Question

The most common measure of __________ is the spread between the number of shares which advance in price and the number of shares which decline in price.

A. market breadth

B. market volume

C. odd-lot trading

D. short interest

The market capitalization rate on the stock of Aberdeen Wholesale Company is 10%. Its expected ROE is 12% and its expected EPS is €5.00. If the firm's plowback ratio is 60%, its P/E ratio will be _________.

A. 7.14

B. 14.29

C. 16.67

D. 22.22

Which of the following is NOT a characteristic of technical analysts?

A. They believe that changes in the supply and demand for a stock cause prices to change

B. They are called technicians or chartists.

C. They treat a stock as a special and unique asset.

D. They believe that all relevant information is contained in past share price.

Answer 1

Solution to QUESTION-1

The most common measure of “MARKET BREADTH” is the spread between the number of shares which advance in price and the number of shares which decline in price.

Solution to QUESTION-2

• Dividend Pay-out Ratio = 0.40 [1 – 0.60]
• Dividend Per Share (D1) = $2.00 per share [$5.00 x 0.40]
• Growth Rate (g) = ROE x Plowback Ratio

= 12% x 0.60

= 7.20%

• Market Price per share = D1/ (Ke – g)

= $2.00 / (0.10 – 0.0720)

= $71.43 per share

• P/E Ratio = Market Price per share / EPS

= $71.43 / $5.00 per share

= 14.29 Times

“Therefore, the P/E Ratio will be (B). 14.29”

Solution to QUESTION-3

The Answer is (C). They treat a stock as a special and unique asset.