Reference no: EM131616064

1. Which of the following five statements are correct?

Successful young firms often have high initial earnings growth rates.

If you want to value a firm that consistently pays out its earnings as dividends, the simplest model for you to use is the enterprise value model.

The price of a share of stock is equal to the present value of the expected future dividends it will pay.

During periods of high growth, it is not unusual for firms to pay out 100% of their earnings to shareholders in the form of dividends.

Free cash flow measures the cash generated by the firm after payments to debt or equity holders are considered.

2. Which of the following five statements are correct?

The 95% confidence interval for the expected return is defined as the Historical Average Return plus or minus three standard errors.

In finance, the variance of a return is also referred to as its volatility.

A riskaverse investor will avoid investing in stocks.

If the risk of an investment can be reduced by diversification, then investors will not be compensated with a risk premium for this risk. The risk premimum is only related to the undiversifiable systematic risk of an investment.

According to the research by Eugene Fama, Nobel Laureate in Economics, it is very difficult to predict stock price movements in the short run.