Fundamental Analysis and Stock
Chapter 9 The Valuation of Stock
TRUE/FALSE
T 1. The expected return depends on future dividends and future price appreciation.
T 2. The dividend-growth valuation model depends on dividends and the required rate of return. F 3. The dividend‑growth model includes both the current and past years' dividends.
T 4. If the anticipated return exceeds the required rate of return, the investor should buy the stock.
F 5. The dividend‑growth model requires that dividends grow annually at the same rate.
F 6. A higher beta decreases the required rate of return.
T 7. The required rate of return includes the risk‑free rate and a risk premium.
T 8. An increase in the risk‑free rate will tend to decrease stock prices.
F 9. High P/E stocks should be preferred because they pay larger dividends.
T 10. Value investors tend to prefer stocks with low price to sales and price to book ratios.
F 11. The PEG ratio combines a stock’s earnings, price, and growth rate.
T 12. The efficient market hypothesis suggests that the current prices of stocks reflect what the investment community believes the stocks are worth.
T 13. According to the efficient market hypothesis, purchasing high P/E stock should not produce superior investment results.
F 14. According to the efficient market hypothesis, purchasing low P/S stocks should produce superior investment results.
F 15. According to the efficient market hypothesis, purchasing companies with high cash flow should produce superior investment results.
MULTIPLE CHOICE
a 1. According to the dividend‑growth model, the valuation of common stock depends on 1. the firm's dividends 2. investors' required rate of return 3. the prior year's dividends a. 1 and 2 b. 1 and 3 c. 2 and 3 d. all of the above
c 2. If the required rate of return is 10 percent and the stock pays a fixed $5 dividend,
TRUE/FALSE
T 1. The expected return depends on future dividends and future price appreciation.
T 2. The dividend-growth valuation model depends on dividends and the required rate of return. F 3. The dividend‑growth model includes both the current and past years' dividends.
T 4. If the anticipated return exceeds the required rate of return, the investor should buy the stock.
F 5. The dividend‑growth model requires that dividends grow annually at the same rate.
F 6. A higher beta decreases the required rate of return.
T 7. The required rate of return includes the risk‑free rate and a risk premium.
T 8. An increase in the risk‑free rate will tend to decrease stock prices.
F 9. High P/E stocks should be preferred because they pay larger dividends.
T 10. Value investors tend to prefer stocks with low price to sales and price to book ratios.
F 11. The PEG ratio combines a stock’s earnings, price, and growth rate.
T 12. The efficient market hypothesis suggests that the current prices of stocks reflect what the investment community believes the stocks are worth.
T 13. According to the efficient market hypothesis, purchasing high P/E stock should not produce superior investment results.
F 14. According to the efficient market hypothesis, purchasing low P/S stocks should produce superior investment results.
F 15. According to the efficient market hypothesis, purchasing companies with high cash flow should produce superior investment results.
MULTIPLE CHOICE
a 1. According to the dividend‑growth model, the valuation of common stock depends on 1. the firm's dividends 2. investors' required rate of return 3. the prior year's dividends a. 1 and 2 b. 1 and 3 c. 2 and 3 d. all of the above
c 2. If the required rate of return is 10 percent and the stock pays a fixed $5 dividend,