is the proper order of the industry life cycle?

Firms such as WalMart and McDonald's have a low level of bargaining power over their suppliers.

Which of the following is the most significant positive factor in the future profitability of the pharmaceutical industry?

The use of stock dividends by industries in the growth stage is for what purpose?

Firms in industries with low barriers to entry are limited in their ability to raise prices.

A rotational investor will rotate through stocks that perform well in different stages of the economy in which order (from trough to peak)?

The method that starts the stock valuation process with an economic analysis is called the top-down approach.

Which of the following sources of capital is not likely to be used by companies in the development stage?

Dividend payout ratios in declining industries can often reach 100% of earnings.

When using the top-down approach to company valuation, which is the proper order for an analyst to use?

The Investment Setting

Security Markets

Participating in the Market

Investment Companies: Mutual Funds, Exchange-Traded Funds, Closed-End Funds, and Unit Investment Trusts

Economic Activity

Valuation of the Individual Firm

Financial Statement Analysis

Efficient Markets and Anomalies

Behavioral Finance and Technical Analysis

Bond and Fixed-Income Fundamentals

Principles of Bond Valuation and Investment

Convertible Securities and Warrants

Put and Call Options

Commodities and Financial Futures

Stock Index Futures and Options

A Basic Look at Portfolio Management and Capital Market Theory

Duration and Bond Portfolio Management

International Securities Markets

Investments in Real Assets

Alternative Investments: Private Equity and Hedge Funds

Measuring Risks and Returns of Portfolio Managers

A Comprehensive Analysis for Real Estate Investment Decisions

The Makeup of Institutional Investors

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