CHAPTER 7 QUIZ 41 TO 43 41. The problem with the pure short-term earnings model is that the stock value is highly sensitive to short-term swings in E.P.S. 42. The relative P/E model assumes that a company will keep its historical relationship to the market (S&P 500) price-earnings ratio. 43. When an analyst uses the income statement method of forecasting earnings, she has a limited amount of flexibility in adjusting the inputs