Question

1. If stock price is $40. Last year’s earning is $4 million. The firm has 2 million shares outstanding. What is the price-earning ratio? In general, what does it suggest of a firm?

2. Show the difference between fundamental analysis and technical analysis. Give examples.

3. Why was Sarbanes-Oxley Act enacted? Give an example of this Act.

4. What is short selling? How does short selling help a financial market?

5. What is Leveraged Buyout (LBO)? When is it likely to happen?

6. How does the industry condition influence the price of a stock in the IPO? Explain in details.

7. Compare between CAPM and APT.

Luckin Coffee, Inc. (ticker symbol is LK in yahoo finance) very recently misled the market with wrong information and the stock price tanked overnight. Write a report on that using your own thoughts. 5 Points

Answer 1

Stock price	40
Net Income	4000000
Shares outstanding	2000000
EPS (Net Income / Shares outstanding)	2
P/E = Stock price / EPS	40 / 2 = 20
P/E ratio is valuation ratio. It is calculated by dividing market price by EPS. P/E ratio gives an idea that how much dollars investors are ready to pay for per dollar earnings of company. By comparing P/E ratio with comparable companies P/E one can observe that share price is overvalued or undervalued.