True and False questions only please 18. Financial statement (ratio) analysis is

Question

True and False questions only please

18. Financial statement (ratio) analysis is complete and it does not have any limitations. 19. When you buy a call option, your profit rises as underlying stock rises, but your risk (loss) is limited to the premium you paid to buy the options contract. 20. P/E ratio indicates how much investors paid for one dollar of earnings. 21. An option contract is obligatory from the standpoint of an option writer. 22. Under constant growth DCF model growth rate can exceed the required return.

Explanation / Answer

18) False, financial statements could be misrepresented so that ratios look better

19) True, as call options have the right but not the obligation to excercise, so investors do not excercise when price of stock is less than strike price, thus losing only premium paid for the option

20) True P/E =( Price/share)/(earnings/share)

21) True, as they are receiving option premium and have unlimited downside when price of underlying moves against them

22) False, One of the assumption for constant growth model is that growth rate should be less than required rate of return

22)

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