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investment analysis portfolio

Questions and Answers of Investment Analysis Portfolio

A company is going public at $16 and will use the ticker XYZ. The underwriters will charge a 7 percent spread. The company is issuing 20 million shares, and insiders will continue to hold an
What are possible explanations for underpricing?
Assume that the 10-year U.S. Treasury is yielding 4.5 percent. Next year's earnings for the S&P 500 are expected to be $130. Use the Fed model to estimate the value of the S&P 500. If the
What is the difference between a low-cost strategy and a differentiation strategy?
What's the difference between a growth company and a growth stock? What is a defensive stock? A cyclical stock?
You are analyzing the U.S. equity market based upon the S&P 500 Index and using the present value of free cash flow to equity technique. Your inputs are as follows: Beginning FCFE: $80 k =
What are the five forces that determine the competitive structure of an industry?
Given the three EPS estimates in Problem 5, you are also given the following estimates related to the market earnings multiple: a. Based on the three EPS and P/E estimates, compute the high,
When performing industry analysis, what are the four categories of structural (noncyclical) economic changes that an analyst should review?
You are given the following estimated per share data related to the S&P 500 Index for the year 2018: Sales.............................$
When calculating the cost of equity, should you use a historic risk premium, an expected risk premium, or a required risk premium?
What four factors impact operating margins for the overall market?
Currently, the dividend-payout ratio (D/E) for the aggregate market is 55 percent, the required return (k) is 9 percent, and the expected growth rate for dividends {g) is 4 percent. a. Compute
Why does an inverted yield curve serve as a predictor of a recession?
Why does the real federal funds rate matter to stock prices? How do low rates impact stock prices?
If stock returns are related to economic growth, why can't you simply track the GDP data that has been released in order to make investment decisions?
Assume that a company has an ROE of 16 percent, a growth rate of 4 percent, and a payout ratio of 75 percent. The company also has a cost of equity of 13 percent. What is the trailing price-book
Assume a company has a payout ratio of 45 percent, a profit margin of 4 percent, a cost of equity of I 0 percent and a growth rate of 2.5 percent. a. What is the forward price-sales
You are building free cash flow to the firm model. You expect sales to grow from $1 billion for the year that just ended to $2 billion five years from now. Assume that the company will not become
What the advantages and disadvantages of relative valuation?
You are valuing a bank. The bank currently has assets of $300 per share. Five years from now (that is, at the end of five years), you expect their assets per share to be $450. After Year 5, you
What would explain why two different companies have different P/E ratios? Price-sales ratios? Price-book ratios?
A company had $18 of sales per share for the year that just ended. You expect the company to grow their sales at 6.5 percent for the next five years. After that, you expect the company to grow 3.5
Should the FCFE model and the FCFF model result in the same value? What adjustments will allow this to happen?
The current risk-free rate is 3 percent and the market risk premium is 5 percent. You are trying to value ABC company and it has an equity beta of .9. The company earned $2.50 in the year that just
If a stock's price is the same as its intrinsic value, what will the investor's rate of return be?
company earned $5 per share in the year that just ended. The company has no more growth opportunities. The company has a 12 percent return on equity and a 12 percent cost of equity. What is the
Can the present value of the growth opportunity be negative? Why would this happen?
In the constant growth model, should you use a nominal growth rate or a real growth rate? Why?
What is the difference between free cash flow to equity and net income?
What is the difference between the free cash flow to the firm (FCFF) model and the free cash flow to equity model (FCFE)? How are the discount rates different?
The Shamrock Dogfood Company (SDC) has consistently paid out 40 percent of its earnings in dividends. The company's return on equity is 16 percent. a. What would you estimate as to its dividend
The Clipper Sailboat Company is expected to earn $3 per share next year. The company will have a return on equity of 15 percent and the company will grow 5 percent in the future. The company has a
What is the difference between the top-down and the bottom-up approaches to selecting stocks?
What does it mean to say that an investment is fairly priced versus overvalued versus undervalued?
The Baron Basketball Company (BBC) earned $10 a share last year and paid a dividend of $7 a share. Next year, you expect BBC to earn $11 and continue its payout ratio. Assume that you expect to sell
Explain how the capital market line (CML) allows an investor to achieve an expected return goal that is greater than that available to a 100 percent allocation to the market portfolio of risky
As chief investment officer of a small endowment fund, you are considering expanding the fund's strategic asset allocation from just common stock (CS) and fiXed-income (FI) to include private real
Explain the shape of the Markowitz (that is, mean-variance) efficient frontier, specifically what causes it to be curved rather than a straight line.
Why do most assets of the same type show positive covariances of returns with each other? Would you expect positive covariances of returns between different types of assets such as returns on
The following are annual rates of return for U.S. government T-bills and U.S. common stocks. a. Compute the arithmetic mean rate of return and standard deviation of rates of return for the two
Without any formal computations, do you consider Madison Beer in Problem 6 or Lauren Computer in Problem 7 to present greater risk? Discuss your reasoning. Problem 6Problem 7A stockbroker calls
Assume that the rate of inflation during all these periods was 3 percent a year. Compute the real value of the two tax-deferred portfolios in Problems 2a and 3a.Data From Problem 2a and 3a.2a.
You own 100 shares of General Electric stock and you want to sell it because you need the money to make a down payment on a car. Assume there is absolutely no secondary market system in common
Assume that you buy 100 shares of Francesca Industries stock on 55 percent margin when the stock is selling at $20 a share. The broker charges a 5 percent annual interest rate, and commissions are 2
Lauren has a margin account and deposits $50,000 into it. Assume the prevailing margin requirement is 40 percent, interest and commissions are ignored, and the Gentry Wine Corporation is selling at
Briefly define each of the following terms. a. Dark pools b. Broker/Dealer internalization c. High Frequency Traders d. Algorithmic Trading
How would you explain that the ML High-Yield Bond Index was more highly correlated with the NYSE composite stock index than the ML Aggregate Bond Index?
Assuming that the mandate to a portfolio manager was to invest in a broadly diversified portfolio of U.S. stocks, which two or three indexes should be considered as an appropriate benchmark? Why?
What is meant by the term abnormal rate of return?
Assume the following daily closings for the Dow Jones Industrial Average: a. Calculate a four-day moving average for Days 4 through 12. b. Assume that the index on Day 13 closes at 23,300.
Why do the advocates of behavioral finance contend that the standard finance model theory is incomplete?
Technical analysts believe that one can use past price changes to predict future price changes. How do they justify this belief?
If the bearish sentiment index of advisory service opinions were to increase to 61 percent, discuss why a technician would consider this bullish or bearish.

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