Investment Jobs Equity Markets and Stock Analysis Test 1 — Questions and Answers
Question 1: Which metric measures a company's stock price relative to its earnings per share?
- Price-to-Book Ratio
- Price-to-Earnings Ratio (Correct answer)
- Dividend Yield
- Return on Equity
Correct 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.
Question 2: A company with a beta of 1.5 is expected to:
- Move at the same pace as the market
- Be 50% more volatile than the market (Correct answer)
- Be 50% less volatile than the market
- Have no correlation with the market
Correct 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.
Question 3: What does 'market capitalization' represent?
- Total annual revenue of a company
- Total value of a company's outstanding shares (Correct answer)
- Total assets minus total liabilities
- Earnings before interest and taxes
Correct 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.
Question 4: Which type of stock order guarantees execution but not price?
- Limit order
- Stop-limit order
- Market order (Correct answer)
- Good-till-canceled order
Correct answer: Market order
A market order executes immediately at the best available current price, guaranteeing execution but providing no price certainty.
Question 5: What is the primary characteristic of a 'value stock'?
- High growth rate with premium valuation
- Trades below its perceived intrinsic value (Correct answer)
- Pays no dividends to shareholders
- Has a beta greater than 1.5
Correct 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.
Question 6: The Efficient Market Hypothesis (EMH) in its strong form suggests that stock prices reflect:
- Only publicly available information
- Only historical price data
- All public and private information (Correct answer)
- Only insider trading activity
Correct 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.
Question 7: What does 'ex-dividend date' mean for a stock investor?
- The date the company announces its dividend
- The date by which you must own shares to receive the dividend (Correct answer)
- The date the dividend payment is actually sent to shareholders
- The date the company's dividend policy is reviewed
Correct 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.
Investment Jobs Equity Markets and Stock Analysis Test 1
Which metric measures a company's stock price relative to its earnings per share?