Question 91
An investor predicts that ABC, Inc., will have dividends next year of $10 per share and earnings of $12 per share. ABC, Inc., has an expected growth rate in dividends of 1%. If the firm's beta is 1.25, the risk-free rate is 6%, and the expected market return is 10%, ABC, Inc.'s earnings multiplier is closest to:
A) 8.33. B) 9.26. C) 12.00. D) 0.92.
The correct answer was A) 8.33. The required rate of return (k) is 0.06 + 1.25(0.10 – 0.06) = 0.11. The firm's P/E multiplier = (D1/E1)/(k − g) = (10/12)/(0.11 − 0.01) = 8.33. This question tested from Session 14, Reading 59, LOS b
Question 92 Which one of the following alternatives most accurately assigns the attractive investment opportunities that typically occur within the indicated stage of the business cycle? Business Cycle Stage Investment Opportunities A) Late expansion Real estate and interest-sensitive stocks B) Early expansion Stocks and bonds C) Recovery Commodities and cyclicals D) Recession Commodities and bonds
The correct answer was C) Recovery Commodities and cyclicals
During the recovery phase of the business cycle, cyclicals, commodities, and commodity-linked equities are generally attractive investments. This question tested from Session 14, Reading 58, LOS a
Question 93
Which of the following statements most accurately describes the strong form of the efficient market hypothesis (EMH) and its implication for trading strategies? The strong form states that:
A) stock prices fully reflect all market information and that investors cannot achieve excess returns using technical analysis. B) security prices rapidly adjust to the arrival of all new public information and that investors cannot achieve abnormal returns using fundamental analysis. C) stock prices already reflect all information from public and private sources, which has resulted in professional money managers not being able to outperform a simple buy-and-hold strategy. D) security prices already include all market and nonmarket public information and that event studies are used to test this form of the EMH.
The correct answer was C) stock prices already reflect all information from public and private sources, which has resulted in professional money managers not being able to outperform a simple buy-and-hold strategy. The strong form reflects security market, nonmarket, and inside or private information. The weak form states that stock prices fully reflect all currently available security market information and that investors cannot achieve excess returns using technical analysis. The semistrong form reflects that security prices rapidly adjust to the arrival of all new public information (market and fundamental) and that investors cannot achieve abnormal returns using fundamental analysis. Event studies are one of the tests used to test the semistrong form of the EMH. This question tested from Session 13, Reading 54, LOS a, (Part 2)
Question 94 A stock market index is composed of three stocks. Their beginning and ending values in a recent time period are as follows: Stock | Number of shares | Beginning value | Ending value | Percent change | X | 100 | 160 | 136 | -15% | Y | 100 | 80 | 100 | +25% | Z | 1,000 | 60 | 66 | +10% |
None of the stocks split during the period. The index that will have the smallest percentage increase is a(n):
A) price-weighted index. B) value-weighted index. C) unweighted index using the arithmetic mean. D) unweighted index using the geometric mean.
The correct answer was A) price-weighted index. A price-weighted index will put greater weight on the return on Stock X, which has the worst performance, and thus will be the worst performing index. A price-weighted index has a beginning value of (160 + 80 + 60) / 3 = 100 and an ending value of (136 + 100 + 66) / 3 = 100.67, for an increase of 0.67%. For the other three weighting schemes, the percent change can be calculated directly: Index | Percent change | Value-weighted | (13,600 + 10,000 + 66,000) / (16,000 + 8,000 + 60,000) = +6.67% | Unweighted, arithmetic | (-15% + 25% + 10%) / 3 = +6.67% | Unweighted, geometric | [(1 – 0.15) (1 + 0.25) (1 + 0.1)]1/3 = +5.34% |
This question tested from Session 13, Reading 53, LOS a, (Part 2)
Question 95
Which of the following least likely a valid rationale for using the price-to-sales (P/S) ratio? The P/S ratio:
A) tends to be less volatile than the price-to-earnings ratio. B) can be used for firms with negative earnings or book value. C) is less affected by different accounting practices than the price-to-earnings or price-to-book value ratios. D) emphasizes the earnings capability of a company.
The correct answer was D) emphasizes the earnings capability of a company. The P/S ratio is not necessarily an indicator of a company’s earnings capability. A company can have high and growing sales but low or negative earnings if its costs are too high.
This question tested from Session 14, Reading 61, LOS a, (Part 1) | 
发表于 2008-5-27 15:19
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