Last year Gloria Delgado-Prichett, Inc., experienced a 34% increase in earnings
ID: 2806369 • Letter: L
Question
Last year Gloria Delgado-Prichett, Inc., experienced a 34% increase in earnings per share on 11% increase in sales. If management knows that Gloria Delgado-Pritchett’s DOL is 1.5, what is its DFL?
3.09
2.06
3.55
1.67
In a perfectly efficient market, all assets would plot on the Security Market Line.
True
False
For any number of compounding periods per year greater than 1, EAR (also called the APY) will always be greater than the APR.
True
False
A bond's “spread” refers to the difference between its Moody's rating and its Standard & Poor's rating.
True
False
Explanation / Answer
Q1 Change in EPS 34% Change in Sales 11% DOL 1.5 DCL (Combined leverage) 3.09 Change in EPS/Change in sales DFL 2.06 (DOL*DFL = DCL) Q2 TRUE In a perfectly efficient market all the securities would fall on SML Q3 TRUE This is true because in EAR we will be compounding the rate for n number of periods which will always greator than APY Q4 FALSE Bond spread is basically the additional yield that can be earned from the bond over and above risk free bond yield
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