Question: The third step of the three-step, top-down approach to valuation is to decide to allocate investment funds:
Select an Answer: among individual firms. among individual firms, and the various securities they offer. among the various groups of firms. among the various types of securities.
Rationale:
The third step of the three-step, top-down approach is the analysis (for purposes of allocating investment funds) of individual companies and stocks. The decision of types of securities to invest in is made in the first step, and the decision to focus on certain industries is made in the second step.
2025-01-18
Question: Which of the following statements is not a basic assumption of technical analysis as compared to efficient markets?
Select an Answer: Security prices adjust rapidly to new information. Stock prices move to a new equilibrium after release of new information.
Investors do not analyze information and act immediately. Stock prices move in trends that persist. Investors hope to buy or sell stock immediately after movement to a new equilibrium to take advantage of the price adjustment.
Rationale:
Believers of the efficient market hypothesis contend that security prices adjust rapidly to new information while technical analysts contend that stock prices move to a new equilibrium in a gradual manner after release of new information.
2025-01-17
Question: The EMH implies that an analyst must understand variables that affect rates of return and must be able to do a superior job of ________ movements in these variables.
Select an Answer: any of these answers tracking analyzing estimating
Rationale:
Evidence for the EMH suggests that the market experiences long-run price movements, but to take advantage of these movements, you must do a superior job of estimating the relevant economic variables that cause the movements.
2025-01-16
Question: The real risk-free rate of return depends most on:
Select an Answer: money supply. inflation. the real growth rate of the economy. interest rates.
Rationale:
The real risk-free rate of return does not take inflation into account (in contrast to the nominal risk-free rate). It should depend on the real growth rate of the economy because the capital invested should grow at least as fast as the economy. The rate can also be temporarily affected by tightness or ease in the capital markets.
2025-01-15
Question: Which of the following is the correct order of the steps (from first to last) of the top-down, three-step approach to valuation?
Select an Answer: analysis of the economy and security markets, analysis of alternative countries, and analysis of individual firms and stocks analysis of alternative industries, analysis of the economy and security markets, and analysis of individual firms and stocks analysis of the economy and security markets, analysis of alternative industries, and analysis of individual firms and stocks analysis of alternative countries and regions, analysis of the economy and security markets, and analysis of individual firms and stocks
Rationale:
Analysis of alternative countries and regions is considered part of the analysis of the economy and security markets. The steps follow a top-down approach, with the most general category (the economy) followed by more specific areas (industries and then individual firms).
