Question 1

The multiplier approach for estimating the intrinsic market value of a major stock market series requires the following step(s):

Accepted Answer

A) Estimating the future earnings per share for the stock market series 
B) Estimating the appropriate earnings multiplier for the stock market series 
C) Estimating long-run required rates of return and growth rates 
D) Both a and b 
E) All of the above 
A) Estimating the future earnings per share for the stock market series 
B) Estimating the appropriate earnings multiplier for the stock market series 
C) Estimating long-run required rates of return and growth rates 
D) Both a and b 
E) All of the above E

Question 2

Exhibit 12.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The aggregate market currently has a retention ratio of 60 percent, a required rate of return of 12 percent, and an expected growth rate for dividends of 4 percent.
-Refer to Exhibit 12.9. Starting with the initial conditions, you expect the retention ratio to be constant, the rate of inflation to decline by 2 percent, and the growth rate to decline by 1 percent. What is the expected P/E?

Accepted Answer

A) 8.57 
B) 8.00 
C) 6.67 
D) 5.71 
E) 5.00 
A) 8.57 
B) 8.00 
C) 6.67 
D) 5.71 
E) 5.00 D

Question 3

Exhibit 12.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
An analyst wishes to estimate the share price for Ashley Corporation. The following information is made available:
Estimated profit margin = 15%
Total asset turnover = 2
Financial leverage = 1.2
Estimated dividend payout ratio = 75%
Required rate of return = 14%
Estimated EPS = $2.50
-Refer to Exhibit 12.5. Calculate the P/E multiple.

Accepted Answer

A) 35 
B) 30 
C) 25 
D) 20 
E) 15 
A) 35 
B) 30 
C) 25 
D) 20 
E) 15 E

Question 4

Recent studies indicate that one can earn excess returns in the stock market by forecasting unanticipated changes in the money supply.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not an analytical measure used by the NBER to examine behavior within a series?

Accepted Answer

A) Diffusion indexes 
B) Rates of change 
C) Direction of change 
D) Ratios among series 
E) Comparison with previous cycles 
A) Diffusion indexes 
B) Rates of change 
C) Direction of change 
D) Ratios among series 
E) Comparison with previous cycles

Question 6

All of the following factors affect the required rate of return except

Accepted Answer

A) The economy's risk free rate. 
B) Corporate business risk. 
C) Return on equity. 
D) Country risk. 
E) Expected rate of inflation. 
A) The economy's risk free rate. 
B) Corporate business risk. 
C) Return on equity. 
D) Country risk. 
E) Expected rate of inflation.

Question 7

Future tax rates are difficult to estimate because they are politically influenced.

Accepted Answer

A) True 
 B)False

Question 8

The dividend payout ratio for the aggregate market is 50 percent, the required rate of return is 16 percent, and the expected growth rate for dividends is 6 percent. Compute the current earnings multiple.

Accepted Answer

A) 5 
B) 2.81 
C) 7.5 
D) 4 
E) None of the above 
A) 5 
B) 2.81 
C) 7.5 
D) 4 
E) None of the above

Question 9

As the market's return on equity increases so will the P/E ratio.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following economic series is not included in the National Bureau of Economic Research (NBER) lagging indicator group?

Accepted Answer

A) Average duration of unemployment 
B) Ratio of manufacturing and trade inventories to sales 
C) Number of employees on nonagricultural payrolls 
D) Percentage change in the labor cost per unit of output in manufacturing 
E) All of the above are included in the NBER lagging indicator group 
A) Average duration of unemployment 
B) Ratio of manufacturing and trade inventories to sales 
C) Number of employees on nonagricultural payrolls 
D) Percentage change in the labor cost per unit of output in manufacturing 
E) All of the above are included in the NBER lagging indicator group

Question 11

An increase in the retention ratio will cause a decrease in the growth rate.

Accepted Answer

A) True 
 B)False

Question 12

Exhibit 12.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are using the free cash flow to equity (FCFE) technique to analyze U.S. equity market. The beginning FCFE is $90 and the required rate of return is 10%. Free cash flows are expected to grow at a 10% rate for the next two years and then grow at a constant rate of 7% forever.
-Compute the current earnings multiple if the dividend payout ratio for the aggregate market is 60 percent, the required rate of return is 11%, and the dividend growth rate is 8%.

