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- Which of the following will (holding everything else constant) cause the price earnings (P/E) ratio of a stock to decrease: The required return increases The risk-free rate decreases The stock's beta decreases The required return decreasesThe PE ratio is useful because it measures: O A. how much a stock is expected to earn. O B. how much earnings are going to grow. O C. how much an investor is willing to pay for $1 of earnings. « » AMoving to another question will save this response. co search 10:14 PM 10/18/2021Over time, the unexpected return on a company's stock is expected to equal Multiple Choice the company's average rate of return. the average return on the overall market. zero, the risk-free rate. the market risk premium.
- The dividend yield (i.e. D1/P0) is a good measure of the expected return on a common stock under which of the following circumstances? g = 0 g > 0 g < 0 g is expected to remain constant over time under no circumstancesA firm has decided to switch from FIFO to LIFO. Ceteris paribus (all things being equal), what impact will the change in accounting have on the following variables? Assume an inflationary environment. Net profit will: OA increase OB decrease OC not change OD. cannot determineSuppose you observe the following situation: Probability of State 0.35 0.40 0.25 State of Economy Recession Normal Irrational exuberance Stock A Stock B Expected Return Rate of Return if State Occurs Stock B % Stock A a. Calculate the expected return on each stock. (Round the final answers to 2 decimal places.) -0.11 0.10 0.45 -0.09 0.10 0.25 b. Assuming the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.65, what is the expected market risk premium? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected market risk premium
- Assume you are using the dividend growth model to value stocks. If you expect the inflation rate to increase, you should also expect: O A. market value of all stocks to remain constant as the dividend growth will offset the increase in inflation. B. stocks that do not pay dividends to decrease in price while dividend paying stocks maintain a constant price. C. market value of all stocks to decrease, all else equal. ype here to search 10:12 10/18/2 PrtSen Home Endstock? 7.11 Stock Valuation Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits. LO 2 LO 1 7.12 Constant Dividend Growth Model In the constant dividend growthSuppose your expectations regarding the stock price are as follows: State of the Market Probability Ending Price HPR (includingdividends) Boom 0.30 $ 140 53.5 % Normal growth 0.28 110 17.5 Recession 0.42 80 −12.0 Use the equations E(r)=Σsp(s)r(s)E(r)=Σsp(s)r(s) and σ2=Σsp(s) [r(s)−E(r)]2σ2=Σsp(s) [r(s)−E(r)]2 to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
- An analyst has estimated how a particular stock’s return will vary depending on what will happen to the economy. What is the coefficient of variation on the company's stock? OF THEECONOMY PROBABILITY OFSTATE OCCURRING STOCK'S EXPECTEDRATE IF THISSTATE OCCURS Recession Below Average Average Above Average Boom .10 .20 .40 .20 .10 (.60) (.10) .15 .40 .90Is the following sentence true or false? Please explain. The cost of new equity (re) could possibly be lower than the cost of reinvested earnings (rs) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.If investors’ aversion to risk increased, would the risk premium on a high-beta stock increase more or less than that on a low-beta stock? Furthermore, If a company’s beta were to double, would its expected return double? Explain in detail.