All of the following statements about stock price are correct EXCEPT In the short run (i.e., a static viewpoint), stock price reflects the weighted average opinions of all investors in the market. In the long run (i.e., a dynamic viewpoint), stock price is determined by the opinions of marginal investors in the market. While different investors may have different opinions about the value of the same stock, there is only one price for the same stock. In an efficient market, the stock price may deviate from marginal investors' valuation for a prolonged period but eventually the price will converge to the value.
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- When all investors have the same information and care only about expected return and volatility; if new information arrives about one stock, can this information affect the price and return of other stocks?How would you use these to evaluate whether or not a current stock price is perhaps to high (overpriced) or too low (underpriced).If the fair value of a stock is more than its market value, which of the following is a reasonable conclusion? a. The stock has a low level of risk b. The stock offers a high dividend payout ratio c. The market is undervaluing the stock d. The market is overvaluing the stock
- Which of the following variables is NOT used to explain stock returns in the Fama-French three-factor model? A. Book-to-market ratio B. Interest rates C. Size (market capitalization) D. Return on the market indexa. What determines stock market valuations? b. Is a stock's price primarily determined by the discounted sum of future cash flows, monetary policy, or fear and greed? c. Is market timing possible using sentiment indicators such as put/call ratios and Investor's Intelligence surveys? Please ensure to add references and citations.Select all that are true with respect to a Price/Earnings (P/E) ratio. Group of answer choices Low P/E stocks are good investments, high P/E stocks are bad investments. A P/E ratio tells you how much you pay per $1 of a firm's earnings when you buy the stock. A P/E ratio tells you the ratio of a firm's stock price relative to its earnings per share. A stock that trades at a P/E of 10 is a better investment than a stock that trades at a P/E of 20. A stock that trades at a P/E of 20 is a better investment than a stock that trades at a P/E of 10. Although not always the case, stocks with higher P/E ratios generally have higher growth prospects relative to their current level of earnings than stocks with lower P/E ratios.
- Use the data below to determine which of the statements is most accurate? a) For a given percentage change in stock price, company Y will have less impact on the market-cap weighted index as company Z. b) A 100% increase in the stock price of company X will have a smaller impact on the price-weighted index than a 100% increase in the stock price of company Z. c) For a given percentage change in the stock price, company X will have a greater impact on the market-cap weighted index than companies Y & Z.An analyst estimates the intrinsic value of a stock to be in the range $79 to $61. The current market price of the stock is $58. If the analyst is correct in their estimation of intrinsic value, the stock is likely to be: O A. Over-valued O B. Under-valued OC. Fairly-valuedIf most participants in the stock market do not follow what is happening to monetary aggregates, prices of common stock will not fully reflect information about them. Is this statement true? Explain your answer
- You meet with two investors who have different expectations for stock CBD that can be addressed with various positions in puts, calls, and the underlying stock (or combination). For each investor, document the (1) name of the recommended strategy, (2) the components of the suggested trade, and (3) draw the payoff as a function of the stock price. a. Investor A already holds CBD stock and wants to lock in gains if the stock drops below its current levels, while maintaining upside exposure. b. Investor B wants to profit if CBD’s upcoming earnings announcement is either unexpectedly good or disappointingly bad. c. Investor C already holds CBD stock and believes the stock will not increase much in the near term. As such, she wants to earn some extra income using options.According to the weak-form efficient market hypothesis, which of the following types of information are fully reflected in stock prices? Group of answer choices insider information earnings announcements and rates of return dividend and earnings announcements rates of return, trading volume, and news about the economy past price and volume dataWhich of the following statements is most accurate in analyzing a stock? If the expected return exceeds itsrequired return__________________a. The stock should be sold.b. The stock is good to buy.c. The management is probably not trying to maximize the price per share.d. Dividends are not likely to be declarede. The stock is experiencing supernormal growth