FIN 4318 EXAM 2 Actual Questions And Correct Detailed Answers.
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Which of the following is the best characterization of a "value" investor?
a. An investor who cares about value and finding undervalued companies
b. An investor who incorporates fundamentals into his or her valuation judgement
c. An investor who buys stocks that trade at low PE ratios
d. An inv...
Which of the following is the best characterization of a "value" investor?
a. An investor who cares about value and finding undervalued companies
b. An investor who incorporates fundamentals into his or her valuation judgement
c. An investor who buys stocks that trade at low PE ratios
d. An investor who buys stocks that trade at less than book value
e. An investor who wants to buy a company for less than the value of just its assets in place - correct
answer e. An investor who wants to buy a company for less than the value of just its
assets in place
If you are a value investor, which of the following statements best characterizes your view of growth
opportunities?
a. Growth opportunities dont usually exist
b. Growth does not add to value, since companies have to reinvest to generate growth
c. Growth is too speculative and this should not be paid for
d. Growth can add value, but if it does, it should be viewed as a bonus on the investment, not as the
reason for the investment
e. None of the above - correct answer d. Growth can add value, but if if does, it
should be viewed as a bonus on the investment, not as the reason for the investment
Ben Graham's screens for value stocks have been modified and adapted over time. Which of the
following types of companies do the Graham screens try to find?
a. Cheap companies that pay high dividends, have low risk and reasonable growth prospects
b. Cheap companies that generate high and stable earnings, with little growth
c. Cheap companies that will have high growth in the future, while paying some dividends
d. Cheap companies that have very little debt
e. None of the above - correct answer a. Cheap companies that pay high dividends,
have low risk and reasonable growth prospects
, Warren Buffett is a legendary investor, and investors have long followed his maxims on investing. Which
of the following types of companies has he generally favored as investments?
a. Companies with simple businesses that are easy to understand
b. Companies with strong competitive advantages and high returns on investments
c. Companies with strong balance sheets and solid cash flows
d. Companies with good managers that you can trust
e. All of the above - correct answer e. All of the above
If you want to replicate what Warren Buffett has done in today's markets, which of the following is the
biggest impediment that you will face?
a. Markets have become efficient and stocks are not mispriced any more
b. Everyone has access to information at the same time
c. Companies no longer have strong competitive advantages
d. All of the best companies are in businesses that are difficult to understand
e. Your clients may not have the patience to allow you to make long-term bets - correct answer
e. Your clients may not have the patience to allow you to make long-term bets
Looking at stock returns over the decades, it is clear that stocks with low price to book ratios have
delivered higher returns than stocks with high price to book ratios. Which of the following may best
explain the extra returns?
a. Low price to book stocks have higher growth potential than high price to book stocks
b. Low price to book stocks generally have higher returns on equity than high price to book stocks
c. Low price to book stocks may be riskier than high price to book stocks
d. Low price to book stocks are more likely to have intangible assets on their balance sheets - correct
answer c. Low price to book stocks may be riskier than high price to book stocks
In recent years, investors have migrated from using PE ratios to EV/EBITDA multiples to assess whether
companies are cheap or expensive. Which of the following explains this shift?
a. A distrust of accounting earnings and a trust in cash flows
b. Differences in depreciation methods across companies
c. Differences in debt policy across companies
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