equity analysis

Which of the following statements are TRUE? I. Growth stocks have above-average investment opportunities while growth companies are ones offering higher rates of return than comparable companies. II. An underpriced stock would be one with a required rate of return exceeding the investor’s expected rate of return. III. The factors determining the intensity of competition within an industry are rivalry, threat of new entrants, potential substitutes, and bargaining power of buyers and suppliers. A) I only. B) I and II only. C) III only. D) II and III only.

C) III only.

C

porter’s 5 forces C

I will go with C. (3 only)

C

D?

C

bhaiyyu I beleive II is not correct as growth company : expected return > required return internal factor growth stock: higher rate of return than other stock with same risk external factor

c

C

d) think of the SML and the relation of over and under priced stocks

Char-Lee wouldn’t that make it overpriced? "An underpriced stock would be one with a required rate of return exceeding the investor’s expected rate of return. " wouldn’t that plot below the SML?? edit: unless “expected rate of return” = CAPM i guess that’s where i’m confused

I’d say A, only I. II is an overpriced stock, not an underpriced stock if the return is below the required III: the Porter’s 5 forces are: buyer and supplie’s bargaining power, rivalry, threat of substitutes and entry barriers.

C I don’t think II would be correct. If I require 15% and the expected rate of return is 12%, I would think that the stock would not be underpriced but over priced. If I recall, if it plots under the SML than it’s over priced, if it plots over the SML than its underpriced. I might be mixed up though, I need to look at the CML and SML again for a refresh.

A might be correct, but it seems that the descriptions for Growth Stock and Growth Company are reversed, that’s why I though it was incorrect. I don’t remember Porter’s 5 exactly though, it seemed right given the choices.

supersharpshooter Wrote: ------------------------------------------------------- > > edit: unless “expected rate of return” = CAPM > > i guess that’s where i’m confused that was my assumption… which just illustrates the pitfall of candates creating their own questions, since the question don’t go through the rigors of review (like the CFAI does) we’re often trying to answer questions that do not have an absolute answer since they’re from candidate(s) that don’t fully understand the material… just my 2 pennies

pepp Wrote: ------------------------------------------------------- > Which of the following statements are TRUE? > I. Growth stocks have above-average investment > opportunities while growth companies are ones > offering higher rates of return than comparable > companies. > II. An underpriced stock would be one with a > required rate of return exceeding the investor’s > expected rate of return. > III. The factors determining the intensity of > competition within an industry are rivalry, threat > of new entrants, potential substitutes, and > bargaining power of buyers and suppliers. > A) I only. > B) I and II only. > C) III only. > D) II and III only. if “required rate of return” = CAPM and “investor’s expected rate of return” implies the stock price then yes the plot is below the SML and then I would say II is false then