Questions and Answers of Investment Analysis Portfolio

Book value is least likely to be considered when using:A. A multiplier model.B. An asset-based valuation model.C. A present value model.
Total S.A. (Euronext Paris: FP), one of France’s largest corporations and the world’s fifth-largest publicly traded integrated petroleum company, operates in more than 130 countries. Total
An analyst is attempting to calculate the intrinsic value of a company and has gathered the following company data: EBITDA, total market value, and market value of cash and short-term investments,
An analyst who bases the calculation of intrinsic value on dividend-paying capacity rather than expected dividends will most likely use the:A. Dividend discount model.B. Free cash flow to equity
A company does not currently pay a dividend but is expected to begin to do so in five years (at t=5). The first dividend is expected to be $4.00 and to be received five years from today. That
An investor expects to purchase shares of common stock today and sell them after two years. The investor has estimated dividends for the next two years, D1 and D2, and the selling price of the stock
The current dividend, D0, is $5.00. Growth is expected to be 10 percent a year for three years and then 5 percent thereafter. The required rate of return is 15 percent. Estimate the intrinsic value.
Petroleo Brasileiro SA, commonly known as Petrobras (BOVESPA: PETR), was once labeled “the most expensive oil company” by Bloomberg.com. Data for Petrobras and the oil industry, including the
In the free-cash-flow-to-equity (FCFE) model, the intrinsic value of a share of stock is calculated as:A. The present value of future expected FCFE.B. The present value of future expected FCFE plus
Heinrich Gladisch, CFA, is estimating the justified forward P/E for Nestle´ (SIX:NESN), one of the world’s leading nutrition and health companies. Gladisch notes that sales for 2008 were SFr109.9
With respect to present value models, which of the following statements is most accurate?A. Present value models can be used only if a stock pays a dividend.B. Present value models can be used only
As noted previously, P/E is a price multiple frequently used by analysts. Using P/E in the method of comparables can be problematic, however, as a result of business cycle effects on EPS. An
A Canadian life insurance company has an issue of 4.80 percent, $25 par value, perpetual, nonconvertible, noncallable preferred shares outstanding. The required rate of return on similar issues is
Incorporated in the Netherlands, the European Aeronautic Defense and Space Company, or EADS (Euronext Paris: EAD) is a dominant aerospace company in Europe. Its largest subsidiary, Airbus S.A.S., is
Two analysts estimating the value of a nonconvertible, noncallable, perpetual preferred stock with a constant dividend arrive at different estimated values. The most likely reason for the difference
Canon Inc. (TSE: 7751) is a leading worldwide manufacturer of business machines, cameras, and optical products. Canon was founded in 1937 as a camera manufacturer and is incorporated in Tokyo. The
The Beasley Corporation has just paid a dividend of $1.75 per share. If the required rate of return is 12.3 percent per year and dividends are expected to grow indefinitely at a constant rate of 9.2
Exhibit 10-8 presents data for nine major mining companies. Based on the information in Exhibit 10-8, which two mining companies seem to be the most undervalued? EXHIBIT 10-8 Data for Nine Major
An analyst gathers or estimates the following information about a stock:Based on a dividend discount model, the stock is most likely:A. Undervalued.B. Fairly valued.C. Overvalued. Current price per
An investor is considering the purchase of a common stock with a $2.00 annual dividend.The dividend is expected to grow at a rate of 4 percent annually. If the investor’s required rate of return is
A family owns a laundry and the real estate on which the laundry stands. The real estate is collateral for an outstanding loan of $100,000. How can asset-based valuation be used to value this
An analyst is attempting to value shares of the Dominion Company. The company has just paid a dividend of $0.58 per share. Dividends are expected to grow by 20 percent next year and 15 percent the
The business being valued is a restaurant that serves breakfast and lunch. The owner/proprietor wants to sell the business and retire. The restaurant space is rented, not owned. This particular
Hideki Corporation has just paid a dividend of ¥450 per share. Annual dividends are expected to grow at the rate of 4 percent per year over the next four years. At the end of four years, shares of
Consider the value of an airline company that has few routes, high labor and other operating costs, has stopped paying dividends, and is losing millions of dollars each year. Using most valuation
The Gordon growth model can be used to value dividend-paying companies that are:A. Expected to grow very fast.B. In a mature phase of growth.C. Very sensitive to the business cycle.
