Public Policy 220a
Public Policy Analysis
Policy Problem #1
Your group is the staff for the West Virginia State Legislative Committee on Public
Works. One item that is on the agenda this year is the states response to demands for
flood control along the N
Investment Philosophies: Introduction
1. Which of the following is an investment philosophy (as opposed to an
a. Invest in low PE stocks
b. Invest in under valued companies
Session 2: Understanding Risk I: The risk in bonds
1. Assume that you buy a default free government bond with a coupon rate of 2%
and a maturity of 20 years, at face value. Assuming that interest rates increas
Understanding Risk II: The risk in stocks
1. You are considering investing in Con Ed, a regulated utility. The shares are
trading at $50/share and the company paid a dividend of $2.50/share in the
Financial Statement Analysis
1. Most financial balance sheets reflect the historical cost of assets, net of
depreciation since they were acquired. Assuming that this is the case, for which
of the follow
Valuation: The Basics
1. In intrinsic valuation, you value an asset based upon its fundamentals. Which of
the following will not affect value in an intrinsic valuation?
a. The operating income generated
Trading Costs and Taxes
1. The bid-
ask spread measures the difference between the bid price and the ask
price on an asset or security at a point in time. In which of the following stocks,
Market Efficiency I: Laying the Groundwork
1. If you are an active investor, which of the following propositions about market
efficiency would you need to subscribe to?
a. Markets are always efficient
Market Efficiency II: Testing market beating schemes and strategies
1. To test whether an investment strategy beats the market, you have to adjust the
returns on the strategy for risk. Assume that you
Random Walks and Momentum
1. In the random walk hypothesis, the asset price follows a random walk, where the
price movement in each period is completely uncorrelated with movements in
prior periods. F
1. There is evidence that January is the best month of the year to invest in stocks.
One story that has been told to explain this is that tax loss selling at the end of
1. With contrarian technical indicators, you look for signs that a group or groups of
investors are pushing stocks in one direction (buying or selling) with the intent
of doing the
Introduction to Value Investing
1. Which of the following is the best characterization of a value investor?
a. An investor who cares about value and finding undervalued companies.
b. An investor who inc
Value Investing: The Passive Screeners
1. Looking at stock returns over the decades, it is clear that stocks with low price to
book ratios have delivered higher returns than stocks with high price to
Value Investing: The Contrarians
1. When you are a contrarian investor, which of the following beliefs about
investor behavior do you subscribe to,?
a. Investors make mistakes and correct them over tim
Value Investing: The Activists
1. If you are an activist value investor, which of the following companies would you
be most likely to target?
a. Cheap companies that are under performing their peer g
Value Investing: Where is the beef?
1. Which of the following is the best measure of the payoff to active value
a. The difference between the average returns earned by active value
Investing on hope: Growth and Small Cap Investing
1. If you are a growth investor, which of the following do you believe about the
a. The market always under values growth assets
b. The ma
Get in on the ground floor: The IPO story
1. When a private business becomes a publicly traded company, which of the
following best characterizes what happens to its riskiness as an investment?
Growth Investing: Growth at a reasonable price
1. One simple strategy for investing in growth stocks is to invest in those stocks
that have delivered the highest historical (past) earnings growth. Why
Activist Growth Investing: Be your own change agent
1. In the traditional venture capital approach to valuation, you forecast earnings in
a future year, apply a multiple to these earnings and discount
Growth Investing: Against the tide of history
1. While growth stocks have historically delivered lower returns than value stocks,
on a risk-
adjusted basis, there have been periods in history where growt
Information Trading: Trade on the news?
1. In an efficient market, which of the following should happen when good news
hits the market?
a. Stock prices should not change. In an efficient market, the
Information Trading: Following the Insiders
1. In publicly traded firms in the US, which of the following are classified as
insiders by the Securities Exchange Commission (SEC)?
a. Directors in the comp
Information Trading: Following the analysts
1. Equity research analysts make earnings forecasts for the companies that they
track, and revise these forecasts over time? Which of the following factors feed
Information Trading: Public Information Earnings Reports
1. A company that reports lower earnings should see its stock price go down.
2. Studies of earnings reports look at the market
Information Trading: Public Information Other than Earnings
1. Which of the following statements best describes the stock price behavior of
target firms around acquisition announcements?
a. The target fi
Too good to be true? Pure Arbitrage
1. Which of the following do you need for pure arbitrage?
a. Two assets that have identical cash flows over time.
b. The two assets trade at different prices at
Close Enough? Near Arbitrage
1. When a stock is listed on more than one market at the same time, you should
expect to see it trade at the same price in its multiple listings. If there is a price
Not riskless, not even close! Pseudo or Speculative Arbitrage
1. In paired arbitrage, you pair stocks based upon their history and you buy the
stock that is cheap based upon the past, while selling t