1. In relative value models, we can use either P/E (price to earnings) ratio, P/S (price to sales) ratio, or P/B (price to book value) ratio. Which ratio can produce the best results? Why?
2. Can we consider preferred stock as a perpetuity? What will happen if a company doesn’t have cash to pay preferred dividend during some periods?
3. Mutual fund A earned 12 percent while B earned 10 percent. The standard deviations of the returns were 10 percent and 6 percent, respectively. Assume risk free rate of 2%. Estimate the Sharpe ratio of each mutual fund According to the Sharpe ratio, which fund performed better.