Exam 15: Options Markets

Old Quartz Gold Mining Company is expected to pay a dividend of $8 in the coming year.Dividends are expected to decline at the rate of 2% per year.The risk-free rate of return is 6% and the expected return on the market portfolio is 14%.The stock of Old Quartz Gold Mining Company has a beta of -0.25.The intrinsic value of the stock is _____.

_______ is the amount of money per common share that could be realized by breaking up the firm,selling the assets,repaying the debt,and distributing the remainder to shareholders.

Industrial production refers to _______.

Low P/E ratios tend to indicate that a company will _____,ceteris paribus.

Dividend discount models and P/E ratios are used by __________ to try to find mispriced securities.

Two firms,A and B,both produce widgets.The price of widgets is $1 each.Firm A has total fixed costs of $500,000 and variable costs of 50 cents per widget.Firm B has total fixed costs of $240,000 and variable costs of 75 cents per widget.The corporate tax rate is 40%.If the economy is strong,each firm will sell 1,200,000 widgets.If the economy enters a recession,each firm will sell 1,100,000 widgets.Calculate firm A's degree of operating leverage.

One of the problems with attempting to forecast stock market values is that

Increases in the money supply will cause demand for investment and consumption goods to _______ in the short run and cause prices to ________ in the long run.

An example of a highly cyclical industry is __________.

Historically,P/E ratios have tended to be ________.

Discuss the relationships between the required rate of return on a stock,the firm's return on equity,the plowback rate,the growth rate,and the value of the firm.

An analyst has determined that the intrinsic value of IBM stock is $80 per share using the capitalized earnings model.If the typical P/E ratio in the computer industry is 22,then it would be reasonable to assume the expected EPS of IBM in the coming year is ______.

Investors want high plowback ratios

Investors anticipating a recession are likely to benefit from investing in

You are considering acquiring a common stock that you would like to hold for one year.You expect to receive both $2.50 in dividends and $28 from the sale of the stock at the end of the year.The maximum price you would pay for the stock today is _____ if you wanted to earn a 15% return.

If the economy is going into a recession,an attractive industry to invest in would be the ________ industry.

According to James Tobin,the long run value of Tobin's Q should tend toward

High Tech Chip Company is expected to have EPS in the coming year of $2.50.The expected ROE is 14%.An appropriate required return on the stock is 11%.If the firm has a dividend payout ratio of 40%,the intrinsic value of the stock should be

Consider the free cash flow approach to stock valuation.Utica Manufacturing Company is expected to have before-tax cash flow from operations of $500,000 in the coming year.The firm's corporate tax rate is 30%.It is expected that $200,000 of operating cash flow will be invested in new fixed assets.Depreciation for the year will be $100,000.After the coming year,cash flows are expected to grow at 6% per year.The appropriate market capitalization rate for unleveraged cash flow is 15% per year.The firm has no outstanding debt.The total value of the equity of Utica Manufacturing Company should be

If interest rates increase,business investment expenditures are likely to ______ and consumer durable expenditures are likely to ___________.