Reference no: EM133072618

1. Davy Jarvis, cFA, is performing an equity valuation and reviews his notes for key points he wanted to cover when planning the valuation. he finds the following questions:

• Does the company pay dividends?

• Is earnings growth estimable?

• Does the company have significant intangible assets?

Which of the following general questions is Jarvis trying to answer when planning this phase of the valuation?

A. Does the model fit the characteristics of the investment?

B. Is the model appropriate based on the availability of input data?

c. can the model be improved to make it more suitable, given the purpose of the analysis?

2. Which of the following is most appropriate to use as an estimate of the market

risk premium in the capital asset pricing model (cAPm)?

A. Geometric mean of historical returns on a market index.

B. Arithmetic mean of historical returns on a market index.

C. 1-year forecasted market index dividend yield plus long-term earnings growth forecast minus long-term government bond yield.

Suppose the expected rate of return on market portfolio is 12.5%, the risk free rate is 8.5% and the beta values of three companies A, B and C are 1.5, 1.00 and 0.85 respectively.

3. The expected returns on company A and company C are respectively

A. 14.50% and 12.50%.

C. 11.90% and 12.50%

D. 14.50% and 11.90%.

4. The risk premium on stock A and B are respectively equal to

A. 0.060 and 0.040.

B. 0.060 and 0.034.

C. 0.040 and 0.040