#1
What is the formula for calculating the Price-Earnings (P/E) ratio?
Price per share / Earnings per share (EPS)
ExplanationRatio of stock price to earnings per share.
#2
What is the formula for calculating the Price-to-Earnings (P/E) Ratio?
Market Price / Earnings Per Share (EPS)
ExplanationCompares stock price to earnings per share.
#3
In stock valuation, what does the term 'intrinsic value' refer to?
The true underlying value of a stock based on its fundamentals
ExplanationReal value based on fundamental factors.
#4
In stock valuation, what does the term 'book value' represent?
The historical cost of assets minus liabilities
ExplanationNet worth according to balance sheet.
#5
What does the term 'intrinsic value' mean in the context of stock valuation?
The present value of a stock's future cash flows
ExplanationCurrent worth of future cash flows.
#6
Which of the following methods is commonly used to estimate the intrinsic value of a stock?
Discounted Cash Flow (DCF) analysis
ExplanationEvaluates future cash flows discounted to present value.
#7
What does the Gordon Growth Model (also known as the Dividend Discount Model) estimate?
Intrinsic value of a stock
ExplanationCalculates stock value based on expected dividends.
#8
Which of the following statements is true about the Capital Asset Pricing Model (CAPM)?
It calculates the expected return of an investment based on its systematic risk
ExplanationEstimates return considering asset risk.
#9
Which of the following methods considers the future earnings potential of a company in stock valuation?
Gordon Growth Model (GGM)
ExplanationValues stock based on projected earnings.
#10
Which of the following is a limitation of the Price-to-Earnings (P/E) Ratio?
It does not consider a company's growth prospects
ExplanationDoesn't account for company's growth potential.
#11
Which financial statement is typically used to derive inputs for stock valuation models?
Income Statement
ExplanationProvides crucial financial data for valuation.
#12
Which of the following statements is true regarding the relationship between stock price and intrinsic value?
Stock price may differ from intrinsic value
ExplanationPrice often varies from true value.
#13
Which factor is NOT considered in the Dividend Discount Model (DDM) for stock valuation?
Market capitalization of the company
ExplanationIgnores company's market value.
#14
What is the formula for the Weighted Average Cost of Capital (WACC) used in stock valuation?
(Cost of Equity * Equity) + (Cost of Debt * Debt)
ExplanationWeighted average cost of funding.