Understanding the Role of Investment Banks and Capital Markets, Exams of Marketing Business-to-business (B2B)

Download Understanding the Role of Investment Banks and Capital Markets and more Exams Marketing Business-to-business (B2B) in PDF only on Docsity! Bloomberg Market Concepts Certification Exam New 2024 Versions with All Questions from Actual Past Exams and 100% Correct Answers Why are equities volatile? --------- Correct Answer -------- Due to the residual nature of earnings Which of the following statements is true? --------- Correct Answer -------- When you buy an equity, the most you can lose is 100% and your potential gain is unlimited. What is the role of investment banks in helping companies raise capital? A) They provide money to companies to invest in new opportunities B) They link companies who need investment with buyside investors C) They help companies market their products to potential customers D) They provide loans to companies to help them grow ---------- Correct Answer --------- B) They link companies who need investment with buyside investors A sector made of investments that serve companies, such as commerical banks, investment banks, and credit ranking agencies. (select the question that matches this answer) A) What is the buyside? B) Where can you go to get a loan to buy a new family car? C) What is the sellside? ---------- Correct Answer --------- C) What is the sellside Ensuring a company's financial success by managing its money and financial risks. (select the question that matches this answer) A) What is the first priority of an entrepreneur? B) What is the role of a Corporate Treasurer? C) What is the focus of a credit rating agency? ---------- Correct Answer --------- B) What is the role of a Corporate Treasurer? What does the release of earnings announcements have in common with the release of economic indicators? --------- Correct Answer --------- Both are scheduled in advance. The number at the bottom right of each supplier's box shows the portion of Boeing's total costs in the last year that went to that supplier... --------- Correct Answer --------- 60.68% Which company is most exposed to the ups and downs of the aircraft engine industry? - -------- Correct Answer --------- MTU Aero Engines Engines are the most expensive, heavy component on an aircraft and are designed with detailed specifications. Which of the following would likely be the best theme for a Rolls- Royce analyst research note to help a portfolio manager decide between investing in Rolls-Royce or United Technologies? --------- Correct Answer --------- A comparison of the commercial prospects of new aircraft models You are an analyst for a home-building company tasked with creating a financial model of home-building trends. Which of the following factors should your model address? ----- ---- Correct Answer --------- The price of wood products and long-term interest rates What are buyside institutions that gather savings from households to invest in companies? A) investment banks B) retail banks C) pension funds ---------- Correct Answer --------- B) retail banks Sellside institutions serving companies by raising money through issuing stocks or bonds. (select the question that matches this answer) A) What are retail banks? B) What are pension funds? C) What are investment banks? ---------- Correct Answer --------- C) What are investment banks? This describes an investment opportunity in detail to appeal to investors on the buyside. (select the question that matches this answer) A) What is a prospectus? B) What is a stock pitch? C) What is a company sales pitch? ---------- Correct Answer --------- A) What is a prospectus? Institution which provides independent assessments of the financial strength of companies and governments? A) What is a prospectus? B) What is a credit rating agency? C) What is a commercial bank? ---------- Correct Answer --------- B) What is a credit rating agency? Companies that manage cash flow efficiently have money to cover these: A) Lines of credit B) Emergencies C) Loans ---------- Correct Answer --------- B) Emergencies What is currency strength? A) A currency's ability to purchase goods and services within its own country B) A currency's value in relation to its own purchasing power C) A currency's value compared to a commodity like gold D) A currency's purchasing power compared to another currency ---------- Correct Answer --------- D) A currency's purchasing power compared to another currency What are US government bonds viewed as by many countries and investors? A) The least liquid tradeable assets on earth B) The riskiest financial asset on earth C) the safest financial asset on earth ---------- Correct Answer --------- C) the safest financial asset on earth What proportion of the tradable bonds in the world, excluding government bonds, are corporate bonds? A) Approx. 