Question 1

P/E ratios tend to be _______ when inflation is ______.

Accepted Answer

A)  higher; higher 
B)  lower; lower 
C)  higher; lower 
D)  they are unrelated 
A)  higher; higher 
B)  lower; lower 
C)  higher; lower 
D)  they are unrelated

Question 2

ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of 0.20. Its earnings this year will be $3 per share. Investors expect a 12% rate of return on the stock.
-At what price would you expect ART to sell?

Accepted Answer

A)  $25.00 
B)  $34.29 
C)  $42.86 
D)  $45.67 
A)  $25.00 
B)  $34.29 
C)  $42.86 
D)  $45.67

Question 3

A firm's earnings per share increased from $10 to $12,its dividends increased from $4.00 to $4.40,and its share price increased from $80 to $100.Given this information,it follows that _________.

Accepted Answer

A)  the stock experienced a drop in its P/E ratio 
B)  the company had a decrease in its dividend payout ratio 
C)  both earnings and share price increased by 20% 
D)  the required rate of return increased 
A)  the stock experienced a drop in its P/E ratio 
B)  the company had a decrease in its dividend payout ratio 
C)  both earnings and share price increased by 20% 
D)  the required rate of return increased

Question 4

If a stock is correctly priced then you know that ____________.

Accepted Answer

A)  the dividend payout ratio is optimal 
B)  the stock's required return is equal to the growth rate in earnings and dividends 
C)  the sum of the stock's expected capital gain and dividend yield is equal to the stock's required rate of return 
D)  the present value of growth opportunities is equal to the value of assets in place 
A)  the dividend payout ratio is optimal 
B)  the stock's required return is equal to the growth rate in earnings and dividends 
C)  the sum of the stock's expected capital gain and dividend yield is equal to the stock's required rate of return 
D)  the present value of growth opportunities is equal to the value of assets in place

Question 5

The value of internet companies is based primarily on _____.

Accepted Answer

A)  current profits 
B)  Tobin's q 
C)  growth opportunities 
D)  replacement cost 
A)  current profits 
B)  Tobin's q 
C)  growth opportunities 
D)  replacement cost

Question 6

Which one of the following is a common term for the market consensus value of the required return on a stock?

Accepted Answer

A)  Dividend payout ratio 
B)  Intrinsic value 
C)  Market capitalization rate 
D)  Plowback ratio 
A)  Dividend payout ratio 
B)  Intrinsic value 
C)  Market capitalization rate 
D)  Plowback ratio

Question 7

Rose Hill Trading Company is expected to have EPS in the upcoming year of $6.00.The expected ROE is 18.0%.An appropriate required return on the stock is 14%.If the firm has a plowback ratio of 70%,its intrinsic value should be _________.

Accepted Answer

A)  $20.93 
B)  $69.77 
C)  $128.57 
D)  $150.00 
A)  $20.93 
B)  $69.77 
C)  $128.57 
D)  $150.00

Question 8

Todd Mountain Development Corporation is expected to pay a dividend of $3.00 in the upcoming year.Dividends are expected to grow at the rate of 8% per year.The risk-free rate of return is 5% and the expected return on the market portfolio is 17%.The stock of Todd Mountain Development Corporation has a beta of 0.75.Using the constant growth DDM,the intrinsic value of the stock is _________.

Accepted Answer

A)  4.00 
B)  17.65 
C)  37.50 
D)  50.00 
A)  4.00 
B)  17.65 
C)  37.50 
D)  50.00

P/E ratios tend to be _ when inflation is .

ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of 0.20. Its earnings this year will be $3 per share. Investors expect a 12% rate of return on the stock. -At what price would you expect ART to sell?

A firm's earnings per share increased from $10 to $12,its dividends increased from $4.00 to $4.40,and its share price increased from $80 to $100.Given this information,it follows that _________.

If a stock is correctly priced then you know that ____________.

The value of internet companies is based primarily on _____.

Which one of the following is a common term for the market consensus value of the required return on a stock?

Rose Hill Trading Company is expected to have EPS in the upcoming year of $6.00.The expected ROE is 18.0%.An appropriate required return on the stock is 14%.If the firm has a plowback ratio of 70%,its intrinsic value should be _________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

Exam 13: Equity Valuation

P/E ratios tend to be _______ when inflation is ______.

ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of 0.20. Its earnings this year will be $3 per share. Investors expect a 12% rate of return on the stock. -At what price would you expect ART to sell?

A firm's earnings per share increased from $10 to $12,its dividends increased from $4.00 to $4.40,and its share price increased from $80 to $100.Given this information,it follows that _________.

If a stock is correctly priced then you know that ____________.

The value of internet companies is based primarily on _____.

Which one of the following is a common term for the market consensus value of the required return on a stock?

Rose Hill Trading Company is expected to have EPS in the upcoming year of $6.00.The expected ROE is 18.0%.An appropriate required return on the stock is 14%.If the firm has a plowback ratio of 70%,its intrinsic value should be _________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

P/E ratios tend to be _ when inflation is .