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.

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firm's; industry

firm's; firm's

average industry; industry

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.

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33.33

166.67

41.67

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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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that pay most of their earnings as dividends.

that retain most of their earnings.

that have a long history of dividends.

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 $ ____ .

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113.95

111.32

105.25

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.

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beta; standard deviation

standard deviation; beta

intercept; beta

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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Treasury bond rate

prime rate

discount rate

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.

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favorably; adversely

adversely; adversely

favorably; favorably

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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downward; large

upward; large

downward; small

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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an increase

a decrease

no change

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.

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Sharpe

Treynor

arbitrage

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.

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Sharpe

Treynor

arbitrage

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

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average return on a stock.

variability of stock returns per unit of return

stock's beta adjusted for risk.

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?

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0.05

0.5

0.1

0.02

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?

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0.03

0.75

1.33

0.02

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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

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weak-form efficient

semistrong-form efficient.

strong-form efficient.

B and C

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.

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previous price movements

insider information

publicly available information

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.

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capital asset pricing model

Treynor index

Sharpe index

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.

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adversely; favorably

favorably; adversely

favorably; favorably

adversely; adversely

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Stock Valuation And Risk

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

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.

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.

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

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

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

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.

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

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

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

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

Stock price volatility increased during the credit crisis.

The Sharpe index measures the

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?

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?

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

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

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

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.

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

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

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.

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

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.