CFA Equity Investments

Question 1

The Gordon Growth Model (Dividend Discount Model) assumes which of the following conditions?

Accepted Answer

Dividends grow at a constant rate indefinitely

Answer

Dividends grow at a variable rate over time

Answer

The stock pays no dividends

Answer

The required return equals the dividend growth rate

Question 2

Which equity valuation multiple is most appropriate when comparing companies with different capital structures?

Accepted Answer

EV/EBITDA

Answer

Price-to-Earnings (P/E)

Answer

Price-to-Book (P/B)

Answer

Dividend Yield

Question 3

A company has an ROE of 15% and a dividend payout ratio of 40%. Its sustainable growth rate is:

Accepted Answer

9%

Answer

6%

Answer

15%

Answer

40%

Question 4

A stock trading at a P/E of 25 with an earnings growth rate of 20% has a PEG ratio of:

Accepted Answer

1.25

Answer

0.80

Answer

2.00

Answer

5.00

Question 5

In the context of the CFA curriculum, free cash flow to equity (FCFE) is best described as:

Accepted Answer

Cash flow available to equity holders after meeting all financial obligations and capex needs

Answer

Operating cash flow minus capital expenditures

Answer

Net income plus depreciation minus changes in working capital

Answer

EBITDA minus interest expense and taxes

Question 6

Which of the following best describes a market that is weak-form efficient?

Accepted Answer

Past prices cannot be used to predict future prices

Answer

Public information is already reflected in stock prices

Answer

All information including insider data is reflected in prices

Answer

Technical analysis can consistently generate excess returns