T/F QUESTION

1. P/E ratios are generally underestimated during periods of deflation if the LIFO method is used for inventory evaluation. on the stock price asserts 2. The traditional view on the impact of inflation shock that a higher-than-expected inflation will lead to a lower stock price. 3. The monetary approac h to exchange rate determination asserts that an increase in the domestic real income will depreciate the domestic currency 4. If the required rate of return is higher than the expected ROE on reinvested earnings, the P/E ratio would be larger with higher retention ratio. 5. If the expected ROE on reinvested earnings is equal to the required rate of return, the equity price under the constant growth model should be higher than the one with no-growth opportunities. 6. The balance sheet channel theory asserts that a higher-than-expected money supply will lower the external finance premium for firms. In the context of the constant growth model, the higher the risk of the firm, the higher its P/E ratio. 7. 8. Appreciating dollar makes imported cars less expensive and domestic cars more expensive to foreign consumers, thereby hurting the domestic auto industry 9. Increasing the budget deficit raises government borrowing, and thus increases the interest rates. 10. If the economy is booming, firms with high operating leverage will experience greater increases in profits than firms with low operating leverage