The market will measure value of a business based on an estimation of?
What is PV of future cash flows?
100
Rf + B*(Rmt – Rf)
This formula describes the relationship between risk and expected return
What is the CAPM Formula?
100
The theory that people are not rational
What is Prospect Theory
100
A theory that presents the assumption that each party will aim to maximize utility.
What is Game Theory?
200
Problems caused by asymmetry fall into 2 categories. These two categories are:
What is Adverse Selection and Moral Hazard?
(Insider trading, selective disclosure, agency problems)
200
This can be seen as a way of understanding how the probability that a theory is true is affected by a new piece of evidence.
What is Bayes’ Theorem?
200
This indicates that efficient markets (which assumes sufficient participants) will effectively price in new information.
What is efficient market hypothesis?
200
This is a concept that shows how market value of firm can be expressed in terms of fundamental balance sheet and income statement components.
What is Clean Surplus Theory?
200
Managers must be vulnerable to risk in order to.
What is to motivate them?
300
This argues that regulators are established by government, who are viewed as the representatives of “the people”.
What is Public Interest Theory?
300
This theory helps risk-averse investors construct portfolios to optimize or maximize expected return:
What is Modern Portfolio Theory (MPT)/Portfolio Theory?
300
This is a logical inconsistency within the Efficient Markets Hypothesis
What is the free rider problem?
300
These are two schools of thought of Positive Accounting Theory (PAT)
What is the Efficient contract version & Opportunistic version?
300
A contract between the firm and its manager that attempts to align the interests of owners and manager by basing the manager’s compensation on one more measures pf the manager’s performance.
What is an executive compensation plan?
400
This theory views regulation as a tug-of-war between the conflicting demands of market participants (mainly investors vs managers).
What is Interest Group Theory?
400
This framework records assets in a manner which anticipates no profit from the asset.
What is GAAP?
400
This landmark study proves that narrow window studies are more consistent with decision usefulness.
What is Ball & Brown study?
400
These 3 hypotheses were proposed by Watts & Zimmerman and were most often presented in opportunistic form.
What is Bonus Plan, Covenant and Political Cost Hypothesis?
400
Nash Equilibrium
What is the optimal outcome of a game where no player has an incentive to deviate from their chosen strategy? (A stable state)
500
Three other market driven theories for the efficient quantity of information.
What is Contract, Disclosure and Signaling theory?
500
Net income can be truly defined as this.
What is the change in economic value of net assets?
500
This is a measure of relation of stock returns to earnings surprises around the time of corporate earnings announcements
What is Earning Response Coefficient?
500
This helps help mitigate market failures and helps improve the low correlation of determination of financial information in contributing to share prices.
What is the Measurement Basis?
500
This is a device and a limit to earnings management.