How do you define a speculative stock? If stock is trading at $50 and if you find value as $40 using dividend discount model, Is it speculative? It does not make sense to me. Then whole market is speculative. I lost one of the question in this way.
i think specultative stock refers to risky stocks
there is a difference between a speculative stock and a speculative company i believe a speculative stock is a stock where the risk/reward exceeds the risk/reward of a benchmark security in the same industry.
CFAI has their own way of describing it. There is a short section(page or two) on this in the Equities book. This will be on the test, as well as a question regarding different market cycles, which is also a page or two in the same book.
speculative stock is one that is overvalued. so you’re risk adj rate of return is very low or negative. use DDM and CAPM to figure out your required return and compare it to the estimated HPR. overvalued = speculative stock. undervalued = growth stock. also, cyclical stock would have beta > 1.0 and defensive stock would have beta < 1.0 at leat i think this is how it goes.
if Ke calculated with CAPM is lower than that calculated with DDM, the stock is overpriced, speculative since it requires a higher return; if equal is properly priced, if it is higher, the stock is a growth stock. A speculative company is one with large assets in projects with uncertain return.
If a stock is trading at $50 and it is valued using DDM as $41 with beta 0.8, how do you define if it is speculative vs cyclical stock? Curious on what data will make a stock as cyclical with the given information on current stock price and its value based on DDM and beta value.
C’mon - this is just semantics. You could define “speculative stock” in a number of ways…
I lost the question. I don’t know what to answer if the same question is given. I guess it is gray area. With beta of .8 and stock trading at $50 and value as $41, it is not possible to find if it is speculative or cyclical.
I think, and I stress think, I remember a question like that. The answer was the stock was a cyclical because its beta was less that 1. But my brain hurts. A lot.
yeh i remember the question on the online exam… the answer i think was sometihng like its speculative cos its overpriced or sometihng like that… i dunno how that makes it a specky though…you could have the biggest blue-chip company whose stock is overpriced… that makes it a speculative stock?? and a specky that pays a dividend?
I remember the question from the CFAI v 3 exam. Using the DDM the implied price was 40 and the market was trading at 50. The beta of the stock was .8. I got this one wrong too… seems counterintuitive that a stock with a beta <1 is speculative.