Choose wisely. There is only one correct answer to each question.
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1.
A value fund manager may sell a value stock once its price reaches some benchmark.
True. To be fairly valued means to reach a benchmark of some kind.
2.
Managers practicing absolute-value strategies calculate what a company is worth in absolute terms and then _______.
Buy the stock for less than that. Value investing is all about paying less than what the stock is intrinsically worth.
3.
If a stock is 'fairly valued,' what does that mean?
The stock is no longer cheap by whatever benchmark the manager uses. The other answers might apply to relative-value managers or absolute-value managers, who would use either relative or absolute benchmarks.
4.
Relative-value managers _______.
Buy stocks trading below their historical price ratios, their industry peers, or the market. Relative-value managers measure a stock's value by comparing its price ratios with some benchmark.
5.
Given that value fund managers seek to buy stocks for less than they are intrinsically worth, we should expect their funds to have fairly similar earnings patterns.
False. Value fund managers define value in different ways. That results in strategies that can sometimes have wildly differing performances.
