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BusM 410 HW #18
Multiple Choice
1.
If your estimate of the PV of cash flows for a given stock is less that the current price, then
you necessarily believe that the stock is
A) Positive alpha
B)
Negative alpha
C) Positive beta
D) Negative beta
2.
Which of the following is not true?
A) Fundamental analysis is grounded in finance theory.
B)
It’s relatively easy to forecast the required inputs for fundamental analysis
C) It’s relatively easy to estimate accounting ratios.
D) Accounting ratios are difficult to interpret.
3.
If markets are efficient and prices are in equilibrium:
A)
Stocks with higher dividend growth rates have higher PE ratios
B) Stocks with higher dividend growth rates have higher BM ratios
C) Stocks with
D) higher betas have higher PE ratios
E) Stocks with higher betas have lower BM ratios
Free Response
1.
Assume

A firm will begin paying dividends in
n
years.

The initial expected dividend is
D
n
.

Dividends are expected to grow at rate
g
from that point onward.

The discount rate is
k
.
Prove that the PV of cash flows equals
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This note was uploaded on 03/17/2011 for the course BUS M 410 taught by Professor Brianboyer during the Fall '10 term at BYU.
 Fall '10
 BrianBoyer
 Valuation

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