Question 1

Fundamental analysis attempts to determine the intrinsic value of stock by analyzing company conditions,industry conditions,and economic conditions.

Accepted Answer

A) True 
 B)False  True

Question 2

For the most part,lagging economic indicators are not very useful for investment analysis because they represent measures that tend to lag movements in the general economy.

Accepted Answer

A) True 
 B)False  False

Question 3

____ occurs when the government spends more than it collects in taxes.

Accepted Answer

A)   Deficit spending
B)   Fiscal policy
C)   Monetary policy
D)   Gross domestic product
E)   Business cycle A

Question 4

Government spending,which is primarily supported by the government's ability to tax individuals and businesses,is called ____.

Accepted Answer

A)   Deficit spending
B)   Fiscal policy
C)   Monetary policy
D)   Gross domestic product
E)   Business cycle

Question 5

A recession occurs when the economy contracts by at least two percent in a quarter.

Accepted Answer

A) True 
 B)False

Question 6

If security markets were truly strong-form efficient,then there would be no need for investors to evaluate the value of stocks because they could never earn abnormal returns.

Accepted Answer

A) True 
 B)False

Question 7

F Minus Notes is a publicly traded company.The last dividend paid was $4 per share.Dividends are paid annually,and they are expected to increase 5 percent per year for the next five years,then increase 10 percent per year thereafter.The discount rate associated with F Minus Notes common stock is 20 percent.What should be the current price of F Minus Notes stock?

Accepted Answer

A)   $36.21
B)   $33.13
C)   $47.55
D)   $50.72
E)   $31.59

Question 8

Most investors would be wise to purchase the common stock of companies that are in the introductory stage of their industry life cycle because it is in this stage that firms offer high,safe returns to investors.

Accepted Answer

A) True 
 B)False

Question 9

The ____ includes all the goods and services produced in the economy during a specific time where value of the goods and services is not adjusted for inflation.

Accepted Answer

A)   real GDP
B)   nominal GDP
C)   real GNP
D)   nominal GNP

Question 10

Technical analysts often are called chartists because they depend solely on charts and graphs to determine stock market trends.

Accepted Answer

A) True 
 B)False

Question 11

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 cyclical.

Accepted Answer

A) True 
 B)False

Question 12

If security markets were truly strong-form efficient,you would never be able to realize a rate of return on a security greater than the marginal investor's expected (or required)rate of return.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following economic indicators is not considered a leading indicator?

Accepted Answer

A)   Average workweek,production.
B)   Average length of unemployment.
C)   Money supply,M2.
D)   New orders of manufacturers.
E)   Stock prices.

Question 14

An investor who uses the P/E ratio approach to value a firm's common stock would simply multiply the most recently reported earnings per share (EPS)by the current dividend per share to determine the value.

Accepted Answer

A) True 
 B)False

Question 15

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 reverse its current trend.

Accepted Answer

A) True 
 B)False

Question 16

What is the expected price for the stock of a company that just paid a dividend of $3.00? The company has a dividend payout ratio of 50 percent,discount rate of 25 percent,and a P/E of 10.

Accepted Answer

A)   $60.00
B)   $30.00
C)   $12.00
D)   $45.00
E)   $22.50

Question 17

Economic measures that tend to mirror,or move concurrent with,business cycles are called coincident indicators.

Accepted Answer

A) True 
 B)False

Question 18

Using the following financial data,determine the maximum total dividends that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

Accepted Answer

A)   $1,170,000
B)   $1,120,000
C)   $820,000
D)   $570,000
E)   $220,000

Question 19

Candy Apple Cakes' stock has a current market value of $40.50.The company just paid a dividend equal to $1.50 per share,which is expected to grow at a constant rate forever into the future.If Candy Apple's marginal investors require a rate of return equal to 12 percent,what is the rate at which dividends are expected to grow in the future?

Accepted Answer

A)   8.3%
B)   12.0%
C)   4.0%
D)   8.0%
E)   There is not enough information to answer this question.

Question 20

According to the economic value added (EVA)method,a firm should be considered attractive only if it can generate sufficient income to pay for its existing capital.

Accepted Answer

A) True 
 B)False

Exam 17: Investment Analysis and Valuation Techniques

Fundamental analysis attempts to determine the intrinsic value of stock by analyzing company conditions,industry conditions,and economic conditions.

For the most part,lagging economic indicators are not very useful for investment analysis because they represent measures that tend to lag movements in the general economy.

____ occurs when the government spends more than it collects in taxes.

Government spending,which is primarily supported by the government's ability to tax individuals and businesses,is called ____.

A recession occurs when the economy contracts by at least two percent in a quarter.

If security markets were truly strong-form efficient,then there would be no need for investors to evaluate the value of stocks because they could never earn abnormal returns.

Most investors would be wise to purchase the common stock of companies that are in the introductory stage of their industry life cycle because it is in this stage that firms offer high,safe returns to investors.

The ____ includes all the goods and services produced in the economy during a specific time where value of the goods and services is not adjusted for inflation.

Technical analysts often are called chartists because they depend solely on charts and graphs to determine stock market trends.

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 cyclical.

If security markets were truly strong-form efficient,you would never be able to realize a rate of return on a security greater than the marginal investor's expected (or required)rate of return.

Which of the following economic indicators is not considered a leading indicator?

An investor who uses the P/E ratio approach to value a firm's common stock would simply multiply the most recently reported earnings per share (EPS)by the current dividend per share to determine the value.

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 reverse its current trend.

What is the expected price for the stock of a company that just paid a dividend of $3.00? The company has a dividend payout ratio of 50 percent,discount rate of 25 percent,and a P/E of 10.

Economic measures that tend to mirror,or move concurrent with,business cycles are called coincident indicators.

Using the following financial data,determine the maximum total dividends that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

According to the economic value added (EVA)method,a firm should be considered attractive only if it can generate sufficient income to pay for its existing capital.