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

In an order-driven market, buy and sell orders are matched directly through an order book without dealers quoting continuous bid-ask spreads.

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

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.

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

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.

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

P/E expansion occurs when investors are willing to pay more per dollar of earnings, typically driven by greater optimism about future growth prospects.

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

Book value is based on historical cost accounting, which does not capture intangible assets, future growth potential, or current market values of assets.

CIM - Chartered Investment Manager Practice Test

CIM - Chartered Investment Manager Practice Test

CIM Equity Securities & Valuation 3