Accepted Answer

A) 15 
B) 20 
C) 25 
D) 30 
E) 35 
A) 15 
B) 20 
C) 25 
D) 30 
E) 35

Question 13

Which of the following is not a reason given for why forecaster are so often incorrect?

Accepted Answer

A) There is a temptation for economic forecasters to stay fairly close to the "norm," that is, "group think." 
B) Many analysts are simply too short-sighted. 
C) Economists and economic forecaster often suffer from information overload. 
D) Some economic forecasters are too broad-minded, trying to include a number of ideas in their forecasts. 
E) None of the above (that is, all are reasons cited for why forecasters are often incorrect) 
A) There is a temptation for economic forecasters to stay fairly close to the "norm," that is, "group think." 
B) Many analysts are simply too short-sighted. 
C) Economists and economic forecaster often suffer from information overload. 
D) Some economic forecasters are too broad-minded, trying to include a number of ideas in their forecasts. 
E) None of the above (that is, all are reasons cited for why forecasters are often incorrect)

Question 14

Exhibit 12.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are using the free cash flow to equity (FCFE) technique to analyze U.S. equity market. The beginning FCFE is $90 and the required rate of return is 10%. Free cash flows are expected to grow at a 10% rate for the next two years and then grow at a constant rate of 7% forever.
-Refer to Exhibit 12.7. What would the estimated value of the U.S. market be today using the FCFE approach, if the growth rate was expected to be a constant 8% indefinitely, instead of the 10% and 7% estimates?

Accepted Answer

A) 4,500 
B) 4,728 
C) 4,860 
D) 4,923 
E) 5,042 
A) 4,500 
B) 4,728 
C) 4,860 
D) 4,923 
E) 5,042

Question 15

Interest rate spread, 10-year Treasury bonds less federal funds, is listed as a lagging indicator in the National Bureau of Economic Research (NBER).

Accepted Answer

A) True 
 B)False

Question 16

The index of leading indicators includes all of the following, except:

Accepted Answer

A) M2 money supply. 
B) S & P 500 index. 
C) Orders for plant and equipment. 
D) Changes in the sensitive materials price. 
E) Index of industrial production. 
A) M2 money supply. 
B) S & P 500 index. 
C) Orders for plant and equipment. 
D) Changes in the sensitive materials price. 
E) Index of industrial production.

Question 17

Leading indicators of the business cycle include economic series that reach peaks or troughs before the peaks and troughs of the overall economy.

Accepted Answer

A) True 
 B)False

Question 18

The authors of the text prefer forward valuation ratios as opposed to historical valuation variables in relative valuation methods.

Accepted Answer

A) True 
 B)False

Question 19

Over the last 20 years, increases in the return on equity for the S&P Index has been associated with decreases in return of assets.

Accepted Answer

A) True 
 B)False

Question 20

The best known monetary variable is the level of taxes.

Accepted Answer

A) True 
 B)False

Exam 12: Macroanalysis and Microvaluation of the Stock Market

The multiplier approach for estimating the intrinsic market value of a major stock market series requires the following step(s):

Recent studies indicate that one can earn excess returns in the stock market by forecasting unanticipated changes in the money supply.

Which of the following is not an analytical measure used by the NBER to examine behavior within a series?

All of the following factors affect the required rate of return except

Future tax rates are difficult to estimate because they are politically influenced.

The dividend payout ratio for the aggregate market is 50 percent, the required rate of return is 16 percent, and the expected growth rate for dividends is 6 percent. Compute the current earnings multiple.

As the market's return on equity increases so will the P/E ratio.

Which of the following economic series is not included in the National Bureau of Economic Research (NBER) lagging indicator group?

An increase in the retention ratio will cause a decrease in the growth rate.

Which of the following is not a reason given for why forecaster are so often incorrect?

Interest rate spread, 10-year Treasury bonds less federal funds, is listed as a lagging indicator in the National Bureau of Economic Research (NBER).

The index of leading indicators includes all of the following, except:

Leading indicators of the business cycle include economic series that reach peaks or troughs before the peaks and troughs of the overall economy.

The authors of the text prefer forward valuation ratios as opposed to historical valuation variables in relative valuation methods.

Over the last 20 years, increases in the return on equity for the S&P Index has been associated with decreases in return of assets.

The best known monetary variable is the level of taxes.

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Organization and Functioning of Securities Markets

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Introduction to Security Valuation

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts, Convertible Securities, and Other Embedded Derivatives

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

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