Which of the following statements about collective investment funds is correct?
Income funds typically invest in companies that generate high abnormal earnings.
Growth funds typically invest in companies with high sales growth.
Market neutral funds typically hold security portfolios with betas close to zero.
A, B, and C are correct.
Consider the following statement: “According to the Efficient Markets Hypothesis investment strategies that are purely based on publicly available information cannot systematically generate positive abnormal returns.” This statement is
True
False
Consider the following statement: “Active portfolio management relies more heavily on financial statement analysis than passive portfolio management.” This statement is
True
False
Consider the following statement: “Technical security analysis relies more heavily on financial statement information than fundamental security analysis.” This statement is
True
False
Consider the following statement: “In contrast with formal valuation methods, informal valuation methods ignore financial statement information.” This statement is
True
False
On January 1, 2010, Company Z’s share price is €11.25 per share. The company’s book value of equity per share is €5, expected net profit per share for fiscal year 2010 is €5, and the cost of equity is 10 percent. What are the market’s expectations about the long-term abnormal earnings growth rate for company Z?
0 percent
1 percent
2 percent
3 percent
Which of the following statements is not correct? Research has shown that
Analysts’ forecasts and recommendations tend to be systematically biased
Analysts tend to be more accurate in forecasting near-term performance than in forecasting long-term performance
Analysts’ forecasts are generally more accurate than time-series forecasts
Analysts’ optimism (in forecasts and recommendations) has substantially increased during the late 1990s
None of the above
Consider the following statement: “Past research findings have consistently shown that collective investment and pension funds systematically outperform the market index.” This statement is
True
False
Consider the following information about company G’s performance and financial position in year t and t+1:
- Net profit year t = €60; net profit year t+1 = €80 - Beginning book value of equity year t = €900 - Dividend year t = €20; dividend year t+1 = €50 - Cost of equity = 10 percent
If an analyst assumes that company G’s abnormal earnings will be zero in year t+2 and beyond, her estimate of the company’s terminal (equity) value at the end of year t+1 under the abnormal earnings growth valuation method is
€0
€14
(€140)
€140
Consider the following information about company G’s performance and financial position in year t and t+1:
- Net profit year t = €60; net profit year t+1 = €80 - Beginning book value of equity year t = €900 - Dividend year t = €20; dividend year t+1 = €50 - Cost of equity = 10 percent
If an analyst assumes that company G’s abnormal earnings will remain constant in year t+2 and beyond, her estimate of the company’s terminal (equity) value at the end of year t+1 under the abnormal earnings growth valuation method is