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A value company would most likely include stocks with high eps growth and high valuations.
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- Which of the following is true? a. Beta of a stock cannot be negative b. SML is an acronym for Stock Market Line c. Holding multiple stocks from the same industry is meaningful diversification d. Undiversifiable risk is known as the systematic riskIf the intrinsic value of a stock is greater than its market value, which of the following is a reasonable conclusion? O 1. The stock offers a high dividend payout ratio. O 2. The market is overvaluing the stock. O 3. The stock has a low level of risk. O 4. The market is undervaluing the stock.1. Suppose stock A has a higher volatility than stock B. According to CAPM, which one is expected to deliver a higher return? A. A B. B C. The information provided is insufficient D. None of above is correct
- Fountain Corporation's economists estimate that a good business environment and a bad business environment are equally likely for the coming year. The managers of the company must choose between two mutually exclusive projects. Assume that the project the company chooses will be the firm's only activity and that the firm will close one year from today. The company is obligated to make a $5,400 payment to bondholders at the end of the year. The projects have the same systematic risk but different volatilities. Consider the following information pertaining to the two projects: Economy Probability .50 .50 Bad Good Low-Volatility Project Payoff $ 5,400 6,550 High-Volatility Project Payoff $ 4,800 7,150 a. What is the expected value of the company if the low-volatility project is undertaken? The high-volatility project? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) b. What is the expected value of the company's equity if the…a) Discuss why international stock might have high volatility but low betas.In efficient markets, the rate of return on a stock should be: A. always greater than the risk-free rate B. Less than zero C. Related to the systemic risk of the stock D. Zero; no stock should earn a positive return
- b) "If a stock had high returns so far, it will have low returns in the future". Discuss whether this statement is true or false, based on the knowledge of the different theories and models out there.According to the Capital Asset Pricing Model (CAPM), risky stocks pay a risk premium based on their level of systematic risk. Thus, a risky stock should have a higher expected return than a risk-free security unless it has a zero or negative beta. True FalseThe dividend growth model of stock evaluation relies on several assumptions that might not be true in the real world. What are they?
- Explain the effect of D/E on asset returns, equity returns (assuming that cost of debt is not affected), asset beta and equity beta (assuming that debt beta is zero). Should an investor choose to invest in a stock of a company with high or low D/E, or why expected returns on these stocks are equivalent, although they are not equal?Which of the following statements is CORRECT? Multiple Choice Company-specific risk can be diversified away Lower beta stocks have higher required returns Two securities with the same beta will have the same price A stock's beta indicates its company-specific riskThe SML shows the return needed given risk as measured by beta. And there are situations where a stock might be mispriced relative to CAPM. Given the relationship with the security mark line (SML), if a stock is properly priced relative to CAPM , where would it plot on the graph relative to the SML? A. on the Y-axis B. on the security market line C. below the security market line D. above the security market line