An investor is considering purchasing one of the following three stocks. Stock X has a market capitalization of $77 billion, pays a relatively high dividend with little increase in earnings, and has a P/E ratio of 1212. Stock Y has a market capitalization of $6464 billion but does not currently pay a dividend. Stock Y has a P/E ratio of 3939. Stock Z, a housing industry company, has a market capitalization of $804804 million and a P/E of 1717. a. Classify these stocks according to their market capitalizations. b. Which of the three would you classify as a growth stock? Why? c. Which stock would be most appropriate for an aggressive investor? d. Which stock would be most appropriate for someone seeking a combination of safety and earnings? Question content area bottom Part 1 a. Stock X is classified as a (1) stock. (Select from the drop-down menu.) Part 2 Stock Y is classified as a (2) stock. (Select from the drop-down menu.) Part 3 Stock Z is classified as a (3) stock. (Select from the drop-down menu.) Part 4 b. Which of the three would you classify as a growth stock? Why? (Select the best answer below.) A. Stock X because the higher the risk, the lower the P/E ratio. A lower P/E ratio means the investors will receive a higher rate of return. B. Stock Y because the higher the firm's earnings growth rate, the higher the firm's P/E ratio. These companies also tend to pay low or no dividends in order to put the funds back into the company. C. Stock Z because it is a cyclical stock and its earnings will move with the economy. Therefore, when the economy is up, the earnings will be up. D. All three stocks are growth stocks because they are all newly formed companies. Part 5 c. Which stock would be most appropriate for an aggressive investor? (Select the best answer below.) A. Stock X B. Stock Y C. Stock Z Part 6 d. Which stock would be most appropriate for someone seeking a combination of safety and earnings? (Select the best answer below.) A. Stock X B. Stock Z C. Stock Y (1) small-cap mid-cap large-cap (2) large-cap mid-cap small-cap (3) small-cap large-cap mid-cap

An investor is considering purchasing one of the following three stocks. Stock X has a market capitalization of $77 billion, pays a relatively high dividend with little increase in earnings, and has a P/E ratio of 1212. Stock Y has a market capitalization of $6464 billion but does not currently pay a dividend. Stock Y has a P/E ratio of 3939. Stock Z, a housing industry company, has a market capitalization of $804804 million and a P/E of 1717. a. Classify these stocks according to their market capitalizations. b. Which of the three would you classify as a growth stock? Why? c. Which stock would be most appropriate for an aggressive investor? d. Which stock would be most appropriate for someone seeking a combination of safety and earnings? Question content area bottom Part 1 a. Stock X is classified as a (1) stock. (Select from the drop-down menu.) Part 2 Stock Y is classified as a (2) stock. (Select from the drop-down menu.) Part 3 Stock Z is classified as a (3) stock. (Select from the drop-down menu.) Part 4 b. Which of the three would you classify as a growth stock? Why? (Select the best answer below.) A. Stock X because the higher the risk, the lower the P/E ratio. A lower P/E ratio means the investors will receive a higher rate of return. B. Stock Y because the higher the firm's earnings growth rate, the higher the firm's P/E ratio. These companies also tend to pay low or no dividends in order to put the funds back into the company. C. Stock Z because it is a cyclical stock and its earnings will move with the economy. Therefore, when the economy is up, the earnings will be up. D. All three stocks are growth stocks because they are all newly formed companies. Part 5 c. Which stock would be most appropriate for an aggressive investor? (Select the best answer below.) A. Stock X B. Stock Y C. Stock Z Part 6 d. Which stock would be most appropriate for someone seeking a combination of safety and earnings? (Select the best answer below.) A. Stock X B. Stock Z C. Stock Y (1) small-cap mid-cap large-cap (2) large-cap mid-cap small-cap (3) small-cap large-cap mid-cap

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question content area bottom

Part 1

a. Stock X is classified as a

(1)

stock. (Select from the drop-down menu.)

Part 2

Stock Y is classified as a

(2)

stock. (Select from the drop-down menu.)

Part 3

Stock Z is classified as a

(3)

stock. (Select from the drop-down menu.)

Part 4

b. Which of the three would you classify as a growth stock? Why? (Select the best answer below.)

Stock X because the higher the risk, the lower the P/E ratio. A lower P/E ratio means the investors will receive a higher rate of return.

Stock Y because the higher the firm's earnings growth rate, the higher the firm's P/E ratio. These companies also tend to pay low or no dividends in order to put the funds back into the company.

Stock Z because it is a cyclical stock and its earnings will move with the economy. Therefore, when the economy is up, the earnings will be up.

All three stocks are growth stocks because they are all newly formed companies.