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Investments: earnings, preferred stocks, returns, interest

1-Publicly Announced Earnings
Research indicates that 80% of a company's stock price reflects the present value of cash flows expected to occur at least five or more years into the future. If this is correct, then why is there so much emphasis on publicly announced current quarterly earnings results?

2-Who is Warren Buffett? What do you think he has to say about the EMH?

3-What types of investors are likely to be most interested in owning preferred stocks? Please explain

4-Management Behavior and Interest Rates
Can you explain how management behavior (i.e., risk-taking within the firm) is affected by changing interest rates? In other words, I think it is relatively straight forward it understand how interest rates impact financial assets like stocks and bonds. They also impact management courses of action, and I think this is often overlooked.

5-What will be nominal rate of return on a preferred stock with a $100 par value, a stated dividend of 8 percent of par, and a current market price of (a) 60, (b) 80, (C) 100, (d) 140

6-Martell Mining's Company's are reserves are being depleted, so its sales are falling. Also, its pit is getting deeper each year so its cast are raising. As a result, the company's earnings and dividends are declining at the constants rate of 5 percent per year, If Do = $5, and rs = 15%, What is the value of Martel stock?

Solution Preview

1. If 80% of the price of a stock reflects the present value of future cash flows, then it follows that the growth in the stock price will be proportional to the growth in the cash flows. Cash flows can be generated from sources other than profits, but profits are usually the main component of cash flows. If it follows that profits generate cash flows, then the reporting of profits will impact the price of a listed security. An investor would have no way to judge the success level of a quarterly earnings release if it weren't for the comparison to the prior quarter or the year-over-year comparison. The other reason quarterly results are so important to the stock market is that it is very current information as opposed to waiting until 3 months after year end for the completion of the audited financial statements.

2. Warren Buffet is a true entrepreneur who figured out very early on that he couldn't learn or ...

Solution Summary

The 600+ word solution discusses each question in some detail.

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