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99. Studies indicate that stocks of firms with the best earnings news outperform the stocks
of firms with the worst earnings news for at least six months. What type of market anomaly is
this?
100. If no price change occurs in a stock on the day that it announces its next dividend, it can
be assumed that:
101. When investors are
not
capable of making superior investment decisions on a continual
basis based on past prices or public or private information, the market is said to be:
102. Which group of investors is capable of earning consistent, superior profits if financial
markets are semistrong-form efficient? Ignore any legal considerations.
103. Which one of these probably contributed the least to the dot.com bubble?
104. When new information becomes available in the market, evidence generally suggests
that:
105. An example that specifically contradicts strong-form market efficiency in U.S. stock
markets is that:
106. Your broker suggests that you can make consistent, excess profits by purchasing stocks
on the 20th of the month and selling them on the last day of the month. If this is true, then:
107. If a firm unexpectedly raises its dividend permanently and by a substantial amount, the
firm's stock price:
108. The statement that there are no free lunches on Wall Street suggests that:
109. Explain why the market value of common stock often differs from its liquidation value or
its book value.
110. How can you reconcile the fact that whether an investor favors dividends or capital gains,
the investor should accept the dividend discount model as a determination of share value?
111. A stock offers an expected dividend of $3.50, has a required return of 14%, and has
historically exhibited a growth rate of 6%. Its current price is $35.00 and shows no tendency to
change. How can you explain this price based on the constant-growth dividend discount model?
112. Show numerically that the investment horizon has no bearing on current stock price. For
your illustration assume investment horizons of 2 versus 3 years and the following facts: The
stock has a required return of 17%, a growth rate of 7%, and has just paid a $3.74 dividend.
113. A firm expects earnings next year of $10.00 per share, has a plowback ratio of 35%, a
return on equity of 20%, and a required return of 15%. Mathematically illustrate the computation
of the current stock value and next year's expected stock value, assuming that growth is
constant. Also illustrate how the earnings plowback leads to the price increase.
114. Numerically illustrate the breakdown of the stock price between a firm's assets that are
already in place and its present value of growth opportunities. Assume next year's expected
earnings are $5.00 a share, the required rate of return is 13%, the return on equity is 17%, and the
plowback ratio is 45%.
115. Explain the relationships among the earnings-price (E/P) ratio, required rate of return,
and present value of growth opportunities.
116. How can an analyst feel comfortable in stating that the value of a stock is equal to the
discounted value of all future dividends when a company may pay dividends indefinitely and it is
virtually impossible to predict dividends beyond some reasonable horizon?
117. How does competition among investors lead to efficient markets?
118. How do you estimate expected rates of return in the constant-growth dividend discount
model?
119. What situation does a financial analyst face when there are many talented and
competitive fundamental analysts?
120. What are some common errors investors make in assessing the probability of uncertain
outcomes? How did such errors reinforce the dot.com boom?
