1. Explain the use of the price-earnings (PE) ratio for valuing a stock. Why might investors derive different valuations for a stock when using the price-earnings method? Why might investors derive an inaccurate valuation of a firm when using the price-earnings method?
2. Describe the dividend discount valuation model. What are some limitations of the dividend discount model?
3. Explain how the value of the dollar affects stock valuations.
4. Will speculators buy or sell Treasury bond futures contracts if they expect interest rates to increase? Explain.
5. Why would a pension fund or insurance company consider selling stock index futures?