Investments Final Exam V2 UPDATED
ACTUAL Questions and CORRECT
Answers
Growth Investing - CORRECT ANSWER - - Looking for secular change; they focus on
potential, trying to find companies that will increase earnings at an above average rate compared
to the rest of the market, resulting in a higher share price.
Common features include:
- Management team with a good record of innovation
- Successfully creating growth through careful spending
- Competitive advantages (preferably operating in an expanding industry)
- Attractive growth in excess GDP, aim for 5-7%
- Higher P/E multiples
- Low dividend yields (or no dividend)
- Relatively high volatility
Value Investing (market mispricing) - CORRECT ANSWER - - Look for bargains
(undervalued)
- Try to find a catalyst that can lead to improvements in a company.
- Price is the main driver of value investing because investors believe it offers the opportunity to
invest in quality companies that are unfairly hit by short term sentiment.
Other indicators include:
- High dividend yield (above 5%)
- Low valuation compared to industry peers
- A record of increasing dividend payments over time and reasonably sustainable revenues.
- Lower p/e multiples
,Investment Methodologies - CORRECT ANSWER - - Fundamental (mainly used)
- Quantitative
- Technical
Fundamental Analysis - CORRECT ANSWER - The process of measuring a security's
intrinsic value by evaluating all aspects of a business or market.
The analysis of determinants of firm value, such as prospects for earnings and dividends, or
tangible assets such as land, equipment, or building that a company owns.
Finding "fair market value"
Technical Analysis - CORRECT ANSWER - A method of analyzing and predicting stock
movements based on past market data, primarily price and volume.
Quantitative Analysis - CORRECT ANSWER - Technique that uses mathematical and
statistical modeling, measurement, and research to understand behavior.
Investors perform quantitative analysis through simple financial ratio calculations such as
earnings per share (EPS) or discounted cash flows (DCF)
The shares of Phillip Morris (MO) are currently trading at a Price/Book value ratio of 0.7x and
have a DIVIDEND YIELD OF 6.2%. Which style of investing is likely to view this stock as
attractively priced? - CORRECT ANSWER - Value Investing: high dividend yield
Secular - CORRECT ANSWER - Secular is a change that is occurring over a long period
of time
Examples:
- e-commerce
, - alternative energy
- wearable technology
Cyclical - CORRECT ANSWER - Cyclical has to do with the cycles that the economy or
business moves in.
Example:
- GDP growth in 2022 declines because of higher interest rates
Top Down Approach - CORRECT ANSWER - 1. Economy
2. Individual Industries
3. Individual Companies (typically deeply cyclical companies)
Bottom Up - CORRECT ANSWER - Focus on the company and its prospects first
(typically growth oriented companies)
Domestic Macroeconomic Analysis - CORRECT ANSWER - - Gross Domestic Product
(GDP)
- Unemployment Rate
- Inflation
Gross Domestic Product (GDP) - CORRECT ANSWER - - Total market value of goods
and services produced in an economy over a period of time.
- Proxy for the SIZE of an economy
- US GDP approximately 17 trillion
- Market focuses on GDP growth %
- A measure of how fast the economy is growing/declining
ACTUAL Questions and CORRECT
Answers
Growth Investing - CORRECT ANSWER - - Looking for secular change; they focus on
potential, trying to find companies that will increase earnings at an above average rate compared
to the rest of the market, resulting in a higher share price.
Common features include:
- Management team with a good record of innovation
- Successfully creating growth through careful spending
- Competitive advantages (preferably operating in an expanding industry)
- Attractive growth in excess GDP, aim for 5-7%
- Higher P/E multiples
- Low dividend yields (or no dividend)
- Relatively high volatility
Value Investing (market mispricing) - CORRECT ANSWER - - Look for bargains
(undervalued)
- Try to find a catalyst that can lead to improvements in a company.
- Price is the main driver of value investing because investors believe it offers the opportunity to
invest in quality companies that are unfairly hit by short term sentiment.
Other indicators include:
- High dividend yield (above 5%)
- Low valuation compared to industry peers
- A record of increasing dividend payments over time and reasonably sustainable revenues.
- Lower p/e multiples
,Investment Methodologies - CORRECT ANSWER - - Fundamental (mainly used)
- Quantitative
- Technical
Fundamental Analysis - CORRECT ANSWER - The process of measuring a security's
intrinsic value by evaluating all aspects of a business or market.
The analysis of determinants of firm value, such as prospects for earnings and dividends, or
tangible assets such as land, equipment, or building that a company owns.
Finding "fair market value"
Technical Analysis - CORRECT ANSWER - A method of analyzing and predicting stock
movements based on past market data, primarily price and volume.
Quantitative Analysis - CORRECT ANSWER - Technique that uses mathematical and
statistical modeling, measurement, and research to understand behavior.
Investors perform quantitative analysis through simple financial ratio calculations such as
earnings per share (EPS) or discounted cash flows (DCF)
The shares of Phillip Morris (MO) are currently trading at a Price/Book value ratio of 0.7x and
have a DIVIDEND YIELD OF 6.2%. Which style of investing is likely to view this stock as
attractively priced? - CORRECT ANSWER - Value Investing: high dividend yield
Secular - CORRECT ANSWER - Secular is a change that is occurring over a long period
of time
Examples:
- e-commerce
, - alternative energy
- wearable technology
Cyclical - CORRECT ANSWER - Cyclical has to do with the cycles that the economy or
business moves in.
Example:
- GDP growth in 2022 declines because of higher interest rates
Top Down Approach - CORRECT ANSWER - 1. Economy
2. Individual Industries
3. Individual Companies (typically deeply cyclical companies)
Bottom Up - CORRECT ANSWER - Focus on the company and its prospects first
(typically growth oriented companies)
Domestic Macroeconomic Analysis - CORRECT ANSWER - - Gross Domestic Product
(GDP)
- Unemployment Rate
- Inflation
Gross Domestic Product (GDP) - CORRECT ANSWER - - Total market value of goods
and services produced in an economy over a period of time.
- Proxy for the SIZE of an economy
- US GDP approximately 17 trillion
- Market focuses on GDP growth %
- A measure of how fast the economy is growing/declining
