In the model P/E = (D1/E1)/(k – g), the P/E should increase if the dividend payout rate
increases, other things the same. If the payout rate was intentionally increased by the
board of directors, other things are likely not to stay the same. What is likely to happen
to the dividend growth rate and the required return?
The SIPC limit for insurance coverage on cash is _____________________.
‘Street names’ are the nicknames used for commonly-held securities, such as ‘IBM’ for
International Business Machines.
The financial news reports that the market is overvalued at a near record high based on
the earnings multiplier. What does that mean to you?
The Prudent Man Rule, which applies to fiduciaries, is a relatively new concept in
investment management.
What three variables affect the P/E ratio? How does each affect it?
What variable is manipulated to determine efficient portfolios, and why are the other
variables not changed at will?
Closed-end investment companies typically sell additional shares of their own stock
every few years.
The major question when evaluating the performance of a portfolio is:
a. “Does the portfolio match the investor characteristics of the individual investor?”
b. “Does the expected return of the portfolio meet the needs of the individual investor?”
c. “Is the return on the portfolio adequate to compensate for the risk taken?”
d. “Is the risk on the portfolio in line with the personal characteristics of the investor?”
The use of RVOL implies that total risk is the proper measure of risk in performance
evaluation.