Q1. Which one of the following statements is most likely correct with regard to steps and activities/actions in the equity valuation process?

1. An analyst applies the valuation conclusions by choosing the FCFE model.

2. To convert his forecast into a valuation, an analyst carries out a sensitivity analysis.

3. To understand the business, an analyst helps the firm he is evaluating compile their financial statements.

Use the following information to answer questions 2 to 3.

Price relationship Alpha

1. V=P (i) Expected return > required rate of return

2. V>P (ii) Expected return < required rate of return

3. V

Where V = Intrinsic Value and P = Market Price

Q2. An asset is mispriced when? (Use column one)

1. 1 and 2

2. 1, 2 and 3

3. 2 and 3

Q3. An asset will have a positive alpha when? (Use column two)

1. (i)

2. (ii)

3. (i) and (ii)

Use the following information to answer questions Q4 and Q5.

The following information is available on three shares in a portfolio. The dividend growth rate for all the shares in the portfolio is perpetual. The required rate of return is 8.40% for all shares in the portfolio.