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Whitney Tilson, a noted analyst, warns investors in an article in The Motley Fool that more than any other type of company, financial companies have immense discretion regarding what earnings to report. The key is the rate of loan losses that they expect to experience, which must be estimated at the end of every period. By changing this estimate, which in turn changes one of the largest expenses on their income statement, financial companies can manage net income. Tilson specifically cites Farmer Mac, the agency created by the federal government to provide funds in the agricultural lending market, which many analysts believe smooths its earnings across time by simply changing its estimate on loss rates. REQUIRED:
a. What does it mean to "smooth earnings across time"? How might a financial company practice this strategy, and why might it engage in this activity?
b. Earnings smoothing has also been associated with conservatism. Why?
Which of the following investment offered the lowest overall over past eithty years small stock
A stock has a required return of 13%, and a retention rate of 40%. The stock's price-earnings multiple (P/E) is 14. What is the stock's estimated growth rate?
If I plan to go to Germany thirty days and the spot exchange rate is $1.30=1 euro. The thirty day forward rate is $1.36=1 euro.
Which of the following statements is correct? A) all else equal, senior debt generally has a lower yield to maturity than subordinated b) an indenture is a bond that is less risky than a mortgage bond c) the expected return on a corporate bond will ..
1 the goal of the firm should bea. maximization of profitsb. maximization of shareholder wealthc. maximization of
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Commit to buy a vacation home in the climate of your choice, rent the home out when you are not using it, or sign a five-year lease for the home for the two months a year you plan on using it.
What rates of return at various horizons have venture capitalists earned, on average, in recent years? How do these returns compare with the average venture capital returns over the past twenty years?
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Anomalies and the Challenge They Present to Market Efficiency
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