An equity analyst has been asked to estimate the intrinsic value of the common stock of Omega Corporation, a leading manufacturer of automobile seats. Omega is in a mature industry, and both its
A price-to-earnings ratio that is derived from the Gordon growth model is inversely related to the:A. Growth rate.B. Dividend payout ratio.C. Required rate of return.
An analyst has prepared a table of the average trailing 12-month price-to-earning (P/E), price-to-cash flow (P/CF), and price-to-sales (P/S) for the Tanaka Corporation for the years 2005 to 2008.As
The primary difference between P/E multiples based on comparables and P/E multiples based on fundamentals is that fundamentals-based P/Es take into account:A. Future expectations.B. The law of one
An analyst makes the following statement: “Use of P/E and other multiples for analysis is not effective because the multiples are based on historical data and because not all companies have
An analyst has gathered the following information for the Oudin Corporation:Expected earnings per share = €5.70 Expected dividends per share = €2.70 Dividends are expected to grow at 2.75 percent
An analyst gathers the following information about two companies:Which of the following statements is most accurate?A. Delta has the higher trailing P/E multiple and lower current estimated P/E
An analyst gathers the following information about similar companies in the banking sector:Which of the companies is most likely to be undervalued?A. First Bank.B. Prime Bank.C. Pioneer Trust. First
The market value of equity for a company can be calculated as enterprise value:A. Minus market value of debt, preferred stock, and short-term investments.B. Plus market value of debt and preferred
Which of the following statements regarding the calculation of the enterprise value multiple is most likely correct?A. Operating income may be used instead of EBITDA.B. EBITDA may not be used if
An analyst has determined that the appropriate EV/EBITDA for Rainbow Company is 10.2. The analyst has also collected the following forecasted information for Rainbow Company:EBITDA = $$22$,000,000
Enterprise value is most often determined as market capitalization of common equity and preferred stock minus the value of cash equivalents plus the:A. Book value of debt.B. Market value of debt.C.
Asset-based valuation models are best suited to companies where the capital structure does not have a high proportion of:A. Debt.B. Intangible assets.C. Current assets and liabilities.
Which of the following is most likely a reason for using asset-based valuation?A. The analyst is valuing a privately held company.B. The company has a relatively high level of intangible assets.C.
A disadvantage of the EV method for valuing equity is that the following information may be difficult to obtain:A. Operating income.B. Market value of debt.C. Market value of equity.
Which type of equity valuation model is most likely to be preferable when one is comparing similar companies?A. A multiplier model.B. A present value model.C. An asset-based valuation model.
Which of the following is most likely considered a weakness of present value models?A. Present value models cannot be used for companies that do not pay dividends.B. Small changes in model
1. The savings rate for a national economy is comparatively stable. The economy faces a sharp uptick in energy prices and at the same time imposes stringent restrictions on environmental pollution.
1. The S&P China BMI Index on 30 September 2009 is 358. Forecasted 12-month earnings per share for the composite are 18.00 RMB and the current annual dividend rate for the composite is 7.90 RMB.
Don Murray, an economist, is president of the investment committee of a large U.S. pension plan. He is reviewing the plan’s recent investment returns and finds that non-U.S. equity returns have
Elizabeth Villeneuve is a senior economist at Proplus Financial Economics Consulting (Proplus). She is responsible for the valuation of equity markets in developing countries and is reviewing the
In the following, assume that all growth and discount rates are stated in real terms.1. Assume the Eurozone inflation-adjusted average growth in capital stock is 3.0 percent per annum into
Which conclusion presented by Ryan about the top-down approach and the bottom-up approach is most likely correct?A. Conclusion 1.B. Conclusion 2.C. Conclusion 3.Use the following information to
A candlestick chart is similar to a bar chart except that the candlestick chart:A. Represents upward movements in price with X’s.B. Also graphically shows the range of the period’s highs and
What considerations might encourage a market analyst to rely more on a top-down or bottom-up forecast of S&P 500 operating earnings?
