Page 152 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 4: Fundamental Analysis

(b) Estimate how much higher the P/E ratio would have been, if it had been able to Notes
maintain the growth rate in earnings that it had posted between 1983 and 1993.
(Assume that the dividend payout ratios are unaffected.)
(c) Now assume that disappointing earnings reports in the near future lower the expected
growth rate between 1994 and 1998 to 10%. Estimate the P/E ratio. (Again, assume
that the dividend payout ratio is unaffected.)
13. What will the capitalisation rate mean for realty sector?

Answers: Self Assessment

1. "market price' (MP) 2. 'intrinsic value' (IV)
3. efficiency 4. demand-side, supply-side

5. GNP 6. Anticipatory
7. time lag 8. diffusion index
9. Component Evaluation 10. mathematics, statistical

11. risk, return 12. pioneering, expansion, stagnation, decline
13. strengths, weaknesses
14. facilities, demand, investment, demand gap
15. Company level 16. liquidating, deducting, net, outstanding
17. account balance 18. outcomes, probabilities

19. Simulation

4.8 Further Readings

Books Huang, Stanley S.C., Investment Analysis and Management, Cambridge, Winthrop,
1981.

Hull J.C., Introduction to Futures & Options Markets, Prentice Hall, Englewood
Cliffs, New Jersey, 1995.
Jean, William H., Analytical Theory of Finance: A study of the investment decisions
process, Jessup.
Kaufman, George, G., Money: The Financial System and the Economy, 2nd ed.; Chicago,
Rand McNally & Co.1977.
Paul F., Competing for Stock Market Profits, N.Y., Wiley, 1974. Johnson.
Prime, John H., Investment Analysis, New Jersey, Prentice Hall, 1967.
Quirin, G. David., Capital Expenditure Decision, Homewood, Illinois, Irwin, 1967.

Timothy E., Investment Principles, NJ Prentice Hall, 1978.

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