The Value Effect Suggests That Investors Can Earn Abnormal Returns

question 20

Multiple Choice

The value effect suggests that investors can earn abnormal returns by holding stocks with:

• A) low price multiples.
• B) high price multiples.
• C) small size and strong recent performance.
• D) large size and strong recent performance.

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Definitions:

Cash Bidding Price

The price offered in cash during an auction or bidding process for an asset or item.

Market Price

The market price at which you can currently buy or sell an asset or service.

Interest Tax Savings

The reduction in tax payments resulting from the deduction of interest payments on debt from taxable income.

Discount Rate

In DCF analysis, the rate used to calculate the present worth of future cash flows.