Bloomberg

What does the release of earnings announcements have in common with the release of economic indicators?

Both are scheduled in advance

Here is the capital structure of Microsoft. What part of the $117.67 share price (to the nearest dollar) is represented by cash?

$17

Widget Co has a market capitalization of $125M. It does a 5-for-1 stock split. It does a 1-for-25 reverse stock split. Finally, it does a 35-for-1 stock split. Nothing else changes. What's the new market cap?

$125

If the earnings per share of a company is $3.85 and the earnings yield is 2.5%, what is the price per share?

$154.00

What is the 10-year to 3-month term premium of the following yield curve?

0.079% The table at the bottom of the chart provides the yield at various points in time along the yield curve. If we take the difference (the spread) between the 10Y yield of 2.498% and the 3M yield of 2.419%, we get the 10Y - 3M yield = 2.498% - 2.419% = 0.079%

What is the median estimate for the number of Japanese yen per euro for calendar year 2020?

126 It was given on the graph

How many Australian dollars (AUD) can you buy with 100 euros (EUR) according to the information in the below chart?

159.68 If we read f=along the AUD row, we can see that it takes 1.5968 AUD to buy one EUR. Therefore, 100 EUR would required 159.68 AUD (1.5968 x 100 = 159.68)

The S&P 500 stood at 1848 at the end of 2013. According to the chart, what would the approximate return be on the S&P 500 from the trough of March of 2009 to the end of 2013, ignoring dividends?

170%

Assume that an investor in the S&P 500 reinvests his dividends. According to the chart, what approximate return would this investor have reaped from the early 2009 trough to the endpoint of the chart?

340%

On the chart below, if the earnings per share grew from 7.61 on December 31, 2018, to 7.82 on June 30, 2019, what would the implied earnings yield be?

4.1%

Use the chart below to answer the question. How many Danish crowns (DDK) will buy 100 Japanese yen (JPY)?

5.868

The number at the bottom right of each supplier's box shows the portion of Boeing's total costs in the last year that went to that supplier. The number at the bottom right of each customer's box shows the portion of the customer's capital expenditure (money spent on high value purchases) in the last year that went to Boeing. What is the capital expenditure (CAPEX) for Boeing's largest airline customer?

60.68%

Here is the WACC function for U.S. drug company Merck. The WACC calculation has been hidden. What is the WACC?

8.1%

Which of the graphs most clearly represents investors predicting a downturn in the economy?

A When an economy is booming, investors expect rates to go up in order to rein in inflation. The right-hand end of the yield curve will immediately reflect this with higher yields while the left-hand end will remain trapped in the present with the current lower level of rates representing a seep yield curve. Investors predicting a downturn in the economy will buy the right-hand end of the yield curve with the view that the central bank will raise interest rates addecting the

Engines are the most expensive, heavy component on an aircraft and are designed with detailed specifications. Which of the following would likely be the best theme for a Rolls-Royce analyst research note to help a portfolio manager decide between investing in Rolls-Royce or United Technologies?

A comparison of the commercial prospects of new aircraft models

The importance of cash flows in the absolute valuation process is most similar to which of the following?

A fishery exceeding fishing quotas, because it values short-term income more than long-term fishing stock

A luxury cell phone maker has a high fixed-cost base and a lot of debt. Which stakeholder in the company would you rather be?

A shareholder in a booming economy

What may be a problem of comparing the P/E of a stock to the PE of the overall market?

A stock's P/E ratio can remain above or below market average for extended periods

Which driver weakened the Swiss fanc?

A surprise change in inflation expectations When a Central bank threatens to print a lot of money, the exchange rate will tend to depreciate. This is due to a surprise change in inflation expectations as printing money is inherently inflationary.

In 1994, the Mexican peso declined against the U.S. dollar during the so-called "Tequila Crisis." What exacerbating factor did Mexico's "Tequila Crisis" have in common with the Argentine crisis of 2002?

Both countries had a large dollar denominated debts. The fourth paragraph of the article cites $5,2 billion of Mexican government debt coming due in the next six weeks. In 2002, Argentina had a total of $100 billion of debt. As we mentioned earlier, a decline in a currency's value versus the U.S. dollar will make U.S. dollar-denominated debt harder to repay.

Here is a table from Bloomberg intelligence aluminum dashboard which shows the different end-users of aluminum in China. Which of the following Bloomberg headlines would be of most interest to an aluminum trader in China?