Which of the following criticisms expressed by Ryan about the use of historical data is the least valid?A. In a context of hyperinflation, the approach may not be appropriate.B. The companies’
Which of the following advantages listed by Ryan with respect to the earnings-based approach studied by Atkinson is most likely correct? The model A. Can be used for non-U.S. equity markets.B.
1. Assume the S&P 500 forward earnings yield is 5 percent and the 10-year T-note yield is 4.6 percent. Are stocks overvalued or undervalued according to the Fed model?2. Why might the earnings yield
The most likely improvement from using the Yardeni model instead of the Fed model is that the Yardeni model captures:A. A pure equity risk premium.B. A pure default risk premium.C. The effect of
1. Assume the Moody’s A-rated corporate bond yield is 6.49 percent and the forecast for long-term earnings growth is 11.95 percent. Determine the Yardeni model estimate of the fair value earnings
Which of the following features of the P/10-year MA(E) model as stated by Ryan is least likely to be correct? The model A. Controls for inflation.B. Is independent of changes in accounting rules.C.
Data from which Tobin’s q and equity q can be calculated are published in the Flow of Funds Accounts of the United States-Z.1, published quarterly by the Federal Reserve.*This data source is
Based on the data shown in Exhibit D, the equity q ratio is closest to:A. 0.6429.B. 0.8168.C. 0.8911.Use the following information to answer Question.Claudia Atkinson, CFA, is chief economist of an
The best conclusion that Ryan can provide to Atkinson regarding the calculated value for Tobin’s q ratio is that, based on comparing it to an equilibrium value of 1:A. The replacement cost of
1. Why should Tobin’s q be expected to mean revert?2. How does equity q differ from the price-to-book ratio?
1. Which of the models ignore the current level of market interest rates as determinants of equity market value?2. Under what conditions might the Fed model and Yardeni model provide a different
Which of the statements expressed by Schmidt about the neoclassical approach to growth accounting is correct?A. Statement 1.B. Statement 2.C. Statement 3.Use the following information to answer
Carmichael’s most appropriate response to Schmidt’s question about the justified P/E ratio is:A. Lower volatility of the U.S. equity market.B. Higher inflation-adjusted dividend growth rate.C.
Carmichael’s most appropriate response to Schmidt’s question about the Fed model is:A. Scenario 1.B. Scenario 2.C. Scenario 3.Use the following information to answer Question.Egon Carmichael,
In response to Carmichael’s question about which criticisms of the Fed model are addressed by the Yardeni model, Schmidt’s most appropriate response is that the Yardeni model does take account of
Carmichael’s best answer to Schmidt’s question about a recommended forecasting approach is to use:A. A top-down approach.B. A bottom-up approach.C. Both top-down and bottom-up approaches.Use the
Which of the following features is least applicable to the third earnings-based approach presented by Carmichael? The model:A. Controls for inflation.B. Is independent of changes in accounting
Technical analysis relies most importantly on:A. Price and volume data.B. Accurate financial statements.C. Fundamental analysis to confirm conclusions.
