unit 13
an investor practices value investing, which of the following types is he least likely to purchase?
a stock with an above average price to earnings ratio. growth investors look for stocks with above average price to earnings ratios. conversely, a value investor focuses on stocks with low PE ratios a low price to book value and historically high dividend yields.
which of the following is defined as profits after taxes and interest paid, less preferred dividends, divided by the number of shares outstanding common stock?
earnings per share. dividing net income after taxes, interest, and a payment of preferred dividends by the number of, shares outstanding determines earnings per share.
which of the following statements regarding the bonfire 28 bond index are true?
it includes only go bonds, it is computed weekly. The bonfire 20 bond index measures secondary market yields of coupons. it consists of 20 go bonds, a rated or better, and each with approximately 20 years to maturity. The index is updated each week.
your customer wants to know what portion of earnings one of the companies held in her portfolio has available to pay interest expense on the bonds the company currently has outstanding. you would be able to find this information
on the firm's income statement indicated as earnings before interest and taxed EBIT.
market interest rates have risen steadily over the past several months. The market price of which two of the following shares would probably reflect the biggest impact of this change?
preferred stock and public utility stock. stocks that are interest rate sensitive will reflect the impact of a change to the market interest rates more than others. preferred stock, with its fixed dividend, and utilities stocks with their high degree of debt leverage, are considered interest rate sensitive. The yield of the money market fund will change, but price of the fixed at $1 per share.
which of the following may be affected when a company declares a cash dividend?
shareholders equity and total liabilities. when a company declares a cash dividend, it will reduce retained earnings and increase current liabilities which will increase total liabilities. assets are not affected until cash is paid out several weeks later.
according to technical analysis, when a market is consolidating, a chart showing the market trendline appears to be moving
sideways within a narrow range. A consolidating market is one that stays within a narrow price range. when reviewed on a graph the trend line is horizontal and said to be moving sideways, meaning neither up or down.
a corporation's dividend payout ratio is 30%. if the current market value of the stock is $132 per share and the price to earnings multiple is $22:1 , the dividend rate is
$1.80 per share. here's how to compute this The current market price of $132 per share is 22 times the earnings dividing 132 by 22 results in earnings per share of $6 if the company is paying out 30% of its earnings as a dividend, multiplying 6 * 30% results in a dividend rate of $180 per share.
on September 1st an investor sold 100 chairs of KPL corporation common stock for a loss of $1 per share. on September 15th he purchased a KLP convertible bond with a conversion price of 40. how much of the original loss may he now declare for tax purposes.
$75. because he purchased the convertible bond less than 30 days after realizing the loss, the sale of the stock falls under the wash sale rule. investors who sell a security at a loss, and repurchase it including its equivalents 30 days before or after the sale will have the lost is allowed by the IRS. with a conversion price of $40 the bond could be converted into 25 shares of KPL comments talk. hence the investor has bought back the equivalent of 25 shares and may only declare a $75 loss as the remaining $25 loss will be disallowed. look at the question as if it said on September 15th he purchased 25 shares of KPL stock that washes out $25 of the loss and the rest is okay.
The ABC corporation has a long-standing policy maintaining a dividend payout ratio of 45%. ABC's net income for the year is $12 million and there are 8 million shares of common stock outstanding. after a 3 to 2 stock split, the annual dividend per share is
.45. take the systematically. A dividend payout ratio is 45%, means ABC will distribute 45% of its net income to its common shareholders. 45% of 12 million is 5,400,000 in dividends if there were 8 million shares before the split, there are now 12 million. divide the amount available for common by the number of shares to arrive at different per share of 0.45. there is another way to compute this. with a net income of 12 million and 8 million shares, the pre-split earnings per ratio is 1.5 The earnings pays out 45% of its net income as a dividend. that would be 0.675. what's 3 to 1 split, the number of shares has increased by 150%, meaning that the new dividends will be paid 2/3 of the previous amount that computes to the same .45 per share.
a fundamental analyst is reviewing gemco's financial statements. The company has a current ratio of four: one a price to earnings ratio of 12: one a $10 million in 5% debentures, and a net income after preferred dividends of $4 million. if the current market of gemco stock is $60 and the company pays dividends at a rate of 0.75 quarterly the dividend payout ratio is
60%. as with many computational problems there is some unnecessary information given. The current ratio is irrelevant, and so is the information on debentures. what is needed is the amount available to pay the common so that we can compare that to the amount actually paid. we see that .75 in quarterly dividends are paid. that equals $3 per year. The next key is determining the earnings. with a market price of $60 per share and a price to earnings of $12 to one, the earnings per share must be five. The dividend payout ratio should be thought of as dividends paid out of earnings made. The dividend paid are $3 The earnings made are $5 that it is a three to five ratio or as usually expressed in percentage forms 60%.