China's Aluminum Demand Weathers Real-Estate Slowdown So Far

This chart shows a scatterplot with the x-axis being the estimated sales growth and the y-axis being the estimated P/E multiple. Given this data alone, which of the following companies may warrant further analysis by a portfolio manager looking to buy an insurance company for her portfolio?

Chubb

Company A pays a dividend of 2%. Company B's stock price increases by 1% plus the inflation rate every year. Company C pays 3% dividends, and its stock price decreases every year by 2%. Company D pays 0% dividends, and its stock price does not increase year over year. If the companies are otherwise identical, which would you invest in?

Company B

In the US, whys is there a strong correlation between unemployment and GDP?

Consumer spending accounts for two-thirds of the U.S. economy. When the number of unemployed consumers rises, there is less consumer spending. The fact that the United States is largely a consumer economy leads to the tight connection between U.S. unemployment and U.S. GDP. The U.S. is a net importer, not a net exporter. Government benefit payments rise when unemployment rises. From an overall GDP perspective, however, this is more than offset by declines in consumer spending

Which of the following are short-term drivers of currency valuation?

Surprise changes in interest rates, inflation, and trade. The main short-term drivers are interest rates, inflation, and trade. Relative prices, as demonstrated by the Big Mac index, are long-term drivers.

When an analyst is looking at a company for the first time, which of the following four activities does he do first?

Defines the industry or industries in which the company operates

Why are equities volatile?

Due to the residual nature of earnings

A rise in which of the following inputs will increase an absolute valuation?

Earnings estimate

Here is a chart of the Nasdaq Composite, the world's main technology index. It peaked in the dotcom bubble on March 10, 2000. The P/E....

Earnings grew substantially, meaning that the P/E ratio in early 2015 was only around 30.3x

The white line on the first chart below shows the dollar index, which is an index that measures the general international value of the dollar. Which factor graphed in the second image is most supportive of the strength of the dollar over the period shown?

Federal Funds Target Rate, the main U.S. interest rate. Interest rates are one of the main drivers of currency valuations and the steady increase in the Federal Funds Target Rate over the period has helped the value of the dollar up.

Look at the below yield curve inversion chart. What is most likely to happen as a result of the most recent yield curve inversion shown?

GDP will dip If the curve inversion is a sign of recession, we'd expect the GPD to go lower or negative. Inversion of the yield curve also reflects the compression of term premium, so term premium would go down.

The Dow Jones Industrial Average index has an unusual weighting methodology. Unlike the S&P 500, it is weighted by share price. Here are 20 of the 30 members of the Dow Jones on March 20, 2019. If all the shares went up by 5%, which share on the screen shown would have the biggest contribution to an upward movement in the index?

Goldman Sachs

What is the prime reason that Jenny's discretionary income is more volatile than her salary?

Her mortgage payments and necessities are fixed

What does the Big Mac index show?

How currencies may be overvalued or undervalued. The Big Mac index uses the prices of Big Macs around the world compared to the price of a Big Mac in the U.S. as a proxy for currency valuation

Why do companies do IPOs?

IPOs incentivize entrepreneurs to innovate as IPOs provide a way for entrepreneurs to monetize their work

In early 2016, the same Germany machinery company has interest from four prospective clients from emerging markets: Indonesia, Brazil, Russia, and South Africa. They all want to buy ten machines, but the factory can only produce ten in time. Therefore, the company has to choose only one client. Given the volatility of the domestic currencies of the four prospective clients, the CFO would like to choose the client which is least likely to cancel the order due to currency volatility. The invoice comes due on June 30, 2016. According to volatility alone, which prospective client would be most likely to cancel the order?

Indonesia 15,212.11 Indonesian rupiah buys 1 euro (middle of the range). The blue line on the right-hand side is at 16,511.40. If the currency moves one standard deviation, the shift would be as follows: (16,511.40 - 15,212.11)/15,212.11 = 8.5% This is that there is a reasonable chance that the Indonesia rupiah may weaken by 8.5% over the coming months. A similar analysis on the other three currency pairs shows that South Africa, Brazil, and Russia have 13%, 14%, and 16% changes, respectively. The Indonesian rupiah is therefore the least volatile against the euro. Brazilian (4.8085 - 4.2067)/4.2067 = 14.30% Russian (91.5344 - 79.1195)/79.1195 = 15.69% South Africa (19.9704 - 17.6208)/17.6208 = 13.33%

Were the two oil crises in the 1970s linked to deflation or inflation?

