Securities Analysis and Valuation Flashcards
7 cards from real Investment Advisor practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Securities Analysis and Valuation flashcards as text
A stock trades at $50 per share with earnings per share of $2.50. What is its price-to-earnings (P/E) ratio?
Answer: 20
The P/E ratio is calculated by dividing the stock price ($50) by EPS ($2.50), which equals 20.
Which valuation method estimates a stock's intrinsic value by discounting its projected future cash flows back to the present?
Answer: Discounted cash flow (DCF) analysis
DCF analysis values a security by discounting its expected future cash flows at an appropriate discount rate to arrive at a present value.
A bond with a face value of $1,000, a coupon rate of 6%, and a market price of $1,050 is said to be trading at:
Answer: A premium
When a bond's market price exceeds its face (par) value, it is trading at a premium.
According to the Dividend Discount Model (DDM), what is the primary driver of a stock's intrinsic value?
Answer: Present value of expected future dividends
The DDM calculates intrinsic value as the present value of all expected future dividends, discounted at the required rate of return.
A stock's beta is 1.5. If the overall market rises by 10%, how much would this stock be expected to rise?
Answer: 15%
Beta measures systematic risk relative to the market; a beta of 1.5 means the stock is expected to move 1.5 times the market's move, so 1.5 × 10% = 15%.
Which technical analysis indicator compares the magnitude of recent gains to recent losses to identify overbought or oversold conditions?
Answer: Relative Strength Index (RSI)
The RSI measures the speed and magnitude of price changes on a 0–100 scale; readings above 70 suggest overbought and below 30 suggest oversold conditions.
A company has a price-to-book (P/B) ratio of 0.8. This most likely indicates the stock is trading:
Answer: Below its book value
A P/B ratio below 1.0 means the stock is priced below the company's net asset (book) value per share.