Question 1

Switching from one industry group to another over the course of a business cycle is known as a rotation strategy.

Accepted Answer

A) True 
 B)False

Question 2

The way to reduce the rivalry between existing competitors in an industry is to reduce the barrier to entry to the industry.

Accepted Answer

A) True 
 B)False

Question 3

Switching industry groups over the course of a business cycle is known as a cyclical strategy.

Accepted Answer

A) True 
 B)False

Question 4

The relationship between an economic series such as disposable personal income and retail sales is usually stronger in an industry that has become more specialized.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following industries do not have a strong, consistent industry component?

Accepted Answer

A)  Gold 
B)  Steel 
C)  Railroads 
D)  Tobacco 
E)  Paper 
A)  Gold 
B)  Steel 
C)  Railroads 
D)  Tobacco 
E)  Paper

Question 6

Which of the following statements is not true?

Accepted Answer

A)  During a specific time period, rates of return across industry do not vary substantially. 
B)  The rates of return for individual industries do vary substantially over time. 
C)  During a specific time period, rates of return within industries do vary substantially. 
D)  Risk measures for individual industries remain relatively constant over time. 
E)  None of the above (that is, all are true statements) 
A)  During a specific time period, rates of return across industry do not vary substantially. 
B)  The rates of return for individual industries do vary substantially over time. 
C)  During a specific time period, rates of return within industries do vary substantially. 
D)  Risk measures for individual industries remain relatively constant over time. 
E)  None of the above (that is, all are true statements)

Question 7

Exhibit 8-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Assume that you are an analyst for the Canadian auto parts industry. Consider the following information that you propose to use to obtain an estimate of year 2010 EPS for the Canadian auto parts industry $\begin{array}{lcc}
& \text { Year 2009 } & \text {  Estimated Year 2010} \
\hline \text { Personal consumption expenditures } & \$ 6,800 \text {billion  }   \
\text {Personal consumption expenditures growth   } &&1.5 \%\
\text {Industry Sales per share  } &\$ 525\
\text { Industry Operating profit margin } &&15 \% \
\text {Industry Depreciation/Fixed Assets  } &&8.25 \% \
\text { Industry Fixed asset turnover } &&3 \
\text {Interest rate  } &&6 \% \
\text {Industry Total asset turnover  } &&1.2 \
\text {Industry Debt/Total assets  } &&45 \% \
\text {  Industry Tax rate} &&36 \%
\end{array}$ 
In addition a regression analysis indicates the following relationship between growth in industry sales per share and personal consumption expenditures (PCE) growth is
%D Sales per share = 0.02 + 1.5(%D PCE)
-Refer to Exhibit 8-1. Calculate personal consumption expenditures for the year 2010.

Accepted Answer

A)  $7,500 billion 
B)  $7,000 billion 
C)  $7140 billion 
D)  $7,550.5 billion 
E)  $6,825.75 billion 
A)  $7,500 billion 
B)  $7,000 billion 
C)  $7140 billion 
D)  $7,550.5 billion 
E)  $6,825.75 billion

Question 8

If the economic outlook was such that you expected corporate earnings to decline, consumers have excessive levels of debt, and there is significant overcapacity in the technology sector, then an appropriate asset allocation policy would be to:

Accepted Answer

A)  Overweight equity especially technology stocks and underweight bonds 
B)  Underweight equity especially technology stocks and overweight bonds 
C)  Overweight equity especially technology stocks and overweight bonds 
D)  Underweight equity especially technology stocks and underweight bonds 
E)  None of the above. 
A)  Overweight equity especially technology stocks and underweight bonds 
B)  Underweight equity especially technology stocks and overweight bonds 
C)  Overweight equity especially technology stocks and overweight bonds 
D)  Underweight equity especially technology stocks and underweight bonds 
E)  None of the above.

Question 9

Which of the following statements is false?

Accepted Answer

A)  Financial institutions are typically adversely impacted by higher rates of interest. 
B)  Industries with high operating leverage typically benefit with inflation when their costs are fixed in nominal terms. 
C)  Industries with low financial leverage typically outperform firms with higher leverage when inflation increases. 
D)  A weaker Canadian dollar typically helps Canadian industries. 
E)  Consumer cyclical industries are affected by increasing interest rates. 
A)  Financial institutions are typically adversely impacted by higher rates of interest. 
B)  Industries with high operating leverage typically benefit with inflation when their costs are fixed in nominal terms. 
C)  Industries with low financial leverage typically outperform firms with higher leverage when inflation increases. 
D)  A weaker Canadian dollar typically helps Canadian industries. 
E)  Consumer cyclical industries are affected by increasing interest rates.

