Exam 17: Security Valuation and Selection

The ____ includes all the goods and services produced in the economy during a specific time where value of the goods and services is not adjusted for inflation.

For the most part, lagging economic indicators are not very useful for investment analysis because they represent measures that tend to lag movements in the general economy.

When economists measure the aggregate economy and say that it is either expanding or contracting, they are indicating the direction of the current business cycle.

An investor who uses the P/E ratio approach to value a firm's common stock would simply multiply the most recently reported earnings per share (EPS) by the current dividend per share to determine the value.

Because financial statement analysis is based on examination of accounting statements, which often do not represent economic earnings, they should not be included in investment analysis.

Wheathouse Bakery just paid a dividend of $2.50.They expect the dividends to grow at 15 percent per year for next three years, and then they expect the dividends to remain constant forever.The appropriate discount rate for this firm is 20 percent.What should be the current market price of the stock?

Investment professionals probably would recommend that an investor who likes to gamble should have a portfolio that includes only speculative securities such as options and futures, interest-rate swaps, and so forth.

The easiest input to successful ratio analysis is the judgment used when interpreting the results to reach an overall conclusion about the firm's financial position.

A recession occurs when the economy contracts by at least two percent in a quarter.

____ occurs when the government spends more than it collects in taxes.

Fiscal policy refers to government spending, which is supported by the government's ability to tax businesses and individuals.

Using the following financial data, determine the maximum dividends per share that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

Increased deficit spending by the government is likely to result in

Many investors use screening techniques to find one of two kinds of stocks.One kind is stocks of firms that exhibit sales and earnings growth rates that significantly exceed the industry averages.Another kind is stocks of firms that are mispriced, especially those that are undervalued.What are these two types of stocks called?

The fiscal policy of the United States is formulated and carried out by the Federal Reserve.

A mispriced stock exists when the market value and intrinsic value are not the same.

If an investor wishes to better diversify her investment portfolio, which consists of the common stocks of many of the firms that are in the Dow Jones Industrial Average, she probably should invest in some companies that are in those industries that are classified as cyclical.

Davis Brothers Incorporated is an apparel manufacturer that paid a $1.50 dividend yesterday.Analysts expect dividends to grow at a constant 20 percent per year for the next four years.From that point forward, dividends are expected to grow at a constant rate of 12 percent forever.The discount rate for a firm of this risk is 15 percent.What should be the current stock price?

The monetary policy of the United States relates to changes in the money supply, which are affected primarily by the ability of the U.S.Treasury to print and distribute currency.

Florida Sports Magazine is a publicly traded company.The next dividend will be paid in one year and is expected to be $1.25 per share.Dividends are expected to grow at 10 percent a year for the next three years, and then grow at 8 percent a year thereafter.The appropriate discount rate for investing in this firm is 15 percent.What should be the current stock price?