Investment Jobs Equity Markets and Stock Analysis Test 2 — Questions and Answers
Question 1: Which technical analysis indicator is used to identify overbought or oversold conditions on a scale of 0 to 100?
- Moving Average Convergence Divergence (MACD)
- Relative Strength Index (RSI) (Correct answer)
- Bollinger Bands
- Fibonacci Retracement
Correct answer: Relative Strength Index (RSI)
The RSI is a momentum oscillator ranging from 0–100; readings above 70 typically signal overbought conditions while readings below 30 signal oversold conditions.
Question 2: In fundamental analysis, what does the Debt-to-Equity (D/E) ratio measure?
- How efficiently a company generates profit from sales
- The proportion of financing from creditors versus shareholders (Correct answer)
- The growth rate of a company's earnings over time
- The dividend payout relative to share price
Correct answer: The proportion of financing from creditors versus shareholders
The D/E ratio compares total liabilities to shareholder equity, indicating how much debt a company uses relative to equity to finance its operations and assets.
Question 3: What is 'short selling' in equity markets?
- Buying stocks and holding them for under one year
- Selling borrowed shares hoping to repurchase at a lower price (Correct answer)
- Selling a small number of shares in a single transaction
- Placing sell orders with short time-in-force conditions
Correct answer: Selling borrowed shares hoping to repurchase at a lower price
Short selling involves borrowing shares, selling them at the current price, and aiming to buy them back later at a lower price to profit from a price decline.
Question 4: Which of the following best describes a 'blue-chip' stock?
- A penny stock with high growth potential
- A newly listed IPO with no earnings history
- A share of a large, well-established, financially stable company (Correct answer)
- A stock that pays no dividends and retains all earnings
Correct answer: A share of a large, well-established, financially stable company
Blue-chip stocks are shares of large, reputable, and financially sound companies with a long history of reliable performance, often included in major indexes like the Dow Jones.
Question 5: What is the purpose of a stock split?
- To increase the company's total market capitalization
- To reduce the share price by increasing the number of shares outstanding (Correct answer)
- To distribute company assets to shareholders as a special dividend
- To merge two classes of shares into one common stock
Correct answer: To reduce the share price by increasing the number of shares outstanding
A stock split increases the number of shares while proportionally reducing the price per share, making the stock more accessible to investors without changing the company's total market cap.
Question 6: What is the 'ask price' in stock trading?
- The highest price a buyer is willing to pay for a stock
- The last price at which a stock was traded
- The lowest price a seller is willing to accept for a stock (Correct answer)
- The average of the daily high and low prices
Correct answer: The lowest price a seller is willing to accept for a stock
The ask (or offer) price is the minimum price a seller will accept; buyers must pay at least this price to complete the transaction.
Question 7: Which of the following is an example of a leading economic indicator for equity market analysis?
- Unemployment rate
- GDP growth rate
- Consumer Price Index (CPI)
- Purchasing Managers' Index (PMI) (Correct answer)
Correct answer: Purchasing Managers' Index (PMI)
The PMI is a leading indicator because it surveys future business activity expectations, providing advance signals about economic direction before GDP or employment data are released.
Investment Jobs Equity Markets and Stock Analysis Test 2
Which technical analysis indicator is used to identify overbought or oversold conditions on a scale of 0 to 100?