Reading 24: Macroanalysis and Microvaluation of the Stock M market, equity, discount, class

tycoon

CFA Institute Area 6: Economics
Session 6: Economic Concepts for Asset Valuation in Portfolio Management
Reading 24: Macroanalysis and Microvaluation of the Stock Market
LOS c: Demonstrate the use of the dividend discount model, the free cash flow to equity model, and the earnings multiplier approach to estimating the value of the aggregate stock market.

[此贴子已经被作者于2008-9-16 17:49:57编辑过]

tycoon

When calculating the risk premium for an equity market, which of the following is most accurate? The use of a moving average of historical returns during bear markets will result in:

A) low risk premiums, which is opposite to most investors expectations.

B) high risk premiums, which is opposite to most investors expectations.

C) low risk premiums, in accordance with most investors expectations.

D) high risk premiums, in accordance with most investors expectations.

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Answer and Explanation

During bear markets, recent stock returns will be low which will result in low calculated risk premiums. During bear markets, investors risk premiums are higher due to higher expected stock returns in the future.

tycoon

When calculating the risk premium for an equity market using historical returns, which of the following is most accurate?

A) Geometric mean returns should be used because they are more applicable to multi-period time horizons.

B) Geometric mean returns should be used because they are more applicable to single time horizons.

C) Arithmetic mean returns should be used because they are more applicable to single time horizons.

D) Arithmetic mean returns should be used because they are more applicable to multi-period time horizons.

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Answer and Explanation

Geometric mean returns should be used because they are more applicable to multi-period time horizons, which corresponds to the time horizon of most investors. Arithmetic mean returns provide the most likely returns in a single period but are not usually used to calculate equity risk premiums.

zhouyp1982

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zhouyp1982

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