50% B) Between 25% and 50% C) More than 75% ---------- Correct Answer --------- What is the impact of bond price fluctuations on the yield of APR of a bond? When bond prices go down, the yield of APR goes up Bond price fluctuations have no impact on the yield or APR When bond prices go up, the yield or APR also goes up ---------- Correct Answer --------- When bond prices go down, the yield of APR goes up What is the effect on the yield or APR when the price of a bond goes up? It goes down It goes up It stays the same ---------- Correct Answer --------- It goes down Who benefits when yields or interest rates are low? Both prospective lenders and borrowers prospective borrowers prospective lenders ---------- Correct Answer --------- prospective borrowers When investors doubt the creditworthiness of a borrower, what should happen to the price and yield of the bond? Price goes up, yields go down Price goes down, yields go up Price goes down, yields go down ---------- Correct Answer --------- Price goes down, yields go up How did Japan manage to maintain low bond yields despite its high debt-to-gdp ratio? By defaulting on its previous debt By implementing policies that led to the printing of more yen and purchasing government bonds By significantly reducing its budget deficit ---------- Correct Answer --------- What can be a downside for governments taking advantage of low-interest short-term debt? They may accumulate too much wealth They may face higher interest rates un the future if lenders question their ability to repay They may face decreased international influence ---------- Correct Answer --------- They may face higher interest rates un the future if lenders question their ability to repay Why can the US government afford to borrow short-term without the fear of investors withdrawing their support? Because it has a strong military force Because it has a relatively low amount of debt Because it can print the world's reserve currency and tax a wealthy economy ---------- Correct Answer --------- Because it can print the world's reserve currency and tax a wealthy economy All else equal, which of the following rated bonds would pay the highest yield to investors? C AAA BBB ---------- Correct Answer --------- C In the example highlighting the differences between bond holders and shareholders, we equated surgeon Jenny...... --------- Correct Answer -------- D You buy the stock of four consumer goods companies at the end of 2004 and hold them until August 2010..... --------- Correct Answer -------- Procter & Gamble What does the release of earnings announcements have in common with the release of economic indicators? --------- Correct Answer -------- Both are estimated in advance by analysts. The number at the bottom right of each supplier's box shows the portion of Boeing's total costs in the last year that went to that supplier... --------- Correct Answer -------- United Continental Which company is most exposed to the ups and downs of the aircraft engine industry? - -------- Correct Answer -------- MTU Aero Engines Engines are the most expensive, heavy component on an aircraft and are designed with detailed specifications. Which of the following would likely be the best theme for a Rolls- Royce analyst research note to help a portfolio manager decide between investing in Rolls-Royce or United Technologies? --------- Correct Answer -------- A comparison of the commercial prospects of new aircraft models You are building a financial model of a bifocal lens manufacturer. Which of the following is the best driver to use? --------- Correct Answer -------- Median age of society Here is a table from the Bloomberg Intelligence aluminum dashboard which shows the different end-uses of aluminum in China..... --------- Correct Answer -------- China's Aluminum Demand Weathers Real-Estate Slowdown so far When an analyst is looking at a company for the first time, which of the following four activities does he do first? --------- Correct Answer -------- Defines the industry or industries in which the company operates. Here is a table from the Bloomberg Intelligence copper dashboard which shows the different end-users of the "red metal.".... --------- Correct Answer -------- China's construction of.... Here is a breakdown of post-it note inventor 3M's revenue by industry. Which of the following industry drivers.... --------- Correct Answer -------- The change in postal Volumes Company X was expected to have earnings per share of $0.52 for the upcoming quarter. On the day of the results, the company reported earnings per share of $0.83. What happened to the share price when the stock market opened? --------- Correct Answer -------- There is not enough information to tell. Which company is worth more, Coca-Cola or Pepsi? --------- Correct Answer -------- Coca-Cola because it has a higher market capitalization Widget Co has a market capitalization of $100 million. it does a 10-for-1 stock split. it then does a 1-for-16 reverse stock split. Finally, it does a 35-for-1 stock split. Nothing else changes. what's the new market cap? --------- Correct Answer -------- $100 million What input do both absolute valuation and relative valuation typically require? --------- Correct Answer -------- Short-term forecasts Which of the following is most likely to be the most challenging part of this first step of the absolute valuation process? --------- Correct Answer -------- Making the assumptions upon which the project future performance What is a reason one discounts future cash flows as part of the absolute