1. Stock prices and stand-alone risk The S&P 500 Index is one of the most commonly used benchmark indices for the U.S. equity markets. Consisting of 500 companies, it is a market value-weighted index. This means that each company’s performance is reflected in the index, weighted by the ratio of the company’s value to the total value of all the companies. A. Based on your understanding of P/E ratios, in which of the following situations would the average trailing P/E ratio (current price divided by earnings per share over the previous 12 months) of the S&P 500 Index be higher? Forecast earnings for S&P 500 companies are expected to fall in the future. Forecast earnings for S&P 500 companies are expected to rise in the future. B. You invest $100,000 in only one stock. To which kind of risk will you primarily be exposed? Stand-alone risk Portfolio risk C. Generally, investors would prefer to invest in assets that have: A lower-than-average expected rate of return given the perceived risk. A higher-than-average expected rate of return given the perceived risk.
1. Stock prices and stand-alone risk The S&P 500 Index is one of the most commonly used benchmark indices for the U.S. equity markets. Consisting of 500 companies, it is a market value-weighted index. This means that each company’s performance is reflected in the index, weighted by the ratio of the company’s value to the total value of all the companies. A. Based on your understanding of P/E ratios, in which of the following situations would the average trailing P/E ratio (current price divided by earnings per share over the previous 12 months) of the S&P 500 Index be higher? Forecast earnings for S&P 500 companies are expected to fall in the future. Forecast earnings for S&P 500 companies are expected to rise in the future. B. You invest $100,000 in only one stock. To which kind of risk will you primarily be exposed? Stand-alone risk Portfolio risk C. Generally, investors would prefer to invest in assets that have: A lower-than-average expected rate of return given the perceived risk. A higher-than-average expected rate of return given the perceived risk.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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1. Stock prices and stand-alone risk
The S&P 500 Index is one of the most commonly used benchmark indices for the U.S. equity markets. Consisting of 500 companies, it is a market value-weighted index. This means that each company’s performance is reflected in the index, weighted by the ratio of the company’s value to the total value of all the companies.
A. Based on your understanding of P/E ratios, in which of the following situations would the average trailing P/E ratio (current price divided by earnings per share over the previous 12 months) of the S&P 500 Index be higher?
Forecast earnings for S&P 500 companies are expected to rise in the future.
B. You invest $100,000 in only one stock. To which kind of risk will you primarily be exposed?
Stand-alone risk
Portfolio risk
C. Generally, investors would prefer to invest in assets that have:
A lower-than-average expected rate of return given the perceived risk.
A higher-than-average expected rate of return given the perceived risk.
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