CFA Investment Tools and Concepts

Question 1

What is the primary purpose of technical analysis in investing?

Accepted Answer

To predict future price movements based on historical data

Answer

To assess a company's financial health

Answer

To calculate intrinsic value of stocks

Answer

To evaluate a company’s management team

Question 2

Which of the following is considered a key tool in fundamental analysis?

Accepted Answer

Earnings reports and financial statements

Answer

Stock price charting

Answer

Investor sentiment surveys

Answer

Price-earnings ratio comparisons

Question 3

How is the price-earnings (P/E) ratio calculated?

Accepted Answer

Price per share divided by earnings per share (EPS)

Answer

Price per share divided by dividends per share

Answer

Earnings per share divided by dividends per share

Answer

Market capitalization divided by total equity

Question 4

What is the primary purpose of diversification in investment portfolios?

Accepted Answer

To reduce portfolio risk by spreading investments across different assets

Answer

To maximize returns by investing in one high-performing asset

Answer

To concentrate investments in one sector for maximum gain

Answer

To minimize exposure to market fluctuations

Question 5

What is a bond’s yield to maturity (YTM)?

Accepted Answer

The total return if the bond is held to maturity

Answer

The interest paid to bondholders annually

Answer

The current market price of the bond

Answer

The price at which the bond was initially issued

Question 6

What is the difference between an open-end mutual fund and a closed-end mutual fund?

Accepted Answer

Closed-end funds have a fixed number of shares, open-end funds do not

Answer

Open-end funds are traded on exchanges, closed-end funds are not

Answer

Open-end funds only invest in stocks, closed-end funds invest in bonds

Answer

Closed-end funds offer lower management fees than open-end funds