Refer to the Following Figure When Answering the Following Questions

question 76

Multiple Choice

Refer to the following figure when answering the following questions.
Figure 11.1: Growth rates of real investment and consumption (Source: U.S. Bureau of Economic Analysis)
-Consider Figure 11.1. What explains the difference in the volatility of each series?

• A) Firms adjust investment to fluctuations in the stock market.
• B) Households base their consumption on permanent income.
• C) differences in expenditure shares
• D) Firms do not make investment decisions based on interest rates.
• E) Households are very sensitive to interest rate changes.

Calculate intrinsic values of stocks using various valuation methods including constant growth DDM, capitalized earnings, and P/E ratios.

Understand and apply the concepts of book value and market value per share.

Calculate required rates of return using the Capital Asset Pricing Model (CAPM).

Identify and calculate dividend growth rates based on plowback ratios and return on equity (ROE).

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Definitions:

Correlated

When two or more variables are related in some way, indicating that changes in one variable are associated with changes in another.

Experiment

A scientific procedure undertaken to make a discovery, test a hypothesis, or demonstrate a known fact.

Hypothesis

A proposed explanation for a phenomenon, made as a starting point for further investigation, often testable by experimentation.

Laboratory Observation

The process of watching subjects in a controlled environment to gather data or test hypotheses.