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CHAPTER 11 AN INTRODUCTION TO SECURITY VALUATION Answers to Questions 1.The top-down valuation process begins by examining the influence of the general economy on all firms and the warrantor markets. The next step is to analyze the various industries in easygoing of the economic environment. The final step is to select and analyze the soul firms within the superior industries and the common stocks of these firms. The top-down approach and then assumes that the first two steps (economy-market and industry) stupefy a substantial influence on the roughbody firm and its stock (the terzetto step). In contrast, the bottom-up approach assumes that it is possible to select investments (i.e. firms) without considering the integrality market and industry influences. 2.It is intuitively logical that come market analysis precede industry and company analysis because the administration and federal agencies can exert influence on the aggregate economy via fiscal (changes in government disbursal, taxes, etc.) and monetary (changing notes supply, interest rates, etc.) policy. Further, inflation, another aggregate economic variable, must be considered because of its major wallop on interest rates and the spending and saving/investment of consumers and corporations.

Therefore, a major division is the plus allocation among countries based upon the differential economic outlook including substitution rates (the outlook for the currency). Again, industry analysis should precede individual security analysis since there ar several factors that are generally national in scope but have a pervasive effect on some industries - e.g., industry-wide strikes, event/ export quotas, etc. In addition, alternative industries feel the impact of economic change at different points in the agate line cycle -e.g., industries may lead or lag an expansion. Further, some industries are cyclical (e.g., steel, auto), some are stable (utilities, viands chains, etc.). Fluctuating exchange rates will... If you want to get a full essay, order it on our website: Ordercustompaper.com

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