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Question 18

The shareholders required rate of return is the sum of the expected dividend yield and the expected

a. prime interest rate.

b. PE ratio.

c. stock price appreciation.

d. option premium.

4 points

Question 19

Atol Corp. has a price/book ratio of 1.3, a P/E ratio of 18, and current earnings of $2.00/share. Its current book value/share is:

a. $36.00

b. $27.69

c. $23.40

d. $11.70

4 points

Question 20

Amuzon Corp. is currently selling for $30/share and recently reported annual earnings of $2 million, 1 million shares outstanding, and forecasted earnings/share of $2.50 next year. Amuzon Corp.'s trailing P/E ratio is:

a. 15

b. 12

c. 30

d. 6.67%

4 points

Question 21

The earnings yield is the:

a. reciprocal of the P/E ratio.

b. expected return on the present assets of the company.

c. assumes no earnings growth and a 100% payout ratio.

d. all of the above are correct.

4 points

Question 22

If the PE of a broad market index is below the historical average PE, an investor might expect:

a. the earnings yield ratio to increase in the future.

b. the value of stocks in the index to decrease in the future.

c. the PE s of the index to fall in the future.

d. the earnings/price ratio to decrease in the future as stock values increase.

4 points

Question 23

The Greenspan Model attempts to estimate the relative valuation of the stock market by:

a. subtracting the 10-year Treasury bond yield from the S&P 500 earnings yield.

b. comparing the U.S. T-Bill rate with the E/P ratio of the broad market.

c. subtracting the S&P earnings yield from the yield on a long-term U.S. Treasury bond.

d. subtracting the S&P dividend yield from the 10-year Treasury yield.

4 points

Question 24

A negative value on the Greenspan model tends to indicate that the general market is:

a. performing as well as can be expected.

b. is undervalued.

c. is overvalued.

d. an indicator that the Federal Reserve System will tighten or slow the growth of the money supply.

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