inv review for final

earnings retention ratio will increase

A firm cuts its dividend payout ratio. As a result, you know that the firm's _______.

sell wheat futures

A wheat farmer should __________ in order to reduce his exposure to risk associated with fluctuations in wheat prices.

d

According to Markowitz and other proponents of modern portfolio theory, which of the following activities would not be expected to produce any benefits? a. diversifying b. investing in treasury bills c. investing in stocks of utility companies d. engaging in active portfolio management to enhance returns

a

According to results by Seyhun, __________. a. investors cannot usually earn abnormal returns by following inside trades after knowledge of the trades are made public b. investors can usually earn abnormal returns by following inside trades after knowledge of the trades are made public c.investors cannot earn abnormal returns by following inside trades before knowledge of the trades are made public d. investors cannot earn abnormal returns by trading before insiders

receive; pay

An investor who goes long in a futures contract will _____ any increase in value of the underlying asset and will _____ any decrease in value in the underlying asset.

an abnormal price change immediately after the announcement

Assume that a company announces unexpectedly high earnings in a particular quarter. In an efficient market one might expect _____________.

c

At contract maturity the value of a put option is ___________, where X equals the option's strike price and ST is the stock price at contract expiration. a. max (0, ST − X) b. min (0, ST − X) c. max (0, X − ST) d. min (0, X − ST)

a

Banz found that, on average, the risk-adjusted returns of small firms __________. a. were higher than the risk-adjusted returns of large firms b .were the same as the risk-adjusted returns of large firms c. were lower than the risk-adjusted returns of large firms d. were negative

g = ROE × b = 13.50% × 0.69 = 9.25%. D1 = EPS1 × .3 = $5.00 × .32 = $1.58. D1 / (k - g) = $1.58 / (0.120 - 0.092) = $57.22. D1 / (k - g) = $5.00 / (0.120 - 0) = $41.67 PVGO = $57.22 - 41.67 = $15.55

Dishwasher's Delights plows back 68.50% of its earnings to take on projects that earn the firm a rate of return of 13.50%. Dishwasher's stockholders require a return of 12.00% on their common stock. Earnings per share are expected to be $5.00 next year. a. What is the expected growth rate for Dishwasher's common stock? b.What is the expected dividend next year? c. What is the intrinsic value of Dishwasher's stock? d. If Dishwasher's management chose to pay out all earnings as dividends, what would be the intrinsic value of its stock? e. What is the present value of growth opportunities for Dishwasher's Delights?

make; take

Investors who take short positions in futures contract agree to ___________ delivery of the commodity on the delivery date, and those who take long positions agree to __________ delivery of the commodity.

$67.95

Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2, a dividend in year 2 of $3, and a dividend in year 3 of $4. After year 3, dividends are expected to grow at the rate of 7% per year. An appropriate required return for the stock is 12%. Using the multistage DDM, the stock should be worth __________ today.

violation

Money managers that outperform the market (on a risk-adjusted basis) in one year are likely to outperform in the following year.

consistent

Nearly half of all professionally managed mutual funds are able to outperform the S&P 500 in a typical year.

selling a contract is a short position. if the price rises, you lose money loss of $2500

On January 1, you sold one February maturity S&P 500 Index futures contract at a futures price of 2,400. If the futures price is 2,450 at contract maturity, what is your profit? The contract multiplier is $50.

$128.57 $50 $78.57

Sisters Corp. expects to earn $5 per share next year. The firm's ROE is 15% and its plowback ratio is 55%. The firm's market capitalization rate is 10%. a. Calculate the price with the constant dividend growth model. b. Calculate the price with no growth. c. What is the present value of its growth opportunities?

240 ; 60; 180

Sisters Corp. expects to earn $6 per share next year. The firm's ROE is 15% and its plowback ratio is 60%. The firm's market capitalization rate is 10%. a. Calculate the price with the constant dividend growth model b. Calculate the price with no growth. c. What is the present value of its growth opportunities?

violation

Stock prices of companies that announce increased earnings in January tend to outperform the market in February.

violation

Stock prices tend to be predictably more volatile in January than in other months.

violation

Stocks that perform well in one week perform poorly in the following week.

growth rate is less than the required return

The constant-growth dividend discount model (DDM) can be used only when the ___________.

6 ; 40

The market capitalization rate for Admiral Motors Company is 7%. Its expected ROE is 10% and its expected EPS is $5. The firm's plowback ratio is 60%. a. calculate the growth rate b. what will be its P/E ratio?

7% and 15

The market capitalization rate for Admiral Motors Company is 9%. Its expected ROE is 10% and its expected EPS is $4. The firm's plowback ratio is 70%. a. Calculate the growth rate. b. What will be its P/E ratio?

$4 below its "proper" or parity value

The one-year futures price on a particular stock-index portfolio is 2,240, the stock index currently is 2,200, the one-year risk-free interest rate is 3%, and the year-end dividend that will be paid on a $2,200 investment in the index portfolio is $22. By how much is the contract mispriced?

minus

The option value is equal to the net present value of the project with the withdraw/delay option _________ the net present value of the project without the option. a. minus b. plus c. times d. divided by

a

The tendency when the ______ performing stocks in one period are the best performers in the next and the current ________ performers are lagging the market later is called the reversal effect a. worst;best b. worst;worst c. best;worst d. best; best

c

Which of the following stock price observations would appear to contradict the weak form of the efficient market hypothesis? a.The average rate of return is significantly greater than zero. b.The correlation between the market return one week and the return the following week is zero. c.You could have consistently made superior returns by buying stock after a 10% rise in price and selling after a 10% fall. d.You could have consistently made superior returns by forecasting future earnings performance with your new Crystal Ball forecast methodology.

c

Which of the following would violate the efficient market hypothesis? a.Intel has consistently generated large profits for years. b.Prices for stocks before stock splits show, on average, consistently positive abnormal returns. c.Investors earn abnormal returns months after a firm announces surprise earnings. d.High-earnings growth stocks fail to generate higher returns for investors than do low earnings growth stocks.

relative strength analysis

You could have consistently made superior returns by forecasting future earnings performance with your new Crystal Ball forecast methodology.

D1= 5.4, D2= 5.8320, D3= 6.2986, D4= 6.8024, D5= 7.3466 D6= $7.3466 × 1.04 = $7.6111. P5 = $7.6111 / (0.110 - 0.036) = $102.8530 The intrinsic value of the stock today equals $84.08.

indigo Ink Supply paid a dividend of $5 last year on its common stock. It is expected that this dividend will grow at a rate of 8% for the next five years. After that, the company will settle into a slower growth pattern and plans to pay dividends that will grow at a rate of 3.6% per year. Investors require a return of 11% on the stock. a. What will be the dividend paid out for the next six years? b. What is the intrinsic value of Indigo's stock?