Inflation. The two oil crises in the 1970s were inflationary as key oil-producing nations demanded higher prices for oil, which raised overall price levels throughout industrialized economies.

Masco is a consumer discretionary company that focuses on home improvement products. Here is a breakdown of the revenue concentration by industry. Which of the following headlines would be of the most interest to potential investors?

Kitchen and Bathroom Remodeling is up more than 8% as Homeowners look to improve house values

Which company is most exposed to the ups and downs of the aircraft engine industry?

MTU Aero Engines

Which of the following is most likely to be the most challenging part of this first step of the absolute valuation process?

Making the assumptions upon which to project future performance

According to the Big Mac index screen, which of the following four countries' currency is the most undervalued?

Mexico An undervaluation is listed as a negative percent in the far left column. On the four options, Mexico has the largest negative number

Which company is worth less, Coca-Cola or Pepsi?

Pepsi because it has a lower market capitalization

Here is the vicious deflationary cycle. What step connects the lower left gray arrow to the upper right blue arrow?

Prices decline. When fewer people work, consumer spending declines. This prompts companies to drop prices in order to stimulate demand.

What input do both absolute valuation and relative valuation typically require

Short-term forecasts

Which of the following stocks is LEAST sensitive to the movement of the overall stock market?

Starbucks

Review the currency pair charts for the Barbadian dollar against the Jamaican dollar, the Czech koruna against the Polish zloty, the Ingerian naira against the Ghanaian cedi, and the Hong Kong dollar against the Macanese pataca. Which pair is pegged?

The Hong Kong dollar against the Macanese pataca. The hallmark of a pegged currency pair is the absence of change in the currency pair value. The y-axis shows that the Hong Kong dollar barely moved against the pataca. Over the period, the naira had repeated pronounced spells of strengthening and weakening against cedi. The same is true of the koruna and zloty. While the Barbadian dollar and Jamaican dollar currency pair was relatively stable, the Jamaican dollar weakened by 5% over the period.

which of the following is an example of a successful peg?

The Hong Kong dollar against the U.S. dollar in 1997.

Here is a chart of the index value for the S&P 500 and the United Kingdom's main equity index, the FTSE 100, from the end of 2008 to early 2015. The labels have been removed. One index has clearly outperformed the other. Over this period, there was a technology boom and an oil crash. Here are pie charts showing the early 2015 index compositions by industry for both the S&P 500 and the FTSE 100. Which index outperformed?

The S&P 500 Index

In 1999, James Glassman and Kevin Hassett published a book called "Dow 36,000". At the time, the Dow Jones Industrial Average Index was just under 12,000. Which of the following is a potential substitute for the book title?

The Sum of the Share Prices of All 30 Dow Jones Members Will Triple

what are the possible weaknesses of this peer approach to valuation?

The chosen peers might not be true competitors, the company might have multiple divisions, and the most appropriate competitors might not have P/E multiples

What generally happens when a central bank unexpectedly decreases interest rates?

The currency weakens. When a Central bank unexpectedly decreases interest rates, the government bond yields go down. This deters investment from around the world, reducing demand for that country's currency. The currency therefore, typically weakens.

At its peak at the end of 1999, Microsoft had a market cap of $600B. PC sales were booming and most PCs ran on Microsoft software. Revenue was growing 30% per year. The P/E ratio peaked at nearly 80.0x in 1999. Looking at this chart, what happened in the subsequent 15 years?

The decline in the P/E ratio more than offset earnings growth and this pushed the market cap down

Below is a table for the steel producers Dashboard, which shows the sources of demand for steel products globally. Given the data, which of the following would be of most interest to prospective investors in steel?

The impact of China's recession on the commercial real estate market

You are an analyst for a home-building company tasked with creating a financial model of home-building trends. Which of the following factors should your model address?

The price of wood products and long-term interests rates

Company X was expected to have earnings per share of $0.52 for the upcoming quarter. On the day of the results, the company reported earnings per share of $0.83. What happened to the share price when the stock market opened?

There is not enough information to tell

On June 23, 2016, the United Kingdom voted to leave the European Union. The white line shows the U.K's main equity index, the FTSE 100, from the start of 2016 to the date on which the U.K. government notified the European Union of its intent to leave. The orange line shows the number of dollars it takes to buy one pound sterling. The United Kingdom is a net importer, meaning the value of imports exceeds the value of exports. What can be reasonably surmised from the chart about large U.K. corporations?

