You discover a company stock is under-priced because the industry it's in is undervalued by the market at this time, and you expect a higher than average return by selling at a higher price later when the market corrects itself or things change and the price rises. You are investing in a growth stock. value stock. speculative stock. blue chip stock. common stock.

You discover a company stock is under-priced because the industry it's in is undervalued by the market at this time, and you expect a higher than average return by selling at a higher price later when the market corrects itself or things change and the price rises. You are investing in a growth stock. value stock. speculative stock. blue chip stock. common stock.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 3MC

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Which 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
Answer the following questions: A. Explain why the price of many individual stocks still goes down, even when the overall stock market goes up. b. How can you avoid the value of your stock from going down?
If the stock market is at least semistrong efficient then, O A. trading on information that you read in The Wall Street Journal or on the internet is unlikely to allow you to purchase stocks that are significantly underpriced. O B. you are likely to find underpriced and overpriced securities by conducting a thorough analysis of a firm's financial statements. O C. you should be able to determine when to buy or to sell a stock by studying the pattern of its historical prices. O D. you cannot expect to find underpriced or overpriced stocks even if you have inside information.
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.
Which of the following is FALSE about preferred stock? Select one: a. the value of a preferred stock can be calculated with the perpetuity formula b. preferred stock are expected to pay the same dividend forever c. preferred stocks are more risky than common stocks d. preferred stocks do not mature
Which one of the following expressions about stocks is wrong? a.The estimated dividend payment and price of a stock that we get from the internet are just an educated guess: the average of analyst estimates. B. Shorting stocks are restricted in some market because of extremely high risk of shorting. C It is common for young companies typically do not pay dividends
Which of the following is most likely a correct statement in regards to stock valuation models? The lower the expected dividends and higher the discount rate, the higher the value of the stock today, with all else being constant. The lower the required return on the stock, the lower the projected dividends for the stock, with all else being constant. The higher the expected growth rate of dividends, the higher the value of the stock. 0.000 I. II. III. I only II and III III only None of the above
Particulars 1. Discount rate АВС XYZ 18.5% 14.25% Not 2. Historical growth rate 2.2218% available 3. Sustainable growth 4.5% 20% rate 4. Fundamental value of stock using dividend growth model through historical growth rate 5. Fundamental value of stock using dividend growth model through sustainable growth rate 6. Fundamental value of stock using residual income growth model through historical growth rate 7. Fundamental value of stock using residual income growth model through sustainable growth rate Not Tavailable 3395 Not available 3953 Not 427.30 available 420.35 1 96.5
You buy a stock from the capital market. If the capital market is semi-strong efficient, which of the following statements is NOT correct? a. You cannot earn any abnormal returns above the required return by trading on public information. b. Past stock prices can be used to predict future stock prices. c. The technical analysis of publicly available information will not lead to any abnormal returns. d. The stock is fairly priced. e. Stock prices reflect all publicly available information.
Over time, the unexpected return on a company's stock is expected to equal Multiple Choice the company's average rate of return. the average return on the overall market. zero, the risk-free rate. the market risk premium.
Q1. A price weighted index places more weight on stocks with a higher price, whilst a value weighted index places more weight on stocks with a higher market capitalization. Discuss. Q2. Price weighted indices have been criticized because they introduce a downward bias by reducing the weight of growing companies whose stock split. What does this mean and why does the underweighting occur? Q3. What should be the risk premium and return on a stock with a Beta of zero under the Capital Asset Pricing Model (CAPM)? What about the risk premium and return on a stock with a Beta of 1? Q4. In a world of certainty, investors will always invest in the asset with the highest return. In the real world, investors hold a diversified portfolio of securities. Why is this the case?
Market equity beta measures the covariability of a firms returns with all shares traded on the market (in excess of the risk-free interest rate). We refer to the degree of covariability as systematic risk. The market prices securities so that the expected returns should compensate the investor for the systematic risk of a particular stock. Stocks carrying a market equity beta of 1.20 should generate a higher return than stocks carrying a market equity beta of 0.90. Nonsystematic risk is any source of risk that does not affect the covariability of a firms returns with the market. Some writers refer to nonsystematic risk as firm-specific risk. Why is the characterization of nonsystematic risk as firm-specific risk a misnomer?