valuation process? --------- Correct Answer -------- Future profits are uncertain. Which of the following important U.S. economic indicators is only available on a quarterly basis? --------- Correct Answer -------- GDP Which economic indicator is most directly linked to unemployment? --------- Correct Answer -------- nonfarm payrolls Here is the economic calendar for the UK for august 2013. Examine indicators like PMI,...... --------- Correct Answer -------- Above expectations This chart was captured in mid-2014. At that point in time, which of the following terms..... --------- Correct Answer -------- Deceleration How have economic forecasts for this county evolved? --------- Correct Answer -------- Minimal Change These charts show data for four countries as of early 2016. For each country, the purple line.... --------- Correct Answer -------- Russia What is the main reason that investment banks create estimates of economic indicators? --------- Correct Answer -------- To know when specific economic data points are a positive or negative surprise. Which of the following is the biggest pitfall of economic indicators? --------- Correct Answer -------- They do not consistently presage turning points. Here is a chart displaying estimates of the initial jobless claims indicator, one of the main unemployment.... --------- Correct Answer -------- 260 Which country is the fourth biggest importer and exporter? --------- Correct Answer ------- - Japan In 1994, the Mexican peso declined against the US dollar during so-called "Tequila Crisis.".... --------- Correct Answer -------- Both countries had large dollar-denominated debts Using the chart given, how many NZD can you buy with 100 AUD? --------- Correct Answer -------- 107.89 Allison lives in America and has just retired. It is early 2016..... --------- Correct Answer -- ------ Norway Review the currency pair charts for the Barbadian dollar agains the Jamaican dollar...... --------- Correct Answer -------- Hong Kong dollar against the Macanese pataca Which of the following is not an example of a failed peg? --------- Correct Answer -------- Hong Kong dollar against the U.S. dollar in 1997. Use the cart below to answer the question. How many Danish crown (DKK) will buy 100 (JPY) --------- Correct Answer -------- 5.360 According to the Big Mac index screen, which of the following four countries' currency is the most undervalued? --------- Correct Answer -------- China What generally happens when a central bank unexpectedly increases interest rates? ---- ----- Correct Answer -------- The currency strengthens. Which driver weakened the Swiss franc? --------- Correct Answer -------- A surprise change in inflation expectations What does the Big Mac index show? --------- Correct Answer -------- How currencies may be overvalued or undervalued. Which of the following are short-term drivers of currency valuation? --------- Correct Answer -------- Surprise changes in interest rates, inflation, and trade By what mechanism do interest rates affect currency values? --------- Correct Answer --- ----- Global investors are attracted by higher bond yields in high interest rate countries. Which of these headlines could move a currency pair? --------- Correct Answer -------- U.S. Stocks rally on Fed's Surprise reduction of Interest Rate. What is the most common target inflation rate for an advanced economy? --------- Correct Answer -------- 2% What was the primary goal of Abenomics? --------- Correct Answer -------- To halt the vicious cycle of deflation Here is the vicious deflationary cycle. What step connects the lower left gray arrow to the upper right blue arrow? --------- Correct Answer -------- prices decline Were the two oil crises in the 1970s linked to deflation or inflation? --------- Correct Answer -------- Inflation on June 23. 2016, the UK voted to leave the EU..... --------- Correct Answer -------- They are probably heavy exporters In early 2016, the same Germany machinery company has interest from four prospective clients..... --------- Correct Answer -------- Indonesia What is the median estimate for the number of Japanese yen per euro for calendar year 2020? --------- Correct Answer -------- 126 What is the difference between Norma and RBC's estimate for the Japanese yen/euro... --------- Correct Answer -------- 40 yen Imagine you are a Dutch diamond dealer who sources diamonds from south africa ------- -- Correct Answer -------- EUR 4,717 more Why would Jack Welch suggest putting all company plants on barges? --------- Correct Answer -------- To respond quickly to changes in the currency markets. Samsung is based in South Korea and reports in South Korean won.... --------- Correct Answer -------- Dollar Legendary investor Warren Buffett said, "Gold gets dug out of the ground..... Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." Based on this quotation, what quality of gold is he referring to? --------- Correct Answer -------- Its storage costs Which of the following options is the best way for investors to manage currency risk? ---- ----- Correct Answer -------- By locking in forward rates for known foreign payments. What does the Big Mac index show? (A) --------- Correct Answer -------- a) How currencies may be overvalued or undervalued b) How the Economist magazine estimates inflation c)How the law of one price is true of consumer products d)How interest rates and inflation affect value Which of the following are short-term drivers of currency valuation? (A) --------- Correct Answer -------- a)Surprise charges in interest rates, inflation, and trade b)Surprise changes in interest rates, inflation, and gold c)Surprise changes in relative prices, trade, and gold d)Surprise changes in relative prices, inflation, and trade By what mechanism do interest rates affect currency values? (C) --------- Correct Answer -------- a)High interest rates slow an economy and make it less attractive to investors b)Changes in interest rates directly influence the value at which a currency is pegged c)Global investors are attracted by higher bond yields in high interest rate countries d)High interest rates make the currency safer According to the Big Mac index screen, which of the following four countries' currency is the most undervalued? (D) --------- Correct Answer -------- a)United States b)Thailand c)Brazil d)China b) Surplus c) Growth d) Deficit According to the table, who owns approximately 1.3% of actively trades US debt? (D) --- ------ Correct Answer -------- a) Canada b) Russia c) India d) Taiwan What quality of U.S. government bonds causes investors to buy them when market volatility rises? (C) --------- Correct Answer -------- a) US Government bonds are denominated in dollars b) US Government bonds are stored in bank vaults c) US Government bonds are considered low risk d) US Government bonds are underwritten by global taxpayers Why is fixed income called Fixed income? --------- Correct Answer -------- Because the repayment amounts and timings are fixed for ordinary bonds Why does the United States have a strong reputation for creditworthiness? --------- Correct Answer -------- because it has the right to tax the wealthiest population on earth What is one reason why foreign governments lend to the U.S. government? --------- Correct Answer -------- To build liquid FX reserves What does one yellow bar depict in this debt distribution diagram? --------- Correct Answer -------- Coupon repayment Which one of the following actors benefits when interest rates go up? --------- Correct Answer -------- An investor who is about to buy bonds. When investors doubt the creditworthiness of a borrower, how do they alter their calculation of the bond yield to take into account these doubts? --------- Correct Answer - ------- Investors do not after the calculation As a general rule, what percentage of debt to GDP will make a government's bond yields spike? --------- Correct Answer -------- There is no general rule What is true of both the U.K. and the U.S.? --------- Correct Answer -------- Both countries are highly creditworthy. Which would you prefer? --------- Correct Answer -------- A 4% annual yield on a credit risk-free 10-year government bond from the mythical country of Utopia. Which would you prefer? --------- Correct Answer -------- A 5% annual yield on an investment in 10-year U.S. government bonds What is the primary reason for U.S. government bond yields to ripple through the bond market? --------- Correct Answer -------- The large government bond market competes for investors attention via yields A rise in which of the following measures would typically send a government bond price up? --------- Correct Answer -------- Creditworthiness How do investors compare bonds? --------- Correct Answer -------- by comparing the yields of single bonds Which of the following countries shown makes the greatest relative use of short-term government financing? --------- Correct Answer -------- Norway Which of the following is the strongest driver of inflation? --------- Correct Answer -------- wartime activities This chart shows the output gap in the US from 1949 to 1973. What was the output gap in 1973? --------- Correct Answer -------- +3.0% Here is a chart from the ILBE function displaying US 10-year inflation expectations as of early 2017.... --------- Correct Answer -------- 0.0239% above Investors who fear rising inflation may buy Treasury Inflation Protected Securities (TIPS). How do TIPS shield lenders from inflation? --------- Correct Answer -------- By compensating investors for inflation What is the Federal Reserve's favorite inflation gauge? --------- Correct Answer -------- Core PCE Here is the output gap in the US in early 1975. What was likely the fed interest rate policy? --------- Correct Answer -------- To cut interest rates Why does the yield curve naturally slope upwards? --------- Correct Answer -------- To compensate leaders for the greater risk of long-term loans compared to short-term loans Why did the corporate spread significantly widen during the 2008 market crash? --------- Correct Answer -------- Corporate bond issuers go bankrupt more frequently then governments, as they do no have a tax base to fall back on in hard times What impact will a tightening of the corporate spread most likely have on a company?