#1
What is a common financial instrument used to raise capital for a company?
Corporate bonds
ExplanationDebt securities issued by corporations to raise funds.
#2
Which of the following is a characteristic of common stock?
Voting rights
ExplanationEntitles shareholders to participate in corporate decision-making.
#3
Which of the following is an example of a fixed-income security?
Treasury bond
ExplanationIssued by governments, providing fixed interest payments.
#4
What is the role of a stock exchange in financial markets?
To facilitate the buying and selling of securities
ExplanationProvides a platform for trading various financial instruments.
#5
What is the primary function of a mutual fund?
To pool money from investors and invest in diversified assets
ExplanationAllows investors to access diversified portfolios managed by professionals.
#6
Which financial statement provides information about a company's profitability?
Income statement
ExplanationDetails revenue, expenses, and net income over a specific period.
#7
What is the formula for the price-to-earnings (P/E) ratio of a stock?
Market price per share / Earnings per share
ExplanationIndicates the value investors are willing to pay for each dollar of earnings.
#8
What does the Capital Asset Pricing Model (CAPM) help in determining?
Expected return on a stock
ExplanationEstimates the return an investment should generate based on its risk.
#9
What is the primary purpose of a derivative?
To hedge against financial risk
ExplanationProvides protection against adverse price movements.
#10
Which financial instrument represents ownership in a pool of mortgages?
Mortgage-backed securities
ExplanationBacked by a pool of mortgages, offering regular payments to investors.
#11
What does the debt-to-equity ratio indicate about a company?
The proportion of debt and equity financing in its capital structure
ExplanationShows how much debt a company uses to finance its operations compared to equity.
#12
Which of the following is a measure of the volatility of a stock?
Beta coefficient
ExplanationQuantifies a stock's sensitivity to market movements.
#13
Which of the following is NOT a factor that affects the valuation of a stock?
Geopolitical events
ExplanationWhile they can influence markets, they don't directly impact stock valuation.
#14
What is the concept of intrinsic value in stock valuation?
The value of the stock based on its earnings potential
ExplanationThe true, underlying value of a stock, independent of its market price.
#15
Which financial instrument gives the holder the right to buy a specified amount of a security at a predetermined price within a specified time frame?
Call option
ExplanationProvides the option to purchase a security at a set price before expiration.
#16
What is the formula for calculating the present value of a future cash flow?
Future value / (1 + interest rate)^n
ExplanationDetermines the current worth of future cash flows, considering time value of money.
#17
What is the key difference between a forward contract and a futures contract?
Futures contracts are standardized, while forward contracts are customized
ExplanationFutures trade on exchanges with standardized terms, while forwards are private agreements.