Investments An Introduction 12th Edition BY Herbert – Test Bank

Investments An Introduction 12th Edition BY Herbert – Test Bank

Chapter 9 The Valuation of Stock

TRUE/FALSE

T 1. The expected return depends on future dividends and future price appreciation.

T 2. The dividend-growth valuation model employs current dividends, future dividend growth, and the required return.

F 3. The dividend growth model includes both the current
and past years’ dividends.

T 4. If the anticipated return exceeds the required rate
of return, the investor should buy the stock.

F 5. The dividend growth model requires that dividends grow annually at the same rate.

F 6. A higher beta decreases the required rate of return.

T 7. The required return includes the risk free rate and a risk premium.

T 8. An increase in the risk free rate will tend to decrease stock prices.

F 9. High P/E stocks should be preferred because they pay larger dividends.

T 10. Value investors tend to prefer stocks with low price to sales and price to book ratios.

F 11. The PEG ratio multiplies a stock’s earnings, price, and growth rate.

T 12. The efficient market hypothesis suggests that the
current prices of stocks reflect what the investment community believes the stocks are worth.

T 13. According to the efficient market hypothesis, purchasing high P/E stock should not produce superior
investment results.

F 14. According to the efficient market hypothesis, purchasing low P/S stocks should produce superior investment results.