Question

1. A firm s _____ added to its _____ equals 1.0.

            a.  earnings per share, PE ratio

            b.  ROA, ROE

            c.  growth rate, net income

            d.  payout ratio, plowback ratio

2. Amuzon Corp. is currently selling for $30/share and recently reported annual earnings of $2 million, 1 million shares outstanding, and forecasted earnings/share of $2.50 next year.  Amuzon Corp.'s trailing P/E ratio is:

a.  15

            b.  12

            c.  30

            d.  6.67%

3. If the PE of a broad market index is below the historical average PE, an investor might expect:

            a.  the earnings yield ratio to increase in the future.

            b.  the value of stocks in the index to decrease in the future.

            c.  the PE s of the index to fall in the future.

            d.  the earnings/price ratio to decrease in the future as stock values increase.

4. The Greenspan Model attempts to estimate the relative valuation of the stock market by:

            a.  subtracting the 10-year Treasury bond yield from the S&P 500 earnings yield.

            b.  comparing the U.S. T-Bill rate with the E/P ratio of the broad market.

            c.  subtracting the S&P earnings yield from the yield on a long-term U.S. Treasury bond.

            d.  subtracting the S&P dividend yield from the 10-year Treasury yield.

Answer 1

Hi,

Due to policy we will solve only first question here.

Here .a firm's plow back ratio is the ratio of net income that is going to retained earning. payout ratio is the ratio of net income that goes as dividend.

Plowback ratio = 1-dividend/ net income

Payout ratio = dividend/net income

Plowback ratio + payout ratio = 1

Hence option d is correct.

Thanks