BLOOMBERG MARKET CERTIFICATE REVIEW QUESTIONS 2020

Which of the following assigns the same relative weightings to short-term and long-term outcomes as the absolute valuation process? a) A student deciding to attend medical school b) A yoga instructor avoiding junk food c) A government giving a tax break on electric car purchases d) A fishery exceeding fishing quotas Here is the WACC function for US company Pfizer. Calculations have been hidden. What is the WACC? a) 9.4% b) 8.2% c) 84.6% d) 2.8% A rise in which of the following inputs will increase on absolute valuation? a) Number of shares b) Beta c) Earnings estimates d) 10-y government bond How do earnings yields differ from bond yields? a) Earnings yields are expressed as percentage while bond yields are expressed as absolute values b) The earnings from equities are paid out in non-cash dividends while the coupons on bonds are paid out in cash c) Earnings yields are always higher than the bond yields due to the riskier nature of equities d) The cash flow from equities can continue indefinitely while the cash flow from bonds comes to an end At its peak at the end of 1999, Microsoft had a market cap of $600B. PC sales were booming and most PCs ran on Microsoft software. Revenue was growing 30% per year. The P/E ratio peaked at nearly 80.0x in 1999. What happened in the subsequent 15 years? (see chart 17) a) Earnings declined and this pushed the market cap down b) Earnings grew and this pushed the market cap up c) The decline in the P/E ratio canceled out the decline in earnings and this pushed the market cap up d) The decline in the P/E ratio more than offset earnings growth and this pushed the market cap down What is one possible weakness of this peer approach to valuation? a) It is a very laborious approach to valuation b) The estimated growth can be dramatically wrong c) It only focuses on the statistics of one company d) It does not account for industry context What may be a problem of comparing the P/E of a stock to the P/E of the overall market? a) The overall market may not be sufficiently broad for the purpose of comparison b) Given the number of stocks in the overall market, it is very time consuming to calculate the P/E of the market c) Most stock market indices exclude the effect of dividends d) A stock’s P/E ratio can