Question 34

Option Valuation: Option values may be viewed as the sum of intrinsic value plus time value.

The value of a call option increases if the stock price increases, the exercise price (or strike price)

decreases, the volatility increases, the time to expiration increases, the risk free interest rate

increases, and the dividend payment decreases.

True

False

Question 35

Sector Rotation (SR): One means analysts think about the relationship between industry analysis

and the business cycle is the notion of SR. The idea is to shift the portfolio more heavily into

industry or sector groups that are expected to outperform based on ones assessment of the state

of the business cycle. For instance, if one were anticipating an economic expansion, one would

focus attention on the consumer discretionary, materials, industrials, and energy sectors.

True

False

Question 36

Defined Contribution (DC) vs. Defined Benefit (DB). The two types of pension plans are DC and

DB, the later where the contributions made on behalf of the employees by the firm specifies the

retirement benefits to which the employee is entitled. The benefit formula typically takes into

account years of service for the employer and level of wages. In DC plans, the investment risk is

transferred to the employee.

True

False

Question 37

J Curves. J curves are generally associated with venture capital investments and indicate the

anticipated negative return (or cash flows) early on in its life cycle.

True

False

Question 38

Value Proposition: The consulting model value proposition suggests that a stock price will be

higher the larger the expected dividend per share (or free cash flow), the higher the market

capitalization rate (or risk), and the higher the expected growth rate of dividends (or free cash

flow).

True

False