Question 1

In the U.S., since the end of World War II, the typical business cycle contraction has had a duration of:

Accepted Answer

A)  10 months. 
B)  21 months. 
C)  32 months. 
D)  46 months. 
A)  10 months. 
B)  21 months. 
C)  32 months. 
D)  46 months.

Question 2

When interest rates fall, bond prices:

Accepted Answer

A)  rise. 
B)  fall. 
C)  remain unchanged. 
D)  rise or fall depending on the expected inflation premium. 
A)  rise. 
B)  fall. 
C)  remain unchanged. 
D)  rise or fall depending on the expected inflation premium.

Question 3

Stock prices have almost always risen as the business cycle is approaching a trough.

Accepted Answer

A) True 
 B)False

Question 4

Stock investors pay attention to the bond market because:

Accepted Answer

A)  it is more stable than the stock market. 
B)  it provides signals about interest rate expectations. 
C)  it is a more accurate measure of overall economic activity. 
D)  it is privy to more government information, especially from the Federal Reserve. 
A)  it is more stable than the stock market. 
B)  it provides signals about interest rate expectations. 
C)  it is a more accurate measure of overall economic activity. 
D)  it is privy to more government information, especially from the Federal Reserve.

Question 5

Explain how the S&P 500 dividend yield can be used to make market forecasts.

Accepted Answer

When the dividend yield drops to unusual

Question 6

Which of the following statements regarding market P/E ratios is true?

Accepted Answer

A)  P/E ratios are higher when interest rates are lower. 
B)  P/E ratios are higher when dividend yields are higher. 
C)  P/E ratios are higher when inflation is higher. 
D)  P/E ratios are higher when unemployment is lower. 
A)  P/E ratios are higher when interest rates are lower. 
B)  P/E ratios are higher when dividend yields are higher. 
C)  P/E ratios are higher when inflation is higher. 
D)  P/E ratios are higher when unemployment is lower.

Question 7

Investors should keep a watch on the Federal Reserve because of the effect of Fed policy actions on interest rates and security returns.

Accepted Answer

A) True 
 B)False

Question 8

Current stock prices reflect:

Accepted Answer

A)  investors' confidence in the current economy. 
B)  investors' confidence in the current administration. 
C)  investors' expectations of the future. 
D)  investors' attitudes about the past market. 
A)  investors' confidence in the current economy. 
B)  investors' confidence in the current administration. 
C)  investors' expectations of the future. 
D)  investors' attitudes about the past market.

Question 9

Assume that the dividends to be paid on a market index next period are expected to be $20. Investors require 15 percent to invest in stocks and expect dividends to grow at 10 percent per year. What is the value of this index?

Accepted Answer

P₀ = D₁/(k -

Question 10

Despite political, cultural, and economic differences, foreign markets are driven largely by the same factors that drive U.S. markets.

Accepted Answer

A) True 
 B)False

Question 11

The Dow Jones Industrial Average provides the best representation of the performance of U.S. stocks.

Accepted Answer

A) True 
 B)False

Question 12

The value of goods and services produced by foreign-owned business on U.S. land is included in:

Accepted Answer

A)  U.S. GDP, only. 
B)  U.S. GNP, only. 
C)  both U.S. GDP and U.S. GNP. 
D)  neither U.S. GDP, nor U.S. GNP. 
A)  U.S. GDP, only. 
B)  U.S. GNP, only. 
C)  both U.S. GDP and U.S. GNP. 
D)  neither U.S. GDP, nor U.S. GNP.

Question 13

Why is there an inverse relationship between P/Es and dividend yield?

Accepted Answer

Price is in the numerator of P

Question 14

Which of the following is not a component of GDP?

Accepted Answer

A)  Business investment spending 
B)  Government investment spending 
C)  Net exports 
D)  Financial transactions 
A)  Business investment spending 
B)  Government investment spending 
C)  Net exports 
D)  Financial transactions

Question 15

How does the increased globalization of business and finance affect business cycles and the leading, lagging, and coincident economic indicators?

Accepted Answer

Economic cycles may be more attuned to g

Question 16

Value Line's estimated dividends on an index for next year are $2.00 while estimated earnings are $4.30. The expected spread between k and g is 4%.
(a) What is the P/E ratio?
(b) What is the estimated price for this index?

Accepted Answer

(a) P/E = (D₁/E₁) / (k

Question 17

P/E ratios are generally depressed when interest rates:

Accepted Answer

A)  are high and inflation expectations are low. 
B)  are low and inflation expectations are high. 
C)  are high and inflation expectations are high. 
D)  are low and inflation expectations are low. 
A)  are high and inflation expectations are low. 
B)  are low and inflation expectations are high. 
C)  are high and inflation expectations are high. 
D)  are low and inflation expectations are low.

Question 18

What are the three major components of the Grinold Kroner model?

Accepted Answer

A)  Net profit margin, total asset turnover and equity multiplier 
B)  Market risk premium, SMB and HML 
C)  Unemployment, inflation and growth in GDP 
D)  Income return, earnings growth and repricing 
A)  Net profit margin, total asset turnover and equity multiplier 
B)  Market risk premium, SMB and HML 
C)  Unemployment, inflation and growth in GDP 
D)  Income return, earnings growth and repricing

Question 19

Which of the following are the two components of the Fed's dual mandate?

Accepted Answer

A)  Interest rates and stock prices 
B)  Gold prices and interest rates 
C)  Unemployment and the inflation rate 
D)  GDP growth and money supply growth 
A)  Interest rates and stock prices 
B)  Gold prices and interest rates 
C)  Unemployment and the inflation rate 
D)  GDP growth and money supply growth

Question 20

Traditionally, how many months before an economic recovery have stock prices started increasing?

Accepted Answer

A)  3-5, with 4 typical 
B)  5-7, with 6 typical 
C)  8-10, with 9 typical 
D)  10-12, with 11 typical 
A)  3-5, with 4 typical 
B)  5-7, with 6 typical 
C)  8-10, with 9 typical 
D)  10-12, with 11 typical

Exam 13: Economymarket Analysis

In the U.S., since the end of World War II, the typical business cycle contraction has had a duration of:

When interest rates fall, bond prices:

Stock prices have almost always risen as the business cycle is approaching a trough.

Stock investors pay attention to the bond market because:

Explain how the S&P 500 dividend yield can be used to make market forecasts.

Which of the following statements regarding market P/E ratios is true?

Investors should keep a watch on the Federal Reserve because of the effect of Fed policy actions on interest rates and security returns.

Current stock prices reflect:

Assume that the dividends to be paid on a market index next period are expected to be $20. Investors require 15 percent to invest in stocks and expect dividends to grow at 10 percent per year. What is the value of this index?

Despite political, cultural, and economic differences, foreign markets are driven largely by the same factors that drive U.S. markets.

The Dow Jones Industrial Average provides the best representation of the performance of U.S. stocks.

The value of goods and services produced by foreign-owned business on U.S. land is included in:

Why is there an inverse relationship between P/Es and dividend yield?

Which of the following is not a component of GDP?

How does the increased globalization of business and finance affect business cycles and the leading, lagging, and coincident economic indicators?

Value Line's estimated dividends on an index for next year are $2.00 while estimated earnings are $4.30. The expected spread between k and g is 4%. (a) What is the P/E ratio? (b) What is the estimated price for this index?

P/E ratios are generally depressed when interest rates:

What are the three major components of the Grinold Kroner model?

Which of the following are the two components of the Fed's dual mandate?

Traditionally, how many months before an economic recovery have stock prices started increasing?

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Common Stocks: Analysis and Strategy

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