CIM Equity Securities & Valuation

Question 1

Which valuation model discounts future dividends to determine the intrinsic value of a stock?

Accepted Answer

Dividend Discount Model

Answer

Capital Asset Pricing Model

Answer

Price-to-Earnings Model

Answer

Discounted Cash Flow to Firm Model

Question 2

A stock has an expected dividend of $2.50, a required return of 10%, and a constant growth rate of 4%. What is its intrinsic value using the Gordon Growth Model?

Accepted Answer

$41.67

Answer

$25.00

Answer

$62.50

Answer

$35.71

Question 3

Which of the following best describes the Price-to-Book (P/B) ratio?

Accepted Answer

Market price divided by book value per share

Answer

Market price divided by annual earnings per share

Answer

Enterprise value divided by EBITDA

Answer

Market price divided by free cash flow per share

Question 4

What does a high Price-to-Earnings (P/E) ratio typically indicate about investor expectations?

Accepted Answer

Investors expect high future earnings growth

Answer

Investors expect low future earnings growth

Answer

The stock is undervalued relative to peers

Answer

The company has a high dividend payout ratio

Question 5

In a Discounted Cash Flow (DCF) analysis, which discount rate is most commonly used to value an entire firm?

Accepted Answer

Weighted Average Cost of Capital (WACC)

Answer

Cost of equity

Answer

Risk-free rate

Answer

Dividend yield

Question 6

Which type of equity security gives holders a priority claim on assets and dividends over common shareholders, but typically lacks voting rights?

Accepted Answer

Preferred stock

Answer

Growth stock

Answer

Convertible bond

Answer

Rights offering

Question 7

Which ratio is calculated as Enterprise Value divided by EBITDA and is used to compare companies regardless of their capital structure?

Accepted Answer

EV/EBITDA multiple

Answer

P/E ratio

Answer

Price-to-Sales ratio

Answer

Dividend yield