Question 10

Which of the following is not considered a structural influence on the economy and industry?

Accepted Answer

A)  Demographics 
B)  Life-styles 
C)  International economics 
D)  Social values 
E)  Technology 
A)  Demographics 
B)  Life-styles 
C)  International economics 
D)  Social values 
E)  Technology

Question 11

Which of the following statements regarding global portfolio is true?

Accepted Answer

A)  Decrease the asset allocation to the country with pessimistic economic scenario . 
B)  Increase the asset allocation to the country with pessimistic economic scenario. 
C)  Increase the asset allocation to the country with optimistic economic scenario. 
D)  Both a and c are true 
E)  All of the above are true 
A)  Decrease the asset allocation to the country with pessimistic economic scenario . 
B)  Increase the asset allocation to the country with pessimistic economic scenario. 
C)  Increase the asset allocation to the country with optimistic economic scenario. 
D)  Both a and c are true 
E)  All of the above are true

Question 12

Risk measures for different industries remain fairly constant over time so historical risk analysis can be useful when estimating future risk.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 8-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Assume that you are an analyst for the Canadian auto parts industry. Consider the following information that you propose to use to obtain an estimate of year 2010 EPS for the Canadian auto parts industry $\begin{array}{lcc}
& \text { Year 2009 } & \text {  Estimated Year 2010} \
\hline \text { Personal consumption expenditures } & \$ 6,800 \text {billion  }   \
\text {Personal consumption expenditures growth   } &&1.5 \%\
\text {Industry Sales per share  } &\$ 525\
\text { Industry Operating profit margin } &&15 \% \
\text {Industry Depreciation/Fixed Assets  } &&8.25 \% \
\text { Industry Fixed asset turnover } &&3 \
\text {Interest rate  } &&6 \% \
\text {Industry Total asset turnover  } &&1.2 \
\text {Industry Debt/Total assets  } &&45 \% \
\text {  Industry Tax rate} &&36 \%
\end{array}$ 
In addition a regression analysis indicates the following relationship between growth in industry sales per share and personal consumption expenditures (PCE) growth is
%D Sales per share = 0.02 + 1.5(%D PCE)
-Refer to Exhibit 8-1. Estimate the industry growth rate in sales per share.

Accepted Answer

A)  10.5% 
B)  11% 
C)  12.16% 
D)  9.5% 
E)  8.73% 
A)  10.5% 
B)  11% 
C)  12.16% 
D)  9.5% 
E)  8.73%

Question 14

The rates of returns for firms within an industry vary which indicates that company analysis is necessary after industry analysis.

Accepted Answer

A) True 
 B)False

Switching from one industry group to another over the course of a business cycle is known as a rotation strategy.

The way to reduce the rivalry between existing competitors in an industry is to reduce the barrier to entry to the industry.

Switching industry groups over the course of a business cycle is known as a cyclical strategy.

The relationship between an economic series such as disposable personal income and retail sales is usually stronger in an industry that has become more specialized.

Which of the following industries do not have a strong, consistent industry component?

Which of the following statements is not true?

If the economic outlook was such that you expected corporate earnings to decline, consumers have excessive levels of debt, and there is significant overcapacity in the technology sector, then an appropriate asset allocation policy would be to:

Which of the following statements is false?

Which of the following is not considered a structural influence on the economy and industry?

Which of the following statements regarding global portfolio is true?

Risk measures for different industries remain fairly constant over time so historical risk analysis can be useful when estimating future risk.

The rates of returns for firms within an industry vary which indicates that company analysis is necessary after industry analysis.

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

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Exam 8: Economic and Industry Analysis

Switching from one industry group to another over the course of a business cycle is known as a rotation strategy.

The way to reduce the rivalry between existing competitors in an industry is to reduce the barrier to entry to the industry.

Switching industry groups over the course of a business cycle is known as a cyclical strategy.

The relationship between an economic series such as disposable personal income and retail sales is usually stronger in an industry that has become more specialized.

Which of the following industries do not have a strong, consistent industry component?

Which of the following statements is not true?

If the economic outlook was such that you expected corporate earnings to decline, consumers have excessive levels of debt, and there is significant overcapacity in the technology sector, then an appropriate asset allocation policy would be to:

Which of the following statements is false?

Which of the following is not considered a structural influence on the economy and industry?

Which of the following statements regarding global portfolio is true?

Risk measures for different industries remain fairly constant over time so historical risk analysis can be useful when estimating future risk.

The rates of returns for firms within an industry vary which indicates that company analysis is necessary after industry analysis.

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

Filters