` - -------- Correct Answer -------- A tendency to expand the borrowing capacity of the company. What are the three main transmission mechanisms by which the yield curve affects the economy? --------- Correct Answer -------- Corporate impact, global impact, consumer impact. What is the 10-year to 3-month term premium of the following yield curve? --------- Correct Answer -------- 2.398% The purchase of which of the following products is most affected by interest rates? ------- -- Correct Answer -------- A house What is the primary driver of the left-hand end of the yield curve? --------- Correct Answer -------- Central bank interest rates Which yield curve is most likely linked to a booming economy --------- Correct Answer --- ----- B Why does the yield curve tend to invert shortly before a recession? --------- Correct Answer -------- An inverted yield curve means that bond traders are predicting interest rate cuts, and interest rate cuts happen in response to a recession. The two yield curves in the chart are from September 10, 2001 (yellow) and October 10, 2001 (green)...... --------- Correct Answer -------- Cut interest rates Why do companies do IPOs? --------- Correct Answer -------- IPOs incentivize entrepreneurs to innovate as IPOs provide a way for entrepreneurs to monetize their work. Why do company manager-owners smile when they ring the stock exchange bell at their IPO? --------- Correct Answer -------- an IPO crystallizes the value of the manager- owners stake. The Dow Jones industrial average index has an unusual weighting methodology. Unlike the S&P 500, it is weighted by share price..... --------- Correct Answer -------- Goldman Sachs Here is a chart of the index value for the S&P 500 and the United Kingdom's main equity index the FTSE 100, from the end of 2008 to early 2015..... --------- Correct Answer -------- The S&P 500 in 1999, James Glassman and Kevin Hassett published a book called "Dow 36,000".... - -------- Correct Answer -------- The sum of the share prices of all 30 Dow Jones Members will triple What is the prime reason that Jenny's discretionary income is more volatile than her salary? --------- Correct Answer -------- Her mortgage payments and necessities are fixed D) A business plan that outlines a company's goals and strategies ---------- Correct Answer --------- A) A marketing brochure that describes an investment opportunity in detail Why is it important for investment banks to carefully examine a company's finances before publishing a prospectus? To ensure that the investment opportunity is appealing to potential investors To provide guidance on the company on how to raise funds To negotiate the terms of the investment agreement with the company To prevent fraud and protect their investors interests ---------- Correct Answer --------- To prevent fraud and protect their investors interests in the analogy provided, what did the price of the books symbolize inflation rates bond yields bond prices ---------- Correct Answer --------- bond yields How does deflation impact the burden of debt for borrowers? It does not impact the burden of debt It lightens the burden by inflating away the debt It increases the burden by not inflating away the debt ---------- Correct Answer --------- It increases the burden by not inflating away the debt Which of the following surprises would most likely decrease the valuation of a currency? A) surprise increase in PPI B) surprise decrease in CPI C) surprise increase in central bank rates ---------- Correct Answer --------- A) surprise increase in PPI Considering the historic stock market events, how has the function of the "circuit breakers" evolved? 1. They were initially used to curb the fallout of the 2008 financial crisis, but didn't activate during the Black Monday 1987 crash. 2. They were first introduced after the Black Monday 1987 crash to pause trading after a 7% decline, but couldn't prevent the 2008 financial crisis. They were triggered again in March 2020 during the COVID-19 market crash. 3. They were used to prevent the 2008 financial crisis but failed to halt trading during the COVID-19 market crash. ---------- Correct Answer --------- 2. They were first introduced after the Black Monday 1987 crash to pause trading after a 7% decline, but couldn't prevent the 2008 financial crisis. They were triggered again in March 2020 during the COVID-19 market crash. What does a downwardly sloping yield curve often indicate? A) Impending Recession B) Stable Economy C) Economic Boom ---------- Correct Answer --------- A) Impending Recession from an investors prospective, if a company has significant operating leverage, what might they anticipate in terms of the company's earnings behavior? A) minor fluctuations with changes in sales volume B) significant fluctuations with changes in sales volume C) no changes with variations in sales volumes ---------- Correct Answer --------- B) significant fluctuations with changes in sales volume How does an index understate volatility in the equity market? A) Because all stocks in an index always move in the same direction B) Because the positive contribution of some members offsets the negative contribution of others C) Because indices are immune to market volatility ---------- Correct Answer --------- B) Because the positive contribution of some members