With reference to question #8, assume inflationary expectations rise by 1%. As a result, interest rates rise by 1%, but, suppose now that our forecast of nominal dividend growth also rises by 1% to 4.50%. In this scenario, the "market" PE Ratio should be expected to: Increase. Decrease. Remain unchanged. all of the above. none of the above.

With reference to question #8, assume inflationary expectations rise by 1%. As a result, interest rates rise by 1%, but, suppose now that our forecast of nominal dividend growth also rises by 1% to 4.50%. In this scenario, the "market" PE Ratio should be expected to: Increase. Decrease. Remain unchanged. all of the above. none of the above.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 26P

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1. Assume that you expect the economy's rate of inflation to be 3 percent, giving an RFR of 6 percent and a market return (RM) of 12 percent. a. Draw the SML under these assumptions. b. Subsequently, you expect the rate of inflation to increase from 3 percent to 6 percent. What effect would this have on the RFR and the RM? Draw another SML on the graph from Part a. c. Draw an SML on the same graph to reflect an RFR of 9 percent and an RM of 17 percent. How does this SML differ from that derived in Part b? Explain what has transpired.
22. If the expectations theory of the term structure of interest rates is correct, and if the otherterm structure theories are invalid, and we observe a downward sloping yield curve, which ofthe following is a true statement?a.Investors expect short-term rates to be constant over time.b.Investors expect short-term rates to increase in the future.c.Investors expect short-term rates to decrease in the future.d.It is impossible to say unless we know whether investors require a positive ornegative maturity risk premium.e.The maturity risk premium must be positive 23. Other things held constant, which of the following will not affect the quick ratio? (Assumethat current assets equal current liabilities.)a.Fixed assets are sold for cash.b.Cash is used to purchase inventories.c.Cash is used to pay off accounts payable.d.Accounts receivable are collected.e.Long-term debt is issued to pay off a short-term bank loan.
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If the Fed ____ the interest rates when inflationary expectations remain unchanged, the most likely result is that the value of dollar will ____ and the economy may ____. A. increases; appreciate; weaken B. decreases; appreciate; weaken C. increases; depreciate; strengthen D. decreases; appreciate; strengthen
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