Equity Investments

Question 1

Price-weighted index

Answer 1

Sum of(StockPrices)/adjusted divisor

Question 2

Value weighted index

Answer 2

(Sum of((current prices)#shares)/sum of((base year prices)#baseyearshares))*base value

Question 3

Quote driven market

Answer 3

Investors trade with dealers

Question 4

Order driven market

Answer 4

Buyers and sellers matched by rules

Question 5

Brokered markets

Answer 5

Brokers find counterparties

Question 6

Industry life cycle - embryonic

Answer 6

Slow growth; high prices; large investments needed; high risk of failure

Question 7

Industry life cycle - Growth

Answer 7

Rapid growth; falling prices; limited competition; increasing profitability

Question 8

Industry life cycle - shakeout

Answer 8

Slower growth; intense competition; declining profitability; cost cutting; weaker firms fail or merge

Question 9

Industry life cycle - Mature

Answer 9

Slow growth; consolidation; stable prices; high barriers to entry

Question 10

Margin call price

Answer 10

P0(1-initial margin%)/(1-maintenance margin)

Question 11

Industry life cycle - Decline

Answer 11

Negative growth; declining prices; consolidation

Question 12

Five Competitive forces

Answer 12

Rivalry existing competition; Threat of new entrants; threat of substitute; Bargaining power of buyers; Bargaining power of suppliers.

Question 13

One-period valuation model

Answer 13

V0=D1/(1+Ke) + P1/(1+Ke)

Question 14

DDM Multi-stage

Answer 14

V0=D1/(1+Ke) + … + Dn/(1+Ke)^n + Pn/(1+Ke)^n

Or

Pn=Dn+1/(Ke-gc)

Question 15

DDM Constant growth model

Answer 15

V0=D0(1+gc)/(Ke-c)=D1/(Ke-gc)

Question 16

Earning multiplier model

Answer 16

P0/E1= (D1/E1)/(k-g) = Payout ratio/(k-g)

Question 17

Peer group construction process:

Answer 17

that starts with an existing commercially classified system that is then narrowed

Question 18

CONSUMER DISCRETIONARY

Answer 18

businesses that sell nonessential goods and services.

Question 19

CONSUMER STAPLES

Answer 19

Essential products such as food, beverages, tobacco and household items.

Question 20

Participating preference shares

Answer 20

pay extra dividends if the firm’s profin exceed a predetermined level

Question 21

Cumulative preferred shares

Answer 21

must be paid any omitted dividends from prior periods before the firm may pay dividends to common shareholders