Podcast Beta
Questions and Answers
1.industryn economic downturn, a fundamental analyst may be interested in which A. Producers of capital goods, like washers and dryers B. The technology industry C. The steel industry D. The food industry
If a company has the following items on its balance sheet, what is the net worth of the company?
- Current assets of $1 million II. Inventory of $300,000 MI. Fixed assets of $2 million IV. Liabilities of $2 million A. $5.3 million B. $1 million C. $1.3 million D. $300,000
- Which of the following items would not be important to a fundamental analyst when reviewing a possible investment?
A. Which phase the business cycle is in
B. The quality of management
C. The company's market share of its core business
D. The stock's trading range over the last 12 months
- Investors cannot diversify away which of these risks?
A. Business risk
B. Default risk
C. Legislative risk
D. Market risk
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- A conservative customer is invested in a large-cap, value-managed equity fund.
The stock market drops 10% due to a poor economic forecast for the country. Your customer is upset that her conservative mutual fund lost almost as much as the stock market. Which risks does your customer need to understand?
- Business risk
II. Market risk
III. Systematic risk
IV. Nonsystematic risk
A. I and III
B. land IV
C. Il and III
D. Il and IV
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- All of the following would be appropriate for a conservative investor seeking income
except
A. an immediate fixed annuity.
B. an investment-grade corporate bond fund.
C. a high-yield bond fund.
D. a utility fund.
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7.Which of the following products would not require a specific disclosure regarding liquidation? A. ABC Junk Bond Fund A shares B. Windmill Funds Option Income Fund B shares C. Gemco Properties Limited Partnership D. Hanson Insurance Variable Annuity
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Study Notes
Fundamental Analysis
- In an industry's economic downturn, a fundamental analyst may be interested in the steel industry, as it is a key indicator of economic activity.
- The analyst may also be interested in producers of capital goods, such as washers and dryers, as they are sensitive to economic changes.
Balance Sheet Analysis
- A company's net worth can be calculated by subtracting its liabilities from its total assets (current assets, inventory, and fixed assets).
- In this case, the net worth would be $1 million (current assets) + $300,000 (inventory) + $2 million (fixed assets) - $2 million (liabilities) = $1.3 million.
Important Factors for Fundamental Analysts
- The phase of the business cycle is important for a fundamental analyst to consider when reviewing a possible investment.
- The quality of management and the company's market share of its core business are also important factors.
- The stock's trading range over the last 12 months is not as important for a fundamental analyst.
Diversifiable Risks
- Investors can diversify away business risk, default risk, and legislative risk.
- Market risk, or systematic risk, cannot be diversified away.
Types of Risk
- Business risk is the risk associated with a company's operations and industry.
- Market risk, or systematic risk, is the risk associated with the entire market.
- Nonsystematic risk is the risk associated with a specific company or industry.
Conservative Investments
- A conservative investor seeking income may consider an immediate fixed annuity, an investment-grade corporate bond fund, or a utility fund.
- A high-yield bond fund may not be suitable for a conservative investor due to its higher risk profile.
Disclosure Requirements
- Investment products such as mutual funds and variable annuities require specific disclosures regarding liquidation.
- Limited partnerships, such as Gemco Properties Limited Partnership, have different disclosure requirements.
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Description
Test your knowledge on fundamental analysis during an economic downturn by identifying industries of interest to a fundamental analyst. Choose the correct industry most likely to be of interest in such a scenario.
