Question 1

One of the economic series included in the National Bureau of Economic Research (NBER)coincident indicator is the index of industrial production.

Accepted Answer

A) True 
 B)False

Question 2

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 is the estimated value of the U.S.market today using the FCFE approach?

Accepted Answer

A)  2,852 
B)  2,918 
C)  3,210 
D)  3,390 
E)  3,884

Question 3

It is important to analyze the economies and security markets before analyzing alternative industries or companies.

Accepted Answer

A) True 
 B)False

Question 4

Excess liquidity is defined as

Accepted Answer

A)  The year-to year percentage change in the M2 money supply less the year-to-year percentage change in the nominal GNP. 
B)  The growth rate in M2 money supply less the growth rate in M1 money supply. 
C)  The year-to-year percentage change in the M1 money supply less the year-to-year percentage. 
D)  The year-to-year percentage change in the "real" GNP less the year-to-year percentage change in the nominal GNP. 
E)  None of the above

Question 5

Dividend growth is positively related to the return on equity.

Accepted Answer

A) True 
 B)False

Question 6

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.If the payout ratio changes to 50 percent,but there are no other changes,what will be the new P/E?

Accepted Answer

A)  3.25 
B)  4.16 
C)  5.75 
D)  6.25 
E)  7.67

Question 7

Exhibit 12.4
Use the Information Below for the Following Problem(S)
Assume that the dividend payout ratio will be 45 percent when the rate on long term government bonds falls to 9 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 16 percent return. The return on equity will be 14 percent.
-Refer to Exhibit 12.4.To what price will the market rise if the earnings expectation is $10.00?

Accepted Answer

A)  $71.40 
B)  $66.30 
C)  $54.20 
D)  $77.00 
E)  $51.10

Question 8

Exhibit 12.6
Use the Information Below for the Following Problem(S)
Consider the following information that you propose to use to obtain an estimate of year 2004 EPS for the MacLog Company.
 $\begin{array}{lrr}
\begin{array}{l}
\
\
\text{GDP}\
\text{GDP growth}\
\text{Sales per share}\
\text{Operating profit margin}\
\text{Depreciation/Fixed Assets}\
\text{Fixed asset turnover}\
\text{Interest rate}\
\text{Total asset turnover}\
\text{Debt/Total assets}\
\text{Tax rate}\
\end{array}\
\begin{array}{r}
\
\text{Year 2003}\
\hline
\text{11,000 Billion}\\
 \$ 800 \\\\\\\\
\end{array}\
\begin{array}{r}
Estimated\
\text{Year 2004}\
\hline\ 3.5 \% \\
 12 \% \
 14 \% \
2\
3.5 \% \
 0.7 \
45 \% \
36\%
\end{array}\
\end{array}$ 
In addition a regression analysis indicates the following relationship between growth in sales per share for MacLog and GDP growth is
%D Sales per share = 0.015 + 0.75(%∆GDP)
-Refer to Exhibit 12.6.Calculate the firm's EPS for the year 2004.

Accepted Answer

A)  $15.25 
B)  $14.66 
C)  $17.25 
D)  $12.56 
E)  $18.57

Question 9

Building permits for new private housing units are listed as a leading indicator by the National Bureau of Economic Research (NBER).

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 12.6
Use the Information Below for the Following Problem(S)
Consider the following information that you propose to use to obtain an estimate of year 2004 EPS for the MacLog Company.
 $\begin{array}{lrr}
\begin{array}{l}
\
\
\text{GDP}\
\text{GDP growth}\
\text{Sales per share}\
\text{Operating profit margin}\
\text{Depreciation/Fixed Assets}\
\text{Fixed asset turnover}\
\text{Interest rate}\
\text{Total asset turnover}\
\text{Debt/Total assets}\
\text{Tax rate}\
\end{array}\
\begin{array}{r}
\
\text{Year 2003}\
\hline
\text{11,000 Billion}\\
 \$ 800 \\\\\\\\
\end{array}\
\begin{array}{r}
Estimated\
\text{Year 2004}\
\hline\ 3.5 \% \\
 12 \% \
 14 \% \
2\
3.5 \% \
 0.7 \
45 \% \
36\%
\end{array}\
\end{array}$ 
In addition a regression analysis indicates the following relationship between growth in sales per share for MacLog and GDP growth is
%D Sales per share = 0.015 + 0.75(%∆GDP)
-Refer to Exhibit 12.6.Calculate the per share interest rate charge for the year 2004.

