Question
16. Sarah likes to buy stocks that are trading two standard deviations cheap on price earnings relative to five year averages. This strategy is based
16. Sarah likes to buy stocks that are trading two standard
deviations cheap on price earnings relative to five year averages.
This strategy is based on what key concept? Is it a GARP, value or
momentum based strategy?
17. Mike and Sarah want to compare the profitability of some
technology, industrial and other companies from sectors outside
of the banking industry? What metric would you use?
18. Mike and Sarah want to reduce the market risk of their
portfolio but stay 100% invested in their current long stock
positions? What could they do to accomplish this goal?
19. You are brought in as a consultant to a company. You
calculate its WACC to be 9%. Its operating profit is 8 million, tax
rate is 33%, total assets are 105 mm, cash is 5mm and noninterest
bearing liabilities are 0. If you present to the CEO would
you say current profitability is satisfactory? Why not? Show with a
ratio?
20. What are two metrics to value cyclical stocks that are losing
money on the bottom line? What are the pros and cons of these
metrics?
21. You are working at a large pension fund. The CIO tells you
that there will be a strong deflationary pulse in the US and global
economy. The CIO asks you to pick two investments from the
following choices: 2 year treasury bonds, 30 year treasury bonds,
high yield bonds, gold etf, emerging markets equities ETF, a
commodity etf, or a short S&P 500 fund. You also have the choice
of etfs for equities from the following S&P 500 sectors energy,
financials, staples, industrials, utilities, technology, timber reits,
steel stocks, mining stocks and agricultural service stocks. Justify
your two picks for allocation.
22. Next the CIO alters the forecast and says to expect a huge
surge in global growth. Which two investments from the same list
would you recommend and why?
23. The CIO calls for stagflation or high inflation with low
growth. Which two investments would you pick and why?
24. You notice that the yield curve has started to flatten. Which investment from the prior list would you pick based on this signal?
Justify your response.
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