172a Ex2_f01 - 1. One reason why macroeconomic analysis is...

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1. One reason why macroeconomic analysis is important in stock valuation is because there is a strong relationship (perhaps with lags or leads) between economic activity and stock prices. (a) True (b) False 2. Which of the following variables in the dividend discount model is not affected by industry or economic factors? (a) the required rate of return (b) the expected growth rate in dividends (c) the risk of the individual stock (d) all of the above are affected by industry and economic factors 3. ROE is an important factor because it affects (a) the company’s operations (b) the growth rate in estimating the intrinsic value (c) the leverage ratio 4. If the expectation is for the economy to expand some time in the next 6 months or so (i.e., the stock market is about to rise shortly), a stock investor should allocate a greater share of her portfolio to (a) low beta stocks (b) cyclical stocks, especially those with high betas (c) cyclical stocks, especially those with low betas 5. A high-tech company experiencing rapid growth does not pay any cash dividend and has no plans to do so in the future. The company has, however, periodically bought back its shares to “help support or raise the price of the stock”, according to its announcements. Since all the dividend terms are zero, its intrinsic value will be zero (a) True (b) False 6. The dividend discount model (DDM) says that the intrinsic value of a stock is equal to the present value of all future dividend streams (a) True ; (b) False 7. The required rate of return can be estimated as follows (a) dividend yield - expected rate of growth in dividends (b) dividend yield divided by expected rate of growth in dividends (c) dividend yield * expected rate of growth in dividends (d) dividend yield + expected rate of growth in dividends 8. A company has stated that it will not pay any dividends for the next 2 years and will sell the firm for the contracted price of $30 per share on October 29, 2003. This is an all-equity firm and has no preferred stock. The required rate of return on similar investment is 15% per year. The intrinsic value of this company’s share is (a) $0 (b) $30 (c) $22.68 (d) depends on the stock market 9. One should be careful when using the constant-growth DDM to estimate intrinsic value because
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This note was uploaded on 09/08/2010 for the course BUS 172A at San Jose State.

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172a Ex2_f01 - 1. One reason why macroeconomic analysis is...

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