1. What is the next step in an investment process after a portfolio manager decides on how many shares of a stock to buy and sell? Who is involved with this step?
2. Give two benefits that the stock (or financial) market provides to the economy and business?
3. a. What does the discount factor used in valuing stocks measure?
b. How is the discount factor calculated? (i.e. Give the name of the model)
4. What are the three major factors in the DuPont formula?
5. What does the sell side provide to the buy side? How does the buy side normally pay the sell side?
6. a. Give the name of one factor that measures a stock's valuation.
b. Give then name of one factor used to measure a stock's profitability.
C Give the name of one factor that measures a stock's change in expectations.
7. What are the two major phases of the investment process?
8. Give the names of three positions within an investment firm.
9. Virgo Airlines will pay a $4 dividend next year on its common stock, which is currently selling at $100 per share. What is the market's required return on this investment if the dividend is expected to grow at 5% forever?
10. Which stock does the market expect to grow faster? Why?
a. Divs:$2, Beta: 1.3, Price $30
b. Divs:$2, Beta: 1.3, Price $35
11. Everything else the same, which stock would you recommend that an investor buys?
a. The stock with a relatively high P/E ratio.
b. The stock with an average P/E ratio.
c. The stock with a current below-average P/E ratio.
d. The stock that has always had the lowest P/E ratio
12. A company with a net profit margin of 3% and a total asset turnover ratio of 2.5 % desires a return on equity of 12.5%. To achieve this return on equity, the total debt to total asset ratio for the company must be:
a. 40%
b. 10.5%
c. 60%
d. 30%