Equity TE9 Test

None

• A. Company A
• B. Company B
• C. Company C

Which of the following most accurately describes the basis for construction of nearly all bond market indexes?

• A. Dealer prices
• B. Model prices
• C. Market prices

Q. An analyst estimates the intrinsic value of a stock to be in the range of €17.85 to €21.45. The current market price of the stock is €24.35. This stock is most likely:

• A. overvalued.
• B. undervalued.
• C. fairly valued.

Q. When conducting a company analysis, the analysis of demand for a company’s product is least likely to consider the:

• A. company’s cost structure.
• B. motivations of the customer base.
• C. product’s differentiating characteristics.

Q. A Canadian life insurance company has an issue of 4.80 percent, $25 par value, perpetual, non-convertible, non-callable preferred shares outstanding. The required rate of return on similar issues is 4.49 percent. The intrinsic value of a preferred share is closest to:

• A. $25.00.
• B. $26.75.
• C. $28.50.

Q. Which of the following is least likely to be a reason for a company to issue equity securities on the primary market?

• A. To raise capital.
• B. To increase liquidity.
• C. To increase return on equity.

Q. Which of the following measures is the most difficult to estimate?

• A. The cost of debt.
• B. The cost of equity.
• C. Investors’ required rate of return on debt.

Q. A book publisher requires substantial quantities of paper. The publisher and a paper producer have entered into an agreement for the publisher to buy and the producer to supply a given quantity of paper four months later at a price agreed upon today. This agreement is a:

• A. futures contract.
• B. forward contract.
• C. commodity swap.

Q. Two analysts estimating the value of a non-convertible, non-callable, perpetual preferred stock with a constant dividend arrive at different estimated values. The most likely reason for the difference is that the analysts used different:

• A. time horizons.
• B. required rates of return.
• C. estimated dividend growth rates.

Q. If the technology for an industry involves high fixed capital investment, then one way to seek higher profit growth is by pursuing:

• A. economies of scale.
• B. diseconomies of scale.
• C. removal of features that differentiate the product or service provided.