Accepted Answer

A)  $18.74 
B)  $14.72 
C)  $30.07 
D)  $13.76 
E)  $28.59

Question 11

The National Bureau of Economic Research (NBER)has derived the following indicator series in order to monitor business cycles.

Accepted Answer

A)  M2, leading, and lagging. 
B)  Leading, coincident, and consumer expectations. 
C)  Leading, coincident, and lagging. 
D)  Leading, coincident, and M2. 
E)  Consumer expectations, leading, and lagging.

Question 12

If interest rates rise due to inflation,and expected cash flows to a firm rise,then you would expect stock prices to

Accepted Answer

A)  Rise. 
B)  Rise and then decline. 
C)  Remain unchanged. 
D)  Decline. 
E)  None of the above.

Question 13

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

Question 14

Which of the following is not a determinant of the aggregate gross profit margin?

Accepted Answer

A)  Unit labor costs of production 
B)  Rate of inflation 
C)  Unemployment rate 
D)  Level of foreign competition 
E)  Growth rate of M2 money supply

Question 15

The dividend payout ratio for the aggregate market is 65 percent,the required rate of return is 12 percent,and the expected growth rate for dividends is 6 percent.Compute the current earnings multiple.

Accepted Answer

A)  5.41 
B)  16.25 
C)  6.25 
D)  10.83 
E)  None of the above

Question 16

Exhibit 12.1
Use the Information Below for the Following Problem(S)
Assume that the dividend payout ratio will be 65 percent when the rate on long-term government bonds falls to 8 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent.
-Refer to Exhibit 12.1.What is your expectation of the market P/E ratio?

Accepted Answer

A)  8.33 
B)  5.33 
C)  9.03 
D)  6.02 
E)  3.24

Question 17

Which of the following economic series are included in the NBER leading indicator group?

Accepted Answer

A)  Average weekly hour of production workers. 
B)  Average weekly initial claims for unemployment insurance. 
C)  Index of bond prices. 
D)  a and b. 
E)  b and c.

Question 18

Exhibit 12.1
Use the Information Below for the Following Problem(S)
Assume that the dividend payout ratio will be 65 percent when the rate on long-term government bonds falls to 8 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent.
-Refer to Exhibit 12.1.To what price will the market rise if the earnings expectation is $22.00 per share?

Accepted Answer

A)  $183.26 
B)  $132.41 
C)  $198.66 
D)  $71.28 
E)  $14.30

Question 19

Which of the following is not normally associated with cyclical indicators?

Accepted Answer

A)  The Securities and Exchange Commission (SE
C)  
B)  The National Bureau of Economic Research (NBER) 
C)  Business Week 
D)  Center for International Business Cycle Research (CIBCR) 
E)  All of the above

Question 20

Which of the following is not a major variable that affects the aggregate stock market earning multiplier in a country?

Accepted Answer

A)  Required rate of return on common stock in the country 
B)  Expected growth rate of dividends for the stocks in the country 
C)  Composite dividend-payout ratio for common stocks in country 
D)  Composite debt to equity ratio for firms in the country 
E)  All of the above are major variables for a country's aggregate stock market earnings multiplier

Exam 12: Macroanalysis and Microvaluation of the Stock Market

One of the economic series included in the National Bureau of Economic Research (NBER)coincident indicator is the index of industrial production.

It is important to analyze the economies and security markets before analyzing alternative industries or companies.

Excess liquidity is defined as

Dividend growth is positively related to the return on equity.

Building permits for new private housing units are listed as a leading indicator by the National Bureau of Economic Research (NBER).

The National Bureau of Economic Research (NBER) has derived the following indicator series in order to monitor business cycles.

If interest rates rise due to inflation,and expected cash flows to a firm rise,then you would expect stock prices to

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

Which of the following is not a determinant of the aggregate gross profit margin?

The dividend payout ratio for the aggregate market is 65 percent,the required rate of return is 12 percent,and the expected growth rate for dividends is 6 percent.Compute the current earnings multiple.

Which of the following economic series are included in the NBER leading indicator group?

Which of the following is not normally associated with cyclical indicators?

Which of the following is not a major variable that affects the aggregate stock market earning multiplier in a country?