Equity Securities & Valuation Flashcards
7 cards from real CIM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Equity Securities & Valuation flashcards as text
Which equity market structure allows buyers and sellers to transact directly without an intermediary dealer providing continuous quotes?
Answer: Order-driven market
In an order-driven market, buy and sell orders are matched directly through an order book without dealers quoting continuous bid-ask spreads.
What is the significance of the ex-dividend date in equity investing?
Answer: The first date on which a buyer of shares will not receive the upcoming dividend
Investors who purchase shares on or after the ex-dividend date are not entitled to the declared dividend; only those who bought before this date qualify.
In the context of equity markets, what does 'short selling' involve?
Answer: Borrowing shares and selling them, hoping to repurchase at a lower price
Short selling involves borrowing shares and selling them at the current price, intending to buy them back later at a lower price and profit from the decline.
Which of the following is most likely to cause a stock's price-to-earnings ratio to expand?
Answer: Increased investor confidence in future earnings growth
P/E expansion occurs when investors are willing to pay more per dollar of earnings, typically driven by greater optimism about future growth prospects.
Which accounting concept explains why a company's book value per share and intrinsic value per share are often different?
Answer: Historical cost accounting may not reflect current market values or future earnings potential
Book value is based on historical cost accounting, which does not capture intangible assets, future growth potential, or current market values of assets.
An analyst uses a two-stage dividend discount model. What does the second stage typically assume?
Answer: A stable, long-run constant growth rate in perpetuity
In the two-stage DDM, the second stage (terminal stage) assumes dividends grow at a stable, long-run constant rate once the high-growth phase ends.
Which of the following best describes 'systematic risk' in the context of equity investing?
Answer: Market-wide risk that affects all securities and cannot be diversified away
Systematic risk (market risk) stems from macroeconomic factors affecting all securities and cannot be reduced through portfolio diversification.