1. Explain how information contained in financial statements is useful in pricing securities. Are there somecomponents of earnings that are more useful than others in this regard? What nonfinancial informationmight also be useful?
2. In general, what role do expectations play in pricing equity securities? What is the relation between

security prices and expected returns (the discount rate, or WACC, in this case)?

3.Define the concept of residual operating income (ROPI). How is residual operating income used in

pricing equity securities?