Question

# A high amount of short interest is typically considered as a __________ signal and contrarians may...

A high amount of short interest is typically considered as a __________ signal and contrarians may consider it as a _________ signal.

A. bearish; bullish

B. bullish; bearish

C. bearish; false

D. bullish; false

A NYSE listed firm is planning on paying its first dividend of \$2 after two years. Then dividends are expected to grow at 6% per year indefinitely. The stock's required return is 14%. What is the intrinsic value of a share today?

A. \$25.00

B. \$16.87

C. \$19.24

D. \$20.99

You find that the confidence index is down, market breadth is up, and the trin ratio is down. In total how many bullish signs do you have?

A. 0

B. 1

C. 2

D. 3

1. The answer is bearish and bullish

Short interest shows sentiments of investors. An increase and decrease in short interest signals that investors are bullish and bearish respectively.

2. This is a two stage Dividend Discount Model problem. The formula for DDM is Po is the current stock price

g is the constant growth rate in perpetuity expected for the dividends

r is the constant cost of equity capital for that company (or rate of return)

D1 is the value of the next year's dividends

In this first you will have to find out the share price at the end of year 2  P2= \$25

Now calculate present price Po. Since, company has not paid the dividend in first two years. So  Po = \$19.24

3. The number of bullish signal is 2

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