Equity Markets Learning Quizzes: Master Stock Valuation and Dividend Policy

Question 1

In which scenario does a company issue new shares to the public?

Accepted Answer

Primary market transaction

Answer

Secondary market transaction

Answer

Share buyback

Answer

Company merger

Question 2

Which formula accurately calculates the Dividend Payout Ratio?

Accepted Answer

Cash dividends paid / Net income

Answer

Net income / Cash dividends paid

Answer

Total dividends paid / Retained earnings

Answer

Retained earnings / Total dividends paid

Question 3

Which stock valuation method incorporates the future cash flows of a stock?

Accepted Answer

Dividend discount model

Answer

Price-to-earnings ratio

Answer

Book value

Answer

Market capitalization

Question 4

Distinguish between a bull market and a bear market.

Accepted Answer

In a bull market, stock prices rise, while in a bear market, they fall.

Answer

In a bear market, stock prices rise, while in a bull market, they fall.

Answer

Bull and bear markets refer to the volatility of the bond market.

Answer

Bull and bear markets are only applicable to the commodities market.

Question 5

Explain the purpose of a stock split.

Accepted Answer

To increase the number of shares outstanding without affecting the total market capitalization

Answer

To increase the market price of the stock

Answer

To decrease the market price of the stock

Answer

To decrease the number of shares outstanding without affecting the total market capitalization

Question 6

Which method is primarily used to determine the inherent worth of a stock?

Accepted Answer

Discounted Cash Flow (DCF)

Answer

Relative Valuation

Answer

Market Sentiment Analysis

Answer

Technical Analysis

Question 7

Which method of stock valuation considers the present value of future dividends received by the investor?

Accepted Answer

Dividend Discount Model

Answer

Comparable Company Analysis

Answer

Earnings Per Share

Answer

Price-to-Earnings Ratio

Question 8

Which of the following factors does **not** influence company dividend policy?

Accepted Answer

Customer satisfaction

Answer

Earnings

Answer

Cash flow

Answer

Debt ratio

Question 9

What is the primary purpose of an initial public offering (IPO)?

Accepted Answer

To raise capital for a company

Answer

To increase liquidity for existing shareholders

Answer

To reduce debt

Answer

To acquire another company

Question 10

What is the formula for calculating the dividend yield on a stock?

Accepted Answer

Dividend per share / Stock price

Answer

Stock price / Dividend per share

Answer

Earnings per share / Dividend per share

Answer

Price-to-earnings ratio / Dividend yield

Question 11

Which of the following is NOT a type of equity security?

Accepted Answer

Bonds

Answer

Common stock

Answer

Preferred stock

Answer

Mutual funds

Question 12

What is the major factor that determines a company's dividend policy?

Accepted Answer

Company's profitability

Answer

Investor expectations

Answer

Government regulations

Answer

Economic conditions

Question 13

Which market facilitates the issuance and sale of new equity securities?

Accepted Answer

Primary market

Answer

Secondary market

Answer

Over-the-counter market

Answer

Stock exchange

Question 14

What is the primary purpose of a prospectus in an equity offering?

Accepted Answer

To provide investors with comprehensive information about the company and the offering.

Answer

To raise capital from investors.

Answer

To register the offering with regulatory authorities.

Answer

To distribute shares to existing shareholders.

Question 15

What is the overarching goal of equity portfolio management?

Accepted Answer

To achieve optimal returns while managing risk

Answer

To invest solely in high-growth stocks

Answer

To diversify investments across different sectors

Answer

To hold stocks indefinitely

Question 16

What method is primarily used to value common stock?

Accepted Answer

Market value

Answer

Book value

Answer

Discounted cash flow

Answer

Liquidation value

Question 17

Which factor does NOT influence dividend policy?

Accepted Answer

Expected future inflation rate

Answer

Earnings per share

Answer

Cash flow

Answer

Tax rates

Question 18

What is the role of the primary market in equity financing?

Accepted Answer

To provide funds for new investment via IPOs

Answer

To enable companies to go public

Answer

To facilitate secondary trading of shares

Answer

To allow investors to cash out their investments

Question 19

What is the purpose of a dividend payout ratio?

Accepted Answer

To measure the proportion of earnings paid out as dividends

Answer

To indicate the company's dividend consistency

Answer

To determine the value of the company's shares

Answer

To assess the company's growth potential

Question 20

What is the impact of a stock split on the market capitalization of a company?

Accepted Answer

Reduction in share price and increase in number of shares with no impact on market cap

Answer

Increase

Answer

Decrease

Answer

No change

Question 21

Which of the following is NOT a reliable source of information for equity investors?

Accepted Answer

Online investment forums

Answer

Company financial statements

Answer

Stock market reports

Answer

Investment analysts' recommendations

Question 22

What is the primary goal of equity market regulation?

Accepted Answer

To protect investors and ensure fair and orderly markets

Answer

To promote economic growth

Answer

To reduce systemic risk

Answer

To control speculation and prevent market manipulation