Question

Q10.   Which are the two important competitive strategies advocated by Micheal Porter?

a.            Low cost leadership, barrier to entry.

b.           New entrant deterrent, differentiation.

c.            Low cost leadership, differentiation.

d.           Differentiation, monopolistic.

e.            Monopolistic simulation, differentiation.

         Q11. Which of the following is NOT considered a relative valuation technique?

a.          Price-earnings ratio.

b.          Price/cash flow ratio.

c.          Price/book value ratio.

d.          Price/sales ratio.

e.          Price/cost of goods sold ratio.

Q12.   Based on Stock Amin's beta of 0.9, the normal return is 9%. However, the actual return for Stock Amin was 10%. What is Stock Amin's abnormal rate of return?

a.          1.0%

b.          0.1%

c.          0.1%

d.          1.0%

e.          1.1%

Q13.

An examination of the relationship between stock prices and the economy has shown that the relationship is

a.         weak, and that stock prices turn after the economy does.

b.        weak, and that stock prices turn before the economy does.

c.         strong, and that stock prices turn after the economy does.

d.        strong, and that stock prices turn before the economy does.

e.     Nonexistent.

Q14. If two well-known technical analysts seldom agree on the interpretation of a certain technical pattern, this implies:

a.      collusion between the two analysts.

b.     technical rules are too complex.

c.      technical rules are highly subjective.  

d.     not enough information has been gathered.

e.      all of the above.

Q15. What is the dividend payout ratio if the price per share is RM50, earning per share is RM20, and dividend per share is RM4.5?

a.         9 percent

b.        40 percent

c.         22.5 percent  

d.        25 percent

e.         none of the above

Q16.   Other things equal,

a.         the higher the expected growth rate, the lower the P/E ratio.

b.        if the risk-free rate rises, the required rate will decline.

c.         as the required rate rises, the P/E ratio declines.  

d.        if the risk premium rises, the required rate will fall.

e.         none of the above.

                                                                                                                       

   Q17.   Which of the following is NOT considered a basic economic force?

a.         Fiscal policy.

b.        Monetary policy.

c.         Inflation.

d.        Price Earnings Ratio (P/E) ratio.  

e.         None of the above (that is, all are basic economic forces).

Q18. Which of the following behaviours is consistent with escalation bias?

a.       Buying more of a stock as it increases in value.

b.       Buying more of a stock as it decreases in value.

c.       Selling a stock as it decreases in value.

d.       Selling a stock as it increases in value.

e.       Buying or selling a stock as it increases in value.

Q19.    Which of the following would be inconsistent with an efficient market?

a.         Information arrives randomly and independently.

b.        Stock prices adjust rapidly to new information.

c.         Price changes are biased.

d.        Price changes are random.

e.         Price adjustments are independent.

Q20.   According to the dividend growth model, if a company were to declare that it would never pay dividends, its value would be   

            

a.         based on earnings.

b.        based on expectations.

c.         higher than similar firms because it could reinvest a greater amount in new projects.

d.        zero.

e.         based on the capital asset pricing model.

Answer 1

(10) Option number C is correct answer because

Micheal Porter's two competitive strategies are-

Cost leadership means that a firm sets out to become low cost prroducer in it's industry.

Differentiation means that a firm seeks to be unique in its industry along some dimension that are widely appreciated by buyers.

(11) Option number E is not a relative valuation technique because The relative valuation ratios are Price/Earnings (P/E), Price/Book (P/B), Price/Cash Flow (P/CF), and Price/Sales (P/S).

(12) Option number D is correct answer because Abnormal return= RActual – RNormal

= 10%-9%= 1%

(13) Option number B is correct answer because stock market turn positive response before the economy. Many decisions that government are taking to spur the growth have significant bigger impact on economy and companies take benifit from that decision and ultimately economy do better.

(14). Option number E is correct answer because this implies collusion between the two analysts,technical rules are too complex,technical rules are highly subjective,not enough information has been gathered.

(15). Option number C is correct answer because

Divided Payout Ratios= Dividend per share/ Earning per share

= RM 4.5/RM 20 = 22.5% Answer

(16). Option number C is correct answer because

According to the earnings multiplier model, the P/E ratio is equal to P0/E1= (D1/E1)/(ke− g). As ke increases, P0/E1will decrease, all else equal.

P0= Market Price

E1= Earnings

D1= Dividends

Ke= Cost of Capital

g= Growth

(17). Option number D is correct answer because

Economic forces are factors such as monetary and fiscal policies, interest rate, employment, inflation rate, demographic changes, political changes, energy, security, and natural disasters. All of these have a direct effect on how businesses produce and distribute their products or services.

(18). Option number B is correct answer because

Escalation bias tends to involve additional actions. For example one might buy additional shares once a stock is down, to “average down” on the price. People acting on escalation bias tends to ignore the concept of sunk cost.

(19). Option number E is correct answer because

Market efficiency assumes that investors adjust their estimates of security prices rapidly to reflect their unbiased interpretation of the new information. New information arrives randomly and independently.Therefore, price changes are independent.

(20). Option number C is correct answer because

investors who buy stocks that do not pay dividends prefer to see these companies reinvest their earnings to fund other projects. They hope these internal investments will yield higher returns via a rising stock price.