True or False
1. Price Metrics: The P/E ratio is a useful measure of the market's assessment of the firm's growth opportunities. Many analysts form their estimates of a stock's value by multiplying their forecast of next year's earnings per share by a predicted P/E multiple. The P/B ratio is a useful measure of the market's assessment of the firm's return on equity (ROE) opportunities. The P/S ratio is a useful measure of the market's assessment of the firm's net margins and the expectations thereof. 2. Valuation Model Consistency: Valuation model consistency refers to the proper linking of the numerator and denominator's components. For example, the discounting factors for FCFE and FCFF are the CAPM required return and the WACC, respectively. 3. Straddle. A long straddle is established by buying both a call and a put on the stock, each with the same exercise price and the same expiration date. A straddle is an example of how options can be combined to capture an anticipated outcome. 4. Fiscal & Monetary Policy: The traditional tools of macro-policy are government spending and tax collection, which constitute fiscal policy, and manipulation of the money supply, which constitute monetary policy, primarily through the use of the fed funds rate, discount rate, open market operations, and quantitative easing. 5. 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. 1. Price Metrics: The P/E ratio is a useful measure of the market's assessment of the firm's growth opportunities. Many analysts form their estimates of a stock's value by multiplying their forecast of next year's earnings per share by a predicted P/E multiple. The P/B ratio is a useful measure of the market's assessment of the firm's return on equity (ROE) opportunities. The P/S ratio is a useful measure of the market's assessment of the firm's net margins and the expectations thereof. 2. Valuation Model Consistency: Valuation model consistency refers to the proper linking of the numerator and denominator's components. For example, the discounting factors for FCFE and FCFF are the CAPM required return and the WACC, respectively. 3. Straddle. A long straddle is established by buying both a call and a put on the stock, each with the same exercise price and the same expiration date. A straddle is an example of how options can be combined to capture an anticipated outcome. 4. Fiscal & Monetary Policy: The traditional tools of macro-policy are government spending and tax collection, which constitute fiscal policy, and manipulation of the money supply, which constitute monetary policy, primarily through the use of the fed funds rate, discount rate, open market operations, and quantitative easing. 5. 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
