WorksheetsFinal Review
Total questions: 25
Worksheet time: 50mins
What is meant by financial assets ?
Assets that determine the productive capacity of the economy
Examples include buildings and machinery
Intrinsic value remains unchanged
Claims on real assets
Which market handles the initial sale of securities ?
Secondary market
Capital market
Primary Market
Money Market
What is the main difference between broker and dealer markets?
The type of securities traded
The way transactions are executed
The level of available liquidity
The size of companies traded
Why must companies register with the SEC before an IPO ?
To ensure compliance with state regulations
To guarantee the accuracy of all information
To be able to trade in international markets
To reduce the cost of offering shares
How is standard deviation calculated in investment ?
Using the expected average return
Taking the square root of the average squared variation
Dividing the sum of returns by the number of possibilities
Subtracting the average from each expected return
What is the main function of diversification in a portfolio ?
Increasing the overall risk of the portfolio
Reducing unsystematic risk
Eliminating market risk entirely
Guaranteeing higher returns
What does beta signify in the context of investment risk ?
The sensitivity of an asset's return to the overall market
A measurement of specific asset risk
The ratio of return to standard deviation
An absolute measure of return volatility
How do assets with a beta greater than one react to market changes ?
They move more significantly compared to the market
They are more stable than the market
They Experience changes proportional to the market
They are unaffected by market fluctuations
What is the Capital Asset Pricing Model ( CAPM ) ?
A model that describes the relationship between risk and expected return
A model for calculating beta exclusively
A model that eliminates market risk altogether
A method for determining asset prices based on historical cost
Real assets determine the productive capacity of the economy
True
False
Derivatives are used to transfer risk
True
False
The Process of selling shares to public investors for the first time
(a)
The SEC is responsible for ensuring the accuracy of information in an IPO
True
False
What can be done to reduce or manage investment risk ?
(a)
Combining positively correlated assets can reduce risk
True
False
What is intrinsic value in stock valuation ?
The current market price of the stock
The Value calculated using financial models or objective calculations
The total assets minus the company's liabilities
The current stock price plus the expected dividends
Which method is used to calculate intrinsic value by discounting future cash flows ?
Capital Asset Pricing Model (CAPM)
Dividend Discount Model (DDM)
Discounted Cash Flow Model
Price to Earnings
What is the main external factor influencing stock valuation ?
The company's dividend policy
Market trends and investor sentiment
The development of new products by the company
The Company's Capital structure
In the Dividend Discount Model, what is assumed by the constant growth model?
Dividends will remain the same over time
Dividends will grow at a constant rate forever
Dividends will vary depending on economic conditions
The company will not pay dividends in the future
Common stockholders are always guaranteed to receive a fixed dividend every year
True
False
A continuously increasing stock price always indicates that the company is fundamentally performing well
True
False
Common stockholders have the right to vote for the board of directors and company policies
True
False
The CAPM only calculates avoidable risks.
True
False
Securities markets provide a platform for financial transactions
True
False
What does a Beta of 0 indicate ?
The stock moves perfectly in sync with the market
The Stock has no correlation with market movements
The stock is less risky than treasury bonds
The stock is highly correlated with the market
