Answers to Questions and Exercise for Discussion

Chapter 1

1. c

2. a

3. b

Discussion: Look for analytical skills of the student. First, did they properly study the key areas of fundamental analysis (dividend yield, dividend increases for 190 years, range of P/E ratio, revenue, net earnings, and long-term debt capitalization). All of these areas should have been studied over a number of years. Second, were students able to make judgments concerning the fundamental strength or weakness of the companies selected?

Chapter 2

1. c

2. a

3. c

Discussion: Study whether students have been able to recognize varying risks based on the moneyness of options. Also look for students’ ability to compare risks and opportunities based on premium levels, as well ...

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