Exam 17: Investment Analysis and Valuation Techniques

Market breadth indicators used by technical analysts provide a good indication of the "mood," or psychology,of the market.

Methods (models)used by technical analysts are designed to identify short-term,temporary market movements that investors can use to earn abnormal returns.

Technical analysts probably would agree that fundamental analysts can find the intrinsic value of a firm,but,by the time fundamentalists finish their analysis,it is too late to take advantage of the result.

Technical analysis is the examination of the supply/demand relationships for securities to determine trends in price movements of stocks or financial markets.

Technical analysts essentially believe "history repeats itself" because investors behave in a predictable manner when faced with situations they have faced in the past.

When the economy is in a recession,by definition,all sectors of the economy must be experiencing a downturn,or contraction.

The EVA of a firm will be positive when

Fundamental analysts attempt to find the intrinsic value of a firm by evaluating information contained in financial statements,industry reports,and economic forecasts.

Many investors use screening techniques to find one of two kinds of stocks.One kind is stocks of firms that exhibit sales and earnings growth rates that significantly exceed the industry averages.Another kind is stocks of firms that are mispriced,especially those that are undervalued.What are these two types of stocks called?

Technical analysis is used to determine when the economy is going to expand or contract in the future.

Big Joe's Burgers has a P/E ratio of 12 and a beta equal to 3.The risk-free rate is 8 percent and the return to the market has been 14 percent.The firm has an EPS of $5.00.What should be the current market price of Big Joe's stock?

Individuals who prefer investments that offer current income (i.e. ,dividends)probably should purchase stocks that are in the mature stage of their industry life cycle.Such investors most likely would avoid companies that are in the introductory stage of their life cycle.

The monetary policy of the United States relates to changes in the money supply,which are affected primarily by the ability of the U.S.Treasury to print and distribute currency.

MTB Surfboards has a P/E of 20.The discount rate for this firm is 30 percent.They had earnings of $2,000,000 and 100,000 shares of common stock outstanding.What should be the current price of the stock?

Pet Rock Quarries,Inc.is a publicly traded company with 200,000 shares of common stock outstanding.The stock currently sells for $50.00 a share.They had net income of $4,000,000.What is the company's P/E ratio?

The fiscal policy of the United States is formulated and carried out by the Federal Reserve.

Hurricane Shutters Inc.paid a dividend of $1.30 yesterday.The next dividend will be in one year and is expected to be $1.50.After that,dividends are expected to grow at a constant 15 percent forever.The discount rate for Hurricane Shutters Inc.is 25 percent.What should be the market price of the stock?

If an investor wishes to better diversify her investment portfolio,which consists of the common stocks of many of the firms that are in the Dow Jones Industrial Average,she probably should invest in some companies that are in those industries that are classified as countercyclical,or defensive.

Fiscal policy refers to government spending,which is supported by the government's ability to tax businesses and individuals.

The Dow Theory states that as long as the Dow Jones Industrial Average and the Dow Jones Transportation Average move in the same direction,the market will continue its current trend.