FA Capital Markets and Investment Analysis 2

Question 1

What is the payback period for an investment?

Accepted Answer

The time required to recover the initial investment from cash inflows

Answer

The payback period measures how long it takes for cumulative cash inflows from an investment to equal the initial cash outflow.

Question 2

Which market efficiency hypothesis states that all publicly available information is already reflected in stock prices?

Accepted Answer

Semi-Strong Form Efficiency

Answer

The semi-strong form of the Efficient Market Hypothesis holds that all publicly available information is instantly reflected in stock prices, making fundamental analysis unable to generate excess returns.

Question 3

Which risk cannot be eliminated through diversification?

Accepted Answer

Systematic Risk

Answer

Systematic (market) risk affects the entire market and cannot be diversified away, unlike unsystematic risk which is specific to individual securities.

Question 4

What does Beta measure in investment analysis?

Accepted Answer

The sensitivity of a security's returns to overall market movements

Answer

Beta quantifies how much a stock's price tends to move relative to the market; a beta of 1.5 means the stock moves 50% more than the market.

Question 5

The Capital Asset Pricing Model (CAPM) is used to calculate:

Accepted Answer

The expected return on an asset given its systematic risk

Answer

CAPM determines the expected return of an asset using the risk-free rate, the asset's beta, and the expected market risk premium.

FA - Finance Analyst Practice Test

FA - Finance Analyst Practice Test

FA Capital Markets and Investment Analysis 2