Investment Advisor Securities Analysis and Valuation

Question 1

A stock trades at $50 per share with earnings per share of $2.50. What is its price-to-earnings (P/E) ratio?

Accepted Answer

20

Answer

The P/E ratio is calculated by dividing the stock price ($50) by EPS ($2.50), which equals 20.

Question 2

Which valuation method estimates a stock's intrinsic value by discounting its projected future cash flows back to the present?

Accepted Answer

Discounted cash flow (DCF) analysis

Answer

DCF analysis values a security by discounting its expected future cash flows at an appropriate discount rate to arrive at a present value.

Question 3

A bond with a face value of $1,000, a coupon rate of 6%, and a market price of $1,050 is said to be trading at:

Accepted Answer

A premium

Answer

When a bond's market price exceeds its face (par) value, it is trading at a premium.

Question 4

According to the Dividend Discount Model (DDM), what is the primary driver of a stock's intrinsic value?

Accepted Answer

Present value of expected future dividends

Answer

The DDM calculates intrinsic value as the present value of all expected future dividends, discounted at the required rate of return.

Question 5

A stock's beta is 1.5. If the overall market rises by 10%, how much would this stock be expected to rise?

Accepted Answer

15%

Answer

Beta measures systematic risk relative to the market; a beta of 1.5 means the stock is expected to move 1.5 times the market's move, so 1.5 × 10% = 15%.

Investment Advisor Practice Test

Investment Advisor Practice Test

Investment Advisor Securities Analysis and Valuation