Investment Test 3 — Questions and Answers
Question 1: What does the P/E ratio measure?
- Price relative to earnings per share (Correct answer)
- Profit margin
- Dividend yield
- Debt to equity
Correct answer: Price relative to earnings per share
The P/E ratio compares a stock's price to its earnings per share.
Question 2: Which investment is generally considered the safest in the US?
- Corporate bonds
- US Treasury securities (Correct answer)
- Small-cap stocks
- Cryptocurrency
Correct answer: US Treasury securities
US Treasury securities are backed by the federal government and considered safest.
Question 3: What is dollar-cost averaging?
- Buying only when prices are low
- Investing a fixed amount at regular intervals (Correct answer)
- Selling in a downturn
- Converting currency
Correct answer: Investing a fixed amount at regular intervals
Dollar-cost averaging invests a fixed amount at regular intervals regardless of price.
Question 4: A stock has a beta of 1.5. If the market rises 10%, what is the expected move?
- Up 10%
- Up 15% (Correct answer)
- Up 5%
- Down 15%
Correct answer: Up 15%
Beta of 1.5 means the stock is expected to move 1.5x the market, or 15%.
Question 5: What is an ETF?
- A type of bond
- An exchange-traded fund (Correct answer)
- An employer tax form
- A futures contract
Correct answer: An exchange-traded fund
ETF stands for exchange-traded fund, traded like a stock on an exchange.
Question 6: Which of these is a characteristic of preferred stock?
- Voting rights always
- Priority over common stock for dividends (Correct answer)
- Highest growth potential
- No dividends
Correct answer: Priority over common stock for dividends
Preferred stockholders receive dividends before common stockholders.
Question 7: What does liquidity refer to in investing?
- How quickly an asset can be converted to cash (Correct answer)
- The dividend rate
- The level of debt
- The tax rate
Correct answer: How quickly an asset can be converted to cash
Liquidity is how easily an asset can be converted to cash without affecting its price.
Investment Test 3
What does the P/E ratio measure?