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Discussion Questions Chapter 7

Discussion Questions Chapter 7 - Discussion Questions...

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Discussion Questions – Chapter 7 1. A risk component is added to the risk-free rate to determine the required rate of return 2. Beta represents an individual companies risk against the market risk 3. The equity risk premium represents the extra return or premium the stock market must provide compared with the rate of return an investor can earn on U.S. Government Treasury securities 4. Value is interpreted as the present value of an expected stream of future dividends 5. a) the growth rate must be constant and b) the required rate of return must exceed the growth rate 6. Companies with nonconstant growth can be analyzed by a variation of the constant-growth model: growth is divided into several periods with each period having a present value, and the present value of each period is summed to attain the total value of the firm’s share price 7. The relationship between price-earnings ratios and inflation shows they are inversely related 8. Other factors that influence P/E rations for the general market are: government monetary and fiscal policies,
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