RFC Investment Analysis & Selection 2

Question 1

Which ratio measures a stock's price relative to its book value per share?

Accepted Answer

Price-to-Book (P/B)

Answer

The Price-to-Book ratio compares a company's market capitalization to its net book value (assets minus liabilities).

Question 2

A bond with a coupon rate of 5% is trading at a premium. What does this imply about current market interest rates?

Accepted Answer

They are below 5%

Answer

A bond trades at a premium when its coupon rate exceeds current market rates, making it more attractive than newly issued bonds.

Question 3

In the context of the Capital Asset Pricing Model (CAPM), which component represents the reward for bearing systematic risk?

Accepted Answer

Market risk premium

Answer

The market risk premium (expected market return minus the risk-free rate) compensates investors for taking on market-wide systematic risk.

Question 4

Which investment style focuses on companies whose stock prices appear below their intrinsic value?

Accepted Answer

Value investing

Answer

Value investing targets undervalued securities trading below their estimated intrinsic value, popularized by Benjamin Graham and Warren Buffett.

Question 5

The Sharpe ratio is BEST described as:

Accepted Answer

Excess return per unit of total risk

Answer

The Sharpe ratio measures excess return (above the risk-free rate) per unit of total (standard deviation) risk, rewarding efficient risk-taking.

(RFC) Registered Financial Consultant Practice Test