A Net Unrealized Loss on a Company's Long-Term Portfolio of Available

question 11

Multiple Choice

A net unrealized loss on a company's long-term portfolio of available for sale securities should be reflected in the current financial statements as

• A)An extraordinary item shown as a direct reduction from retained earnings
• B)A current loss resulting from holding marketable equity securities
• C)A footnote or parenthetical disclosure only
• D)A component of other comprehensive income

Recognize the disclosure requirements for provisions, contingent liabilities, and contingent assets.

Understand the principles and assumptions behind the Treynor-Black model in portfolio management.

Calculate the standard deviation of returns on an active portfolio given its beta, the standard deviation of the market index, and its nonsystematic variance.

Describe the optimal weighting of securities within an active portfolio according to the Treynor-Black model.

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Definitions:

After-Tax Net Income

The amount of money that remains after all taxes have been deducted from a company's gross income.

Unlevered Cost of Capital

The cost of capital for a company without any debt, reflecting the required return on equity investments in a firm without leverage.

All Equity Firm

A company that finances its operations without any debt, using only its own equity.

Capital Structure

The mix of different forms of external funds used to finance a company's total capital, including debt and equity.