offsets the negative contribution of others How does the potential for returns in equity investments compared to bonds contribute to strong public interest in the stock market? A) The security of returns in bonds drives public interest B) The very low risk in equities drives public interest C) The potential for unlimited gains in equities drives public interest ---------- Correct Answer --------- C) The potential for unlimited gains in equities drives public interest What best describes the underlying volatility in a company's residual earnings? A) Changes in revenues and costs can both be volatile B) Changes in the company's management C) While costs are steady and predictable, changes in revenues can be volatile ---------- Correct Answer --------- A) Changes in revenues and costs can both be volatile If an equity analyst wants to predict whether or not a company will "beat" or "miss" estimates, what additional factors are most essential to consider to make a more accurate assessment of how shares will react? A) The consensus estimates and previous ratings from other analysts B) The company's advertising strategies and employee retention policy C) The company's forward guidance and its valuation ---------- Correct Answer --------- C) The company's forward guidance and its valuation An equity analyst accurately predicted a negative surprise in a company's quarterly results. What is the most likely reaction of its share price? A) The share price is more likely to go down, but it's not guaranteed B) The share price will most likely go up, but it's not guaranteed C) The share price will definitely go down ---------- Correct Answer --------- A) The share price is more likely to go down, but it's not guaranteed What does the term 'market capitalization' refer to in the context of a company? A) The value of the company as determined by the number of shares divided by the price per share. B) It is equivalent to the total number of shares the company has. C) The value of the company as determined by the number of shares multiplied by the price per share ---------- Correct Answer --------- C) The value of the company as determined by the number of shares multiplied by the price per share What is the relative valuation akin to? A) Detailed modeling B) Clairvoyance C) Comparison Shopping ---------- Correct Answer --------- C) Comparison Shopping What is the most challenging and important input to an absolute valuation model? 1) Calculating the WACC 2) Forecasting long-term future cash flows 3) Calculating the Beta ---------- Correct Answer --------- 2) Forecasting long-term future cash flows Which of the following factors offsets the other in the context of stock market valuation? A) economic growth and dividends B) Economic growth and interest rates C) Dividends and interest rates ---------- Correct Answer --------- B) Economic growth and interest rates Here is the capital structure of Microsoft. What part of the $117.67 share price (to the nearest dollar) is represented by cash? ---------- Correct Answer --------- $17 On the chart below, if the earnings per share grew from 7.61 on December 31, 2018, to 7.82 on June 30, 2019, what would the implied earnings yield be? ---------- Correct Answer --------- 4.1% A tech company has a share price of $50 and estimated earnings per share of $2 for the upcoming year. What is the prospective P/E ratio? 100.0x 52.0x 25.0x ---------- Correct Answer --------- 25.0x Below is a table for the steel producers Dashboard, which shows the sources of demand for steel products globally. Given the data, which of the following would be of most interest to prospective investors in steel? --------- Correct Answer --------- The impact of China's recession on the commercial real estate market Masco is a consumer discretionary company that focuses on home improvement products. Here is a breakdown of the revenue concentration by industry. Which of the following headlines would be of the most interest to potential investors? --------- Correct Answer --------- Kitchen and Bathroom Remodeling is up More Than 8% as Homeowners Look to Improve House Values Company X was expected to have earnings per share of $0.52 for the upcoming quarter. On the day of the results, the company reported earnings per share of $0.83. What happened to the share price when the stock market opened? --------- Correct Answer --------- There is not enough information to tell. Which company is worth less, Coca-Cola or Pepsi? --------- Correct Answer --------- Pepsi because it has a lower market cap Widget Co has a market capitalization of $125 million. it does a 5-for-1 stock split. it then does a 1-for-25 reverse stock split. Finally, it does a 35-for-1 stock split. Nothing else changes. what's the new market cap? --------- Correct Answer --------- $125 mn What input do both absolute valuation and relative valuation typically require? --------- Correct Answer --------- short-term forecasts Which of the following is most likely to be the most challenging part of this first step of the absolute valuation process? --------- Correct Answer --------- Making the assumptions upon which to project future performance What is a reason one discounts future cash flows