Danielle Waterhouse is the technical analyst at Kanektok Securities. One of the companies her firm follows is LPA Petroleum. Waterhouse believes that a graph of LPA’s share prices over the past six
Which of the following is not an assumption of technical analysis?A. Security markets are efficient.B. The security under analysis is freely traded.C. Market trends and patterns tend to repeat
Richard Dupuis is a technician who trades Eurodollar futures for his own account. He analyzes charts based on one-minute time intervals looking for short-term trading opportunities. Eurodollar
Drawbacks of technical analysis include which of the following?A. It identifies changes in trends only after the fact.B. Deviations from intrinsic value can persist for long periods.C. It usually
At the end of September 2009, Barron’s reported short interest of 10,936,467 shares in Goldman Sachs, with average daily trading volume of 9,086,174. At the same time, the short interest in TD
Sarah Johannson, CFA, recently installed some investment software and is verifying the calculation of some of the statistics it produces. Her screen indicates a TRIN value of 1.02 for the NYSE and
Why is technical analysis especially useful in the analysis of commodities and currencies?A. Government regulators are more likely to intervene in these markets.B. These types of securities display
At the request of a wealthy client, Erik Nielson is preparing a proprietary research report on the shares of a U.S. company. He has completed the part of the report dealing with fundamental analysis
A daily bar chart provides:A. A logarithmically scaled horizontal axis.B. A horizontal axis that represents changes in price.C. High and low prices during the day and the day’s opening and closing
In analyzing a price chart, high or increasing volume most likely indicates which of the following?A. Predicts a reversal in the price trend.B. Predicts that a trendless period will follow.C.
In constructing a chart, using a logarithmic scale on the vertical axis is likely to be most useful for which of the following applications?A. The price of gold for the past 100 years.B. The share
The following exhibit depicts GreatWall Information Industry Co., Ltd., ordinary shares, traded on the Shenzhen Stock Exchange, for late 2008 through late 2009 in renminbi (RMB).CANDLESTICK CHART
A downtrend line is constructed by drawing a line connecting:A. The lows of the price chart.B. The highs of the price chart.C. The highest high to the lowest low of the price chart.
The following exhibit depicts Barclays ordinary shares, traded on the London Stock Exchange, for 2009 in British pence.Based on this chart, Barclays appears to show resistance at a level nearest
The “change in polarity” principle states which of the following?A. Once an uptrend is broken, it becomes a downtrend.B. Once a resistance level is breached, it becomes a support level.C. The
The following exhibit depicts Archer Daniels Midland Company common shares, traded on the New York Stock Exchange, for 1996 to 2001 in U.S. dollars.This chart illustrates most clearly which type of
In an inverted head and shoulders pattern, if the neckline is at h100, the shoulders are at €90, and the head is at €75, the price target is closest to which of the following?A. €50.B.
Which flow-of-funds indicator is considered bearish for equities?A. A large increase in the number of IPOs.B. Higher-than-average cash balances in mutual funds.C. An upturn in margin debt but one
A TRIN with a value of less than 1.0 indicates:A. The market is in balance.B. There is more volume in rising shares.C. There is more volume in declining shares.
Bollinger Bands are constructed by plotting:A. A MACD line and a signal line.B. A moving-average line with an uptrend line above and downtrend line below.C. A moving-average line with upper and lower
Which of the following is not a momentum oscillator?A. MACD.B. Stochastic oscillator.C. Bollinger Bands.
Which of the following is a continuation pattern?A. Triangle.B. Triple top.C. Head and shoulders.
Which of the following is a reversal pattern?A. Pennant.B. Rectangle.C. Double bottom.
Which of the following is generally true of the head and shoulders pattern?A. Volume is important in interpreting the data.B. The neckline, once breached, becomes a support level.C. Head and
Nikolai Kondratieff concluded in the 1920s that since the 1780s, Western economies have generally followed a cycle of how many years?A. 18.B. 54.C. 76.
Based on the decennial pattern of cycles, how would the return of the Dow Jones Industrial Average (DJIA) in the year 2015 compare with the return in 2020?A. The return would be better.B. The return
According to the U.S. presidential cycle theory, the DJIA has the best performance during which year?A. The presidential election year itself.B. The first year following a presidential election.C.
What is a major problem with long-term cycle theories?A. The sample size is small.B. The data are usually hard to observe.C. They occur over such a long period that they are difficult to discern.
In 1938, R. N. Elliott proposed a theory that equity markets move:A. In stochastic waves.B. In cycles following Fibonacci ratios.C. In waves dependent on other securities.
All of the following are names of Elliott cycles except:A. Presidential.B. Supercycle.C. Grand supercycle.
To identify intermarket relationships, technicians commonly use:A. Stochastic oscillators.B. Fibonacci ratios.C. Relative strength analysis.

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