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4. An investor is considering purchasing one of the following three stocks. Stock X has a market capitalization of $8 billion, pays a relatively high
4. An investor is considering purchasing one of the following three stocks. Stock X has a market capitalization of $8 billion, pays a relatively high dividend with little increase in eamings, and has a PE ratio of 12. Stock Y has a market capitalization of $62 billion but does not currently pay a dividend. Stock Y has a P/E ratio of 40. Stock Z, a housing industry company has a market capitalization of $809 million and a P/E of 19 a. Classify these stocks according to their market capitalizations. b. Which of the three would you classily as a growth stock? Why? c. Which stock would be most appropriate for an aggressive investor? d. Which stock would be most appropriate someone seeking a combination of safety and earnings? a. Stock X is classified as a (1) stock. (Select from the drop-down menu.) Stock Y is classified as a (2) stock. (Select from the drop-down menu.) Stock Z is classified as a (3) stock. (Select from the drop-down menu.) b. Which of the three would you dassify as a growth stock? Why? (Select the best answer below.) O A. Slock Y because the higher the firm's earnings growth rate, the higher the firm's P/E ratio. These companies also tend to pay low or no dividends in order to put the funds back into the company. OB. Stock Z because it is a cyclical stock and its eamings will move with the economy. Therefore, when the economy is up, the earnings will be up O c. Stock X because the higher the risk, the lower the PIE ratio. A lower P/E ratio means the investors will receive a higher rate of return. OD. All three stocks are growth stocks because they are all newly formed companies. c. Which stock would be most appropriate for an aggressive investor? (Select the best answer below.) O A. Stock X OB. Stock Y O C. Stock z d. Which stock would be most appropriate someone seeking a combination of safety and earnings? (Select the best answer below.) O A Stock Z OB. Stock O C. Stock Y (1) O small-cap Omid-cap O large-cap (2) O largo-cap mid-cap small-cap (3) O small-cap large-cap O mid-cap
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