#1
Which of the following methods is commonly used to estimate the intrinsic value of a stock?
Dividend Discount Model (DDM)
ExplanationDDM estimates stock value based on future dividends.
#2
Which financial ratio measures a company's ability to cover its short-term liabilities with its short-term assets?
Current ratio
ExplanationCurrent ratio gauges short-term liquidity.
#3
What does the term 'stock split' mean?
An increase in the number of outstanding shares of a company
ExplanationStock split increases shares outstanding.
#4
What does the term 'yield' refer to in stock valuation?
The annual dividend income per share
ExplanationYield is annual dividend per share.
#5
What does the term 'market capitalization' represent?
The total value of all outstanding shares of a company
ExplanationMarket cap is total value of company's shares.
#6
What is the formula for calculating the Price-Earnings (P/E) Ratio of a stock?
Price per share / Earnings per share
ExplanationP/E ratio measures price relative to earnings per share.
#7
Which of the following factors does NOT typically influence a stock's price?
Number of employees in the company
ExplanationEmployee count generally does not affect stock price.
#8
What is the Gordon Growth Model (GGM) primarily used for in stock valuation?
To calculate the present value of future dividends
ExplanationGGM determines stock value based on future dividend streams.
#9
What does the term 'book value' of a stock refer to?
The value of the company's assets minus its liabilities
ExplanationBook value is net asset value per share.
#10
Which of the following statements about common stock dividends is true?
Common stock dividends are paid out of the company's earnings at the discretion of the board
ExplanationDividends are distributed from company earnings.
#11
What does the term 'beta' measure in the context of stock valuation?
The volatility of a stock relative to the market
ExplanationBeta measures stock's sensitivity to market changes.
#12
Which of the following is NOT a method of valuing a stock?
Earnings Before Interest and Taxes (EBIT)
ExplanationEBIT is not a direct stock valuation method.
#13
What does the Capital Asset Pricing Model (CAPM) help investors determine?
The expected return on a stock
ExplanationCAPM assesses expected returns given risk.
#14
When valuing a stock using the Discounted Cash Flow (DCF) method, which of the following factors is considered in the calculation?
Future cash flows
ExplanationDCF evaluates stock based on future cash flow projections.
#15
What does the efficient market hypothesis (EMH) suggest regarding stock prices?
Stock prices always reflect all available information
ExplanationEMH posits market efficiency in reflecting info.
#16
What is the purpose of conducting a sensitivity analysis in stock valuation?
To estimate the potential impact of changing assumptions on the stock's valuation
ExplanationSensitivity analysis assesses valuation sensitivity to assumptions.
#17
What is the formula for calculating the Weighted Average Cost of Capital (WACC)?
Cost of Equity + Cost of Debt
ExplanationWACC combines equity and debt costs for capital.
#18
Which of the following is a limitation of the Dividend Discount Model (DDM) in stock valuation?
It cannot be applied to companies that do not pay dividends
ExplanationDDM is inapplicable for non-dividend paying firms.