Investment Market Analysis and Valuation 2 — Questions and Answers
Question 1: What is a bear market?
- A market with rising prices and strong economic performance
- A market experiencing a prolonged decline of 20% or more in asset prices from recent highs (Correct answer)
- A market with no significant price movement for an extended period
- A market limited to trading bear-related commodity futures
Correct answer: A market experiencing a prolonged decline of 20% or more in asset prices from recent highs
A bear market is typically defined as a decline of 20% or more in a major stock index from its most recent high, often accompanied by pessimism and expectations of further decline.
Question 2: What is the dividend yield of a stock?
- The total dividends paid by a company over its entire history
- The annual dividend per share divided by the stock's current price, expressed as a percentage (Correct answer)
- The percentage of profits a company retains rather than distributing
- The number of times per year a company pays dividends
Correct answer: The annual dividend per share divided by the stock's current price, expressed as a percentage
Dividend yield measures the annual dividend payment as a percentage of the stock's current price, allowing investors to compare income generated by different dividend-paying stocks.
Question 3: What does 'market capitalization' mean?
- The total value of a company's physical assets and real estate
- The total market value of a company's outstanding shares, calculated as share price multiplied by shares outstanding (Correct answer)
- The maximum price a stock has ever reached
- The amount of capital a company raised in its initial public offering
Correct answer: The total market value of a company's outstanding shares, calculated as share price multiplied by shares outstanding
Market capitalization is the total dollar value of a company's outstanding shares, found by multiplying the current share price by the total number of shares outstanding.
Question 4: What is a moving average in technical analysis?
- The average annual return of a stock since it went public
- The average price of a security over a specific time period, updated continuously as new prices are added (Correct answer)
- The percentage change in a stock's price over a rolling 12-month window
- The average trading volume of a stock over the past month
Correct answer: The average price of a security over a specific time period, updated continuously as new prices are added
A moving average smooths out price data over a set period (such as 50 or 200 days) to help identify the direction of a trend by filtering out short-term price fluctuations.
Question 5: What is intrinsic value in stock analysis?
- The original purchase price of a stock adjusted for inflation
- The perceived true or fundamental value of a stock based on analysis of financial data, independent of market price (Correct answer)
- The book value of a company's tangible assets
- The value assigned to a stock by credit rating agencies
Correct answer: The perceived true or fundamental value of a stock based on analysis of financial data, independent of market price
Intrinsic value is an estimate of a stock's true worth based on fundamentals like earnings, assets, and growth prospects, which may differ significantly from its current market price.
Question 6: What is a resistance level in technical analysis?
- The lowest price a stock has traded at in the past year
- A price level at which a stock has historically had difficulty rising above due to increased selling pressure (Correct answer)
- The interest rate level at which the Federal Reserve stops raising rates
- A regulatory cap set by the SEC on individual stock price increases
Correct answer: A price level at which a stock has historically had difficulty rising above due to increased selling pressure
A resistance level is a price ceiling where a stock historically struggles to break through, as sellers tend to emerge or increase when the price reaches that level.
Investment Market Analysis and Valuation 2
What is a bear market?