Stock Valuation And Risk

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Question 1
Free
Multiple Choice

The price-earnings valuation method applies the ____ price-earnings ratio to the ____ earnings per share in order to value the firm's stock.

Choose correct answer/s
A

firm's; industry

B

firm's; firm's

C

average industry; industry

D

average industry; firm's

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Question 2
Free
True/False

The PE method to stock valuation may result in an inaccurate valuation for a firm if errors are made in forecasting the firm's future earnings or in choosing the industry composite used to derivethe PE ratio.

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True

False

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Question 3
Free
Multiple Choice

Bolwork Inc. is expected to pay a dividend of $5 per share next year. Bolwork's dividends are expected to grow by 3 percent annually. The required rate of return for Bolwork stock is 15 percent.Based on the dividend discount model, a fair value for Bolwork stock is $ ____ per share.

Choose correct answer/s
A

33.33

B

166.67

C

41.67

D

60

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Question 4
Free
Multiple Choice

The limitations of the dividend discount model are more pronounced when valuing stocks

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A

that pay most of their earnings as dividends.

B

that retain most of their earnings.

C

that have a long history of dividends.

D

that have constant earnings growth

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Question 5
Free
Multiple Choice

Vansel Inc. retains most of its earnings. The company currently has earnings per share of $11. Vansel expects its earnings to grow at a constant rate of 2 percent per year. Furthermore, the average PE ratio of all other firms in Vansel's industry is 12. Vansel is expected to pay dividends per share of $3.50 during each of the next three years. If investors require a 10 percent rate of return on Vansel stock, a fair price for Vansel stock today is $ ____ .

Choose correct answer/s
A

113.95

B

111.32

C

105.25

D

none of the above

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Question 6
Multiple Choice

When evaluating stock performance, ____ measures variability that is systematically related to market returns; ____ measures total variability of a stock's returns.

Choose correct answer/s
A
beta; standard deviation
B
standard deviation; beta
C
intercept; beta
D
beta; error term
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Question 7
Multiple Choice

The ____ is commonly used as a proxy for the risk-free rate in the capital asset pricing model.

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A
Treasury bond rate
B
prime rate
C
discount rate
D
federal funds rate
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Question 8
Multiple Choice

Stock prices of U.S. firms primarily involved in exporting are likely to be ____ affected by a weak dollar and ____ affected by a strong dollar.

Choose correct answer/s
A
favorably; adversely
B
adversely; adversely
C
favorably; favorably
D
adversely; favorably
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Question 9
Multiple Choice

The January effect refers to the ____ pressure on ____ stocks in January of every year.

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A
downward; large
B
upward; large
C
downward; small
D
upward; small
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Question 10
Multiple Choice

The expected acquisition of a firm typically results in ____ in the target's stock price.

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A
an increase
B
a decrease
C
no change
D
none of the above
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Question 11
Multiple Choice

The ____ index can be used to measure risk-adjusted performance of a stock while controlling for the stock's volatility.

Choose correct answer/s
A
Sharpe
B
Treynor
C
arbitrage
D
margin
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Question 12
Multiple Choice

The ____ index can be used to measure risk-adjusted performance of a stock while controlling for the stock's beta.

Choose correct answer/s
A
Sharpe
B
Treynor
C
arbitrage
D
margin
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Question 13
True/False

Stock price volatility increased during the credit crisis.

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True
False
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Question 14
Multiple Choice

The Sharpe index measures the

Choose correct answer/s
A
average return on a stock.
B
variability of stock returns per unit of return
C
stock's beta adjusted for risk.
D
excess return above the risk-free rate per unit of risk.
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Question 15
Multiple Choice

A stock's average return is 11 percent. The average risk-free rate is 9 percent. The stock's beta is 1, and the standard deviation of its returns is 10 percent. What is the Sharpe index?

Choose correct answer/s
A
0.05
B
0.5
C
0.1
D
0.02
E
0.2
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Question 16
Multiple Choice

A stock's average return is 10 percent. The average risk-free rate is 7 percent. The standard deviation of the stock's return is 4 percent, and the stock's beta is 1.5. What is the Treynor indexfor the stock?

Choose correct answer/s
A
0.03
B
0.75
C
1.33
D
0.02
E
50
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Question 17
Multiple Choice

If security prices fully reflect all market-related information (such as historical price patterns) but do not fully reflect all other public information, security markets are

Choose correct answer/s
A
weak-form efficient
B
semistrong-form efficient.
C
strong-form efficient.
D
B and C
E
none of the above
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Question 18
Multiple Choice

If security markets are semistrong-form efficient, investors cannot solely use ____ to earn excess returns.

Choose correct answer/s
A
previous price movements
B
insider information
C
publicly available information
D
A and C
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Question 19
Multiple Choice

The ____ is often used to estimate the required rate of return for any firm with public traded stock.

Choose correct answer/s
A
capital asset pricing model
B
Treynor index
C
Sharpe index
D
B and C
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Question 20
Multiple Choice

According to the text, other things being equal, stock prices of U.S. firms primarily involved in exporting could be ____ affected by a weak dollar. Stock prices of U.S. importing firms couldbe ____ affected by a weak dollar.

Choose correct answer/s
A
adversely; favorably
B
favorably; adversely
C
favorably; favorably
D
adversely; adversely
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