FMI Chapter 8 Stock valuation and risk

The price-earnings valuation method applies the ____ price-earnings ratio to ____ earnings per share in order to value the firm's stock.

• firm's; industry

• firm's; firm's

• average industry; industry

• average industry; firm's

The limitations of the dividend discount model are more pronounced when valuing stocks...

• that pay most of their earnings as dividends.

• hat have a long history of dividends.

• that retain most of their earnings.

• that have constant earnings growth.

When evaluating stock performance, ____ measures variability that is systematically related to market returns; ____ measures total variability of a stock's returns.

• beta; standard deviation

• standard deviation; beta

• intercept; beta

• beta; error term

The ____ is commonly used as a proxy for the risk-free rate in the Capital Asset Pricing Model.

• Treasury bond rate

• prime rate

• discount rate

• federal funds rate

Stock prices of U.S. firms primarily involved in exporting are likely to be ____ affected by a weak dollar and ____ affected by a strong dollar.

• favorably; adversely

• adversely; adversely

• favorably; favorably

• adversely; favorably

The January effect refers to the ____ pressure on ____ stocks in January of every year.

• downward; large

• upward; large

• downward; small

• upward; small

The expected acquisition of a firm typically results in ____ in the target's stock price.

• an increase

• a decrease

• no change

• none of the above

If security prices fully reflect all market-related information (such as historical price patterns) but do not fully reflect all other public information, security markets are

• weak-form efficient.

• semi-strong form efficient.

• strong form efficient.

• none of the above

If security markets are semi-strong form efficient, investors cannot solely use ____ to earn excess returns.

• previous price movements

• insider information

• publicly available information

• A and C

A higher beta of an asset reflects

• lower risk.

• lower covariance between the asset's returns and market returns.

• higher covariance between the asset's returns and the market returns.

• none of the above