as part of the absolute valuation process? --------- Correct Answer --------- Investors prefer cash flows today to cash flows in the future. What role does beta play in absolute valuation? --------- Correct Answer --------- It determines how risky a stock is in comparison to the overall stock market Here is the capital structure of Microsoft. What part of the $117.67 share price (to the nearest dollar) is represented by cash? --------- Correct Answer --------- $17 How is enterprise value calculated? --------- Correct Answer --------- Enterprise value = market cap - cash + debt On the chart below, if the EPS grew from 7.61 on 12/31/2018 to 7.82 on 6/30/2019, what would the implied earnings yield be? --------- Correct Answer --------- 4.1% At its peak at the end of 1999, Microsoft has a market cap of $600B. PC sales were booming and most PCs ran on Microsoft software..... --------- Correct Answer --------- The decline in the P/E ratio more than offset earnings growth and this pushed the market cap down. What are the possible weaknesses of this peer approach to valuation? --------- Correct Answer --------- The chosen peers might not be true competitors, the company might have multiple divisions, and the most appropriate competitors might not have P/E multiples. What may be a problem of comparing the P/E of a stock to the P/E of the overall market? --------- Correct Answer --------- A stock's P/E ratio can remain above or below market average for extended periods. Here is a chart of the Nasdaq Composite, the world's main technology index. It peaked in the dotcom bubble on March 10, 2000. The P/E.... --------- Correct Answer --------- Earnings grew substantially, meaning that the P/E ratio in early 2015 was only around 30.3x. The World Equity index function shown contains two valuation metrics for the S&P 500. The Verizon description page... --------- Correct Answer --------- Verizon is less expensive than the S&P 500 on both a P/E and dividend yield basis. If the earnings per share of a company is $3.85 and the earnings yield is 2.5%, what is the price per share? --------- Correct Answer --------- $154 This chart shows a scatterplot with the x-axis being the estimated sales growth and the y-axis being the estimated P/E multiple.... --------- Correct Answer --------- Chubb "New news" moves markets. Accordingly, the economic indicators that heralds "new news" are of the most value to traders and investors. --------- Correct Answer ---------- timeliness of release GDP statistics are typically released by the government a month or more after the period in question, by which point dozens of other indicators have been released. -------- - Correct Answer ---------- Because GDP statistics are released well after other economic indicators Nonfarm payrolls, CPI and PMI are published monthly. GDP is only published on a quarterly basis. --------- Correct Answer ---------- GDP Which economic indicator is most directly linked to unemployment? --------- Correct Answer ---------- nonfarm payrolls What is the main reason that investment banks create estimates of economic indicators? --------- Correct Answer ---------- to know when specific economic data points are a positive or negative surprise Which of the following is the biggest pitfall of economic indicators? 1. they do not take into account seasonality 2, they are not sufficiently timely to make investment decisions 3. they only serve as proxys for economic activity 4. they do not consistently presage turning points --------- Correct Answer ---------- they do not consistently presage turning points In 1994, the Mexican peso declined against the US dollar by 37% during the so-called Tequila Crisis. What exacerbating factor did Mexico's Tequila Crisis have in common with the Argentine crisis of 2002? --------- Correct Answer ---------- both countries had large dollar-denominated debts What are 3 examples of failed pegs? --------- Correct Answer ---------- 1. British sterling against the Deutsch mark in 1992 2. Mexican peso against the US dollar in 1994 3. Argentine peso against the US dollar in 2002 What is an example of a failed peg? --------- Correct Answer ---------- Hong Kong dollar aginst the US dollar in 1997 Currency market mechanics summary: --------- Correct Answer ---------- -the US dollar equivilent of 5T of currencies are traded every day -1971 marked the dawn of the modern currency market -several contries peg their currencies to other currencies -locked exchange rates are not actually set in stone but are government aspirations -floating currencies move against one another in a matrix -the US dollar is the world's reserve currency and is the most heavily traded currency What generally happens when a central bank unexpectedly increases interest rates? ---- ----- Correct Answer ---------- the currency strengthens What driver weakened the Swiss frank? --------- Correct Answer ---------- a surprise change in inflation expectations What does the Big Mac index show? --------- Correct Answer ---------- how currencies may be undervalues or overvalued What are 3 main short-term drivers of currency valuation? --------- Correct Answer -------- -- surprise changes in interest rates, inflation, and trade