1.When valuing equity, the price-to-earnings (P/E) approach involves the selection of the appropriate benchmark, and comparing the company’s P/E to the benchmark. All of the following are appropriate P/E benchmarks EXCEPT:

A)   the P/E of other firms that are comparable in size.

B)   an average or median P/E for the industry.

C)   an average historical P/E of the stock.

D)   the P/E of an equity index.

2.Which of the following statements concerning the choice of an equity index benchmark is INCORRECT?

A)   Price-to-earnings (P/E) ratios differ significantly across firms of various size.

B)   The Yardeni model utilizes historical bond yields.

C)   Indices that are market cap weighted allow large cap stocks to influence the average P/E more than smaller cap stocks.

D)   For large-cap stocks, the mean P/E should be used as a benchmark.

3.Which of the following statements relating to factors involved in the choice of an appropriate benchmark is FALSE?

A)   The stocks composing the benchmark may or may not be efficiently priced.

B)   The Fed Model postulates that the market is overvalued when the market’s current earnings yield is less than the 10-year Treasury bond yield.

C)   One must take into account size differences between the target stock and components of the chosen index.

D)   The mean price-to-earnings (P/E) ratio does not reflect the impact of outliers while the median does.

答案和详解如下：

1.When valuing equity, the price-to-earnings (P/E) approach involves the selection of the appropriate benchmark, and comparing the company’s P/E to the benchmark. All of the following are appropriate P/E benchmarks EXCEPT:

A)   the P/E of other firms that are comparable in size.

B)   an average or median P/E for the industry.

C)   an average historical P/E of the stock.

D)   the P/E of an equity index.

The correct answer was A)

The P/E of other firms that are comparable in size alone is not appropriate unless these firms are otherwise comparable, such as all being in the same industry.

2.Which of the following statements concerning the choice of an equity index benchmark is INCORRECT?

A)   Price-to-earnings (P/E) ratios differ significantly across firms of various size.

B)   The Yardeni model utilizes historical bond yields.

C)   Indices that are market cap weighted allow large cap stocks to influence the average P/E more than smaller cap stocks.

D)   For large-cap stocks, the mean P/E should be used as a benchmark.

The correct answer was B)

The Yardeni model relates the current earnings yield on the market to both the current yield on A-rated corporate bonds and the consensus 5-year earnings growth rate.

3.Which of the following statements relating to factors involved in the choice of an appropriate benchmark is FALSE?

A)   The stocks composing the benchmark may or may not be efficiently priced.

B)   The Fed Model postulates that the market is overvalued when the market’s current earnings yield is less than the 10-year Treasury bond yield.

C)   One must take into account size differences between the target stock and components of the chosen index.

D)   The mean price-to-earnings (P/E) ratio does not reflect the impact of outliers while the median does.

The correct answer was D)    

The median P/E does not reflect the impact of outliers, while the mean does.