Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 8, Problem 14CRCT
Price Ratio Valuation [LO2] What are the difficulties in using the PE ratio to value stock?
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- 1. Which form of market efficiency is the best among weak, semi strong and strong? 2. Is stock market efficient? Give logic in favour of your answerarrow_forwardQ1. Do you think the "Efficient Market Hypothesis (EMH)" holds in the stock market? What kind of aspects of EMIH does apply to the current market or not?arrow_forwardWhy do you think Dividend Irrelevance theory is unrealistic?arrow_forward
- Q1. Why is some risk diversifiable and other risk is not (non-diversifiable)? Q2. Yes or no, are industries that have a high standard deviations (wide fluctuation of the price of the stock) not useful as investments? Beyond answering Yes or no, state the reason behind your choice.arrow_forwardQ 4. A) How does the CAPM differ from the APT model? B) What is meant by an efficient market? What are the benefits to the economy from an efficient market?arrow_forwardGiven the Efficient Market Hypothesis, do you think we still need to study common stock valuation?arrow_forward
- A4 6 c c. In a well-functioning, well-organized, active market, can a stock be persistently over- or undervalued relative to an average asset in the market? Explain why or why not. How and when is equilibrium achieved?arrow_forwardHow can we reduce o reduce the effect of market volatility on our holdings?arrow_forwardQUESTION 10 Which of the following does the concept of market efficiency imply? O 1. All shares have the same price O 2. Stock prices do not fluctuate O 3. Technical analysis encourages semi-strong form efficiency O 4. Fundamental analysis encourages semi-strong form efficiencyarrow_forward
- Why might the stock price changing make sense within the context of risk and return?arrow_forwardHow is book value per share calculated? Explain how inflation and R&D programsmight cause book values to deviate from market values.arrow_forwardWhat could you comment on this statement? "Caution is warranted when using PE ratio to value stocks"arrow_forward
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