CIM Equity Securities & Valuation 3

Question 1

Which equity market structure allows buyers and sellers to transact directly without an intermediary dealer providing continuous quotes?

Accepted Answer

Order-driven market

Answer

Dealer market

Answer

Quote-driven market

Answer

Dark pool market

Question 2

What is the significance of the ex-dividend date in equity investing?

Accepted Answer

The first date on which a buyer of shares will not receive the upcoming dividend

Answer

The date the company declares a dividend to be paid

Answer

The date the dividend is paid to shareholders of record

Answer

The date the board approves the dividend payment

Question 3

In the context of equity markets, what does 'short selling' involve?

Accepted Answer

Borrowing shares and selling them, hoping to repurchase at a lower price

Answer

Selling shares held for less than one year

Answer

Selling shares immediately after an IPO

Answer

Selling equity futures contracts before expiration

Question 4

Which of the following is most likely to cause a stock's price-to-earnings ratio to expand?

Accepted Answer

Increased investor confidence in future earnings growth

Answer

Rising interest rates in the economy

Answer

A downgrade in the company's credit rating

Answer

A decline in the company's profit margins

Question 5

Which accounting concept explains why a company's book value per share and intrinsic value per share are often different?

Accepted Answer

Historical cost accounting may not reflect current market values or future earnings potential

Answer

GAAP requires companies to overstate asset values

Answer

Book value includes the present value of all future earnings

Answer

Market prices are always more conservative than book values

Question 6

An analyst uses a two-stage dividend discount model. What does the second stage typically assume?

Accepted Answer

A stable, long-run constant growth rate in perpetuity

Answer

Zero dividend growth in perpetuity

Answer

A high, unsustainable growth rate continuing indefinitely

Answer

Dividends are reinvested and no cash is distributed

Question 7

Which of the following best describes 'systematic risk' in the context of equity investing?

Accepted Answer

Market-wide risk that affects all securities and cannot be diversified away

Answer

Risk that can be eliminated through diversification across individual stocks

Answer

Risk arising from company-specific events such as management changes

Answer

Risk of fraud or operational failure within a single company