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LOS e: Explain mean reversion in earnings and the expected relations between the speed of mean reversion and the accruals component of earnings.
Q1. Alex Fisher, CFA, is examining the phenomenon of mean reversion on the earnings of several firms. Which of the following
statements regarding mean reversion is least accurate?
A) Normal earnings should not be expected to continue indefinitely.
B) Low earnings should not be expected to continue indefinitely.
C) High earnings should not be expected to continue indefinitely.
Q2. Complete the following sentence. When earnings are relatively free of accruals, mean reversion will occur __________.
A) relatively faster than usual.
B) at the same rate as usual.
C) relatively slower than usual.
Q3. De Freitas Inc. (De Freitas) is a conglomerate. Its computer division was very profitable in the current year because it launched
a successful new lightweight laptop computer. Prices in the automobile division have been rising over the years but it is
engaged in a LIFO liquidation in the current year. Which of the following best describes the effect on the long-run earnings of
the computer division and the automobile division compared to the most recent year?
Computer division earnings Automobile division earnings
A) Decrease Increase
B) Increase Decrease
C) Decrease Decrease
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发表于 2009-3-3 09:49
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