Valuing Stocks

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Question 1

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The dividend discount model states that the value of a stock is the present value of the dividends it will pay over the investor's horizon,plus the present value of the expected stock price at the end of that horizon.

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Question 2

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An excess of market value over the book value of equity can be attributed to going concern value.

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Question 3

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Securities with the same expected risk should offer the same expected rate of return.

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Question 4

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If investors believe a company will have the opportunity to make very profitable investments in the future,they will pay more for the company's stock today.

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Question 5

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The dividend discount model should not be used to value stocks if the dividend does not grow.

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Question 6

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If the stock prices follow a random walk,successive stock prices are not related.

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Question 7

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The liquidation value of a firm is equal to the book value of the firm.

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Question 8

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Sustainable growth rates can be estimated by multiplying a firm's ROE by its dividend payout ratio.

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Question 9

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If the market is efficient,stock prices should be expected to react only to new information.

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Question 10

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If stock prices follow a random walk,their prices bear no relation to the company's real activities.

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Question 11

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A negative free cash flow for a business is always sign that it is not performing well.

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Question 12

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Evidence that stock prices follow a random walk does not imply that there aren't predictable cycles in prices.

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Question 13

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Market efficiency implies that security prices impound new information quickly.

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Question 14

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If security prices follow a random walk,then on any particular day the odds are that an increase or decrease in price is about equally likely.

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Question 15

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Many professional investors attempt to beat the market by buying index funds.

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Question 16

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Market efficiency implies that one could earn above-average returns by examining the history of a firm's stock price.

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Question 17

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Market value,unlike book value and liquidation value,treats the firm as a going concern.

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Question 18

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The dividend yield of a stock is much like the current yield of a bond.Both ignore prospective capital gains or losses.

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Question 19

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The dividend discount model states that today's stock price equals the present value of all expected future dividends.

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Question 20

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The growth of mature companies is primarily funded by:

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issuing new shares of stock.

issuing new debt securities.

reinvesting company earnings.

increasing accounts payable.

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