A stock pays 8.5 quarterly dividend. The company had earnings per share last year of $10 The company's dividend return ratio is
80%. The dividend retention ratio is the reciprocal of the dividend payout ratio. if the company pays $2 dividend on earnings of $10 it pays out 20% of the earnings available to common shareholders in the form of the dividend. that means it's retention ratio is 80% of available money.
a corporation's income statement reports net income of $10 million for the year. The company has 1 million shares of 4% $50 par value preferred stock and 2 million shares of common stock. if the corporation paid accordingly dividend of 0.6 per share of common stock,
The dividend payout ratio is 60%. The dividend payout ratio is the percentage of the net income after preferred stock dividends paid out to the common shareholders. The net income is 10 million. The preferred dividend is $2 per share. with 1 million shares, the total preferred dividend was 2 million because the preferred shares must be paid before any earnings are available to come and stockholders, we subtract the 2 million from the net income. that leaves 8 million in earnings available to common. there are 2 million shares received an annual dividend of $240.6 quarterly. that means that 4.8 million of the 8 million available is paid for a ratio of 60%. or the earnings per share is $4 and 2.4 in dividends paid out of $4 earnings made is 60%. The preferred stock is paying a dividend of 4% of the par value, but does not tell us the current yield. to know the current yield we must know the current market price of the stock and the question does not supply that value.
depend placement ratio, as shown in the bond buyer, is computed by taking
The dollar value of the new issue sold divided by the dollar value of the new issues offered. The bond placement ratio is the percentage of new municipal bonds offered last week that were sold last week. although not a term you'll see on the exam, think of this as the success ratio. it reports how well the underwriters did and moving this week's new issues. for example if a $1 billion of bonds were offered during the week, and $700 million were placed / sold, that is a 70% placement ratio.
AC corporations income statement renders the following information pre-tax income $2 million dividends from preferred stock issued by other corporations $100,000, interest paid on outstanding debentures $200,000 this corporation has taxable income of
and 2,050,000 dollars. remember the 50% dividend exclusion available to c corporations. All of the 2 million of pretax income is taxable along with half the $100,000 dividends. The interest is included as an extra number to confuse. pre tax income is always after all expenses including interest.
an investment advisor who switches among investment classes based on upon anticipated market changes is using a technique known as
asset allocation. a money management strategy that switches among asset classes based upon anticipated market moves is asset allocation. indexing is a passive strategy that makes no attempt to anticipate market moves. and index strategy reflects an underlying index, with the advisor keeping securities in the portfolio in proportion to their weight in the underlying index. value investing seeks to actively invest in securities that are selling at a discount to their book value and out of favor with the market. dog cost averaging is the method of acquiring shares at a lower average cost over time and is not an investment style.
an investor purchases 200 shares of ABC common stock, but is concerned about market risk while the investor cannot use diversification to reduce market risk by investing in the same asset class, they can hedge against the risk. which of the following option positions would be used as such a hedge?
buy two ABC puts. The investor should buy two ABC puts. options can be used as a hedge against risk or can be used to provide income. to use as a hedge the investor should buy go long the option. to use as income, the investor should sell the option. here are the investor is using the option to hedge, so they will be buying the option. not selling. investors use long puts to hedge a long stock position and long cost options to hedge a short stock position.
girls companies tend to have all the following characteristics except
low price to earnings ratios. girth companies have high price to earnings ratios and low dividend payout ratio because they retain most, if not all, of their earnings. investors anticipate fast growth bit up prices, so price to earnings ratios tend to be high. growth companies retain most of their earnings to fund future growth. investors select growth companies for capital gain potential, not for investment income.
which of the following investments is most suitable for an investor seeking monthly income
money market mutual fund. The money market mutual fund is the most suitable investment for an investor seeking monthly income. The other security's offer higher long-term growth potential, but are not designed to provide monthly and come.
