You’re on a roll
Create a free account to save your CFA progress, track your accuracy by topic, and pick up right where you left off.
Free Questions › CFA › Equity
Free CFA Equity Practice Questions & Answers
400 exam-style Equity questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 301
A control premium is most justified when:
Select an option first.
Correct answer: A — The buyer can change payout policy and capital structure
Explanation: Why correct: Control has value when it allows meaningful changes to operations/financing. B, C, D: Little or no incremental value from control.
Question 302
Asset‑Based Valuation – Best Use Asset‑based valuation is most appropriate for:
Select an option first.
Correct answer: C — Firms in financial distress or liquidation
Explanation: Why correct: In distress/liquidation, asset values matter more than going‑concern cash flows. A: Intangibles often poorly captured. B, D: DCF/multiples more appropriate.
Question 303
P/CF over P/E is that P/CF:
Select an option first.
Correct answer: A — Is less affected by accounting choices
Explanation: Why correct: Cash flow is generally less subject to accounting manipulation than earnings. B: Capital structure still matters. C: Growth still relevant. D: Dividends not required.
Question 304
A “value trap” most likely occurs when:
Select an option first.
Correct answer: B — A stock has low multiples due to permanent deterioration
Explanation: Why correct: Low multiples that reflect structural decline can trap value investors. A: Temporary issues may be genuine opportunities. C, D: More growth/speculation than “value trap”.
Question 305
H‑Model – Formula Component In the H‑model, “H” represents:
Select an option first.
Correct answer: B — Half the high‑growth period
Explanation: Why correct: ( H = \frac{N}{2} ), where N = years of declining growth. A: Misstates definition. C/D: Not part of H‑model.
Get the full CFA question bank — free
Drop your email and we'll send you fresh CFA practice questions, fully worked solutions and exam-deadline reminders. No spam — unsubscribe in one click.
Want to save your score and take a full mock exam? Create a free account →
Question 306
A low persistence factor is most likely when:
Select an option first.
Correct answer: C — Large non‑recurring gains
Explanation: Why correct: One‑time gains → RI unlikely to persist. A/B/D: Increase persistence.
Question 307
If two firms have identical payout and risk, the firm with higher expected growth should have:
Select an option first.
Correct answer: B — Higher P/E
Explanation: Why correct: Justified P/E ≈ payout / (r − g). Higher g → smaller denominator → higher P/E. A: Opposite of theory. C: Only if growth equal. D: Negative P/E occurs only with negative earnings.
Question 308
P/E comparisons across firms?
Select an option first.
Correct answer: A — Different depreciation methods
Explanation: Why correct: Depreciation affects earnings, the denominator of P/E, making comparisons unreliable. B: P/E uses earnings, not dividends. C: Affects P/E but less than earnings distortions. D: Tax differences matter but depreciation is more direct.
Question 309
EV/EBITDA is preferred over P/E because:
Select an option first.
Correct answer: A — It ignores capital structure
Explanation: Why correct: EV/EBITDA is pre‑interest, pre‑tax → less sensitive to leverage. B/C: EV/EBITDA excludes both. D: Dividends irrelevant.
Question 310
EV/EBITDA is:
Select an option first.
Correct answer: B — It ignores working capital needs
Explanation: Why correct: EBITDA excludes working capital