If a Decline in a Security's Value Is Judged to Be

question 122

True/False

If a decline in a security's value is judged to be temporary, a company needs to write down the cost basis of the individual security to a new cost basis.

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Definitions:

PI

Stands for Profitability Index, which measures the ratio of payoff to investment of a proposed project.

Dividends

Earnings distributed by an enterprise to its proprietors, commonly resulting from the firm's profit margins.

Constant Growth Rate

The steady rate at which a company’s dividends are expected to grow, often used in valuing stocks with the Gordon Growth Model.

Expected Value

The weighted average of all possible values for a given set of probabilities, used in statistics and financial decision making.