Exam 5: The Stock Market Is Smarter Than You Think

Which of the following is/are way(s )that short-term market deviations from a particular company's intrinsic value might play a role in the decisions of the managers? I.When making acquisitions,a manager might pay with shares instead of cash when the stock market overprices the shares relative to intrinsic value. II.If the multiples in a particular sector are too high,a manager of a firm that owns a subsidiary in that industry might consider divesting the subsidiary. III.If the multiples in a particular sector are too low,a manager of a firm that owns a subsidiary in that industry might consider divesting the subsidiary. IV.When making acquisitions,a manager might pay with cash instead of shares when the stock market overprices the shares relative to intrinsic value.

Having only fundamental investors among a company's shareholders is the most ideal situation.

Which of the following criteria do noise traders make bets on? I.Short-term price movements. II.Fundamental valuations. III.Investing only in emerging markets.

Which of the following are impediments to short selling? I.Beta risk. II.Bubble risk. III.Noise-trader risk. IV.Short-selling constraints.

Which is most accurate concerning the behavior of a stock's return after a stock split relative to companies whose stock has not split?

Empirical research shows that goodwill impairments have no impact on a company's share price at the time of the impairment.

Which of the following are valid reasons that cross-listing might actually improve a company's stock performance? I.Improved corporate governance. II.Trading in multiple time zones. III.Access to an increased number of investors. IV.Affirmation effect of being listed in more than one developed market.

Empirical evidence shows that managers can effectively manage share price by focusing on EPS and meeting analysts' estimated earnings.

Random deviations from intrinsic value can occur in stock prices,but managers are best off assuming that the market will correctly reflect the intrinsic value of their decisions.

Long-term price-to-earnings (P/E )ratios in the U.S.stock market of around 15 times are consistent with long-term expected stock returns of around 6 to 7 percent a year in real terms

Managers should focus on issuing guidance on their likely EPS in the next quarter because it leads to higher valuations,lower share price volatility,and improved liquidity.

Growth stocks have higher expectations for earnings growth and consistently have been found to have earnings growth significantly higher than value stocks.

Changes in expectations will rarely have a larger impact on realized total returns to shareholders (TRS )than actual performance over periods longer than a year or one operating cycle.