Reading 44: Company Analysis and Stock Valuation - LOS b,

答案和详解如下：

1.Alice Joyner, CFA, recently developed growth expectations for Universal Foods (UF) and Low-Carb Delites (LCD). Currently UF and LCD have price-to-earnings (P/E) ratios of 18 and 22 respectively. The market index P/E ratio is 16. Based on growth duration analysis Joyner concluded that P/E ratios of 16 and 24 for UF and LCD are justified. Under these circumstances, which investment strategy is most likely to be profitable?

A)   Short LCD and buy UF.

B)   Buy both LCD and UF.

C)   Short both LCD and UF.

D)   Buy LCD and short UF.

The correct answer was D)

The growth duration analysis suggests that LCD is underpriced and UF is overpriced so Joyner should buy LCD and short sell UF.

2.All else equal, implied company price-to-earnings (P/E) is negatively related to the index:

A)   P/E ratio and the company growth rate.

B)   growth rate and the company growth rate.

C)   P/E ratio and the index dividend yield.

D)   growth rate and the index dividend yield.

The correct answer was D)

All else equal, implied company P/E is negatively related to the index growth rate and the index dividend yield. The implied company P/E is positively related to the index P/E ratio and the company growth rate.