They are probably heavy exporters.

What is the difference between Norma and RBC's estimate for the Japanese yen/euro currency pair for the end of Q1 2018?

Top of the graph Currency: Euro/Japanese Yen Cross Nomura Bank International: 138 RBC Capital Markets: 98 138 - 98 = 40 The question asks for the denomination. The data set is expressed as how many yen it takes to buy one euro. Therefore, the units are expressed in yen.

Which of these headlines is most likely to move a currency pair?

U.S. Stocks Sink on Fed's Surprise Increase of Interest Rate. Surprise changes in interest rates, inflation, and trade tend to move currency pairs. The only article on one of these three topics of the one about the Fed.

You buy the stock of four consumer goods companies in March 2014 and hold them for five years until March 2019. Here are the TRA charts from Bloomberg for all four stocks. The "Buy Price" in the top left-hand corner is the price you paid for each stock. The price of the stock in March 2019 is noted in the chart's legend. The legend also states the Dividend Adjusted Value of the stock in March 2019, which is the value of the stock including reinvested dividends over the holding period. For which stock did the bull of the total return come from dividends?

Unilever

Allison lives in the United States and has just retired. It is the end of October 2018. She has long had dreams of cruising the fjords on the west coast of Norway, visiting Buckingham Palace in the United Kingdom, seeing the cherry blossoms in Japan, and going to the top of the Eiffel Tower in France. She last considered all four options on New Year's Day 2008. She would like to select her trip based on which country's currency has subsequently weakened the most against the U.S. dollar. Where should she go on vacation?

United Kingdom The British pound is expressed in the chart in terms of pounds per one U.S. dollar. The chart rises from approximately 0.5 to 0.7868, representing a 57% strengthening. The U.S. dollar strengthened slight less against the Norwegian krone (54%) and euro (28%). The U.S. dollar was roughly unchanged against the Japanese yen.

Below is a chart illustrating global trade patterns in 2018. Which of the following countries was the world's largest importer at this time?

United States. Looking at the bar charts around the ring, the country with the highest imports (the outwards facing bar) is the United States. The country with the highest exports (the inwards facing bar) is China

The World Equity Index function shown contains two valuation metrics for the S&P 500. The Verizon description page contains the same two valuation metrics. How does Verizon's valuation compare to that of the S&P 500?

Verizon is less expensive than the S&P 500 on both a P/E and dividend yield basis

which of the following statements is true?

When you buy an equity, the most you can lose is 100% and your potential gain is unlimited

Corporate bond issuers go bankrupt more frequently than governments, as they do not have a tax base to fall back on in hard times

Why did the corporate spread significantly widen during the 2008 market crash?

Why do companies manager-owners smile when they rind the stock exchange bell at their IPOs?

an IPO reveals the value of the manager-owner's stake

The purchase of which of the following products is most affected by interest rates?

apartment A home such as an apartment is often the most expensive item people will buy in their lifetime. Almost all home purchases are made in part with borrowed money. Motorcycles are typically less expensive than apartments and many people choose to save up the cash to buy motorcycles, meaning that interest rates are less relevant. Cruises and season tickets are frequently paid for out short-term cash savings, meaning that interest rates are less relevant

What is the primary driver of the left-hand end of the yield curve?

central bank interest rates The far left of the yield curve is linked to the overnight interest rate of the central bank. The other three factors are the key drivers of the far right end.

what are the three main transmission mechanisms by which the yield curve affects the economy?

corporate impact, global impact, consumer impact. The principle relevance of housing is that yields regulate the cost, and therefore attractiveness, of taking out a mortgage to buy not rent a house. The yield curve indirectly affects trade by first affecting the confidence of corporations and consumers

The two yield curves in the chart are from September 10, 2001 (yellow line) and from October 10, 2001 (green line). What do you think the Federal Reserve did with interest rates in the month following the attacks of September 11, 2001

cut interest rates In the month after the attacks of September 11, 2001 the Federal Reserve cut rates in order to calm down the financial markets. This explains why the left-hand end of the yield curve went down by a full percentage point over the month.

How is enterprise value calculated?

enterprise value = market cap-cash+debt

What is a reason one discounts future cash flows as part of the absolute valuation process?

investors prefer cash flows today to cash flows in the future

what role does beta play in absolute valuation?

it determines how risky a stock is in comparison to the overall stock market

what does it mean when a company's corporate spread tightens?

the company's bonds are outperforming the benchmark yield