Equity Markets and Stock Analysis Test Flashcards

Which metric measures a company's stock price relative to its earnings per share?

Answer: Price-to-Earnings Ratio

The Price-to-Earnings (P/E) ratio divides the stock's current market price by its earnings per share, indicating how much investors pay per dollar of earnings.

A company with a beta of 1.5 is expected to:

Answer: Be 50% more volatile than the market

A beta above 1.0 indicates higher volatility than the market; a beta of 1.5 means the stock is expected to move 1.5 times as much as the benchmark index.

What does 'market capitalization' represent?

Answer: Total value of a company's outstanding shares

Market capitalization is calculated by multiplying the current share price by the total number of outstanding shares, representing the market's total valuation of the company.

Which type of stock order guarantees execution but not price?

Answer: Market order

A market order executes immediately at the best available current price, guaranteeing execution but providing no price certainty.

What is the primary characteristic of a 'value stock'?

Answer: Trades below its perceived intrinsic value

Value stocks trade at prices considered below their intrinsic worth based on fundamentals like earnings, dividends, or sales, often identified by low P/E or P/B ratios.

The Efficient Market Hypothesis (EMH) in its strong form suggests that stock prices reflect:

Answer: All public and private information

The strong form of EMH holds that stock prices fully incorporate all information, including private insider information, making consistent excess returns impossible.

What does 'ex-dividend date' mean for a stock investor?

Answer: The date by which you must own shares to receive the dividend

The ex-dividend date is the cutoff date; investors who purchase the stock on or after this date will not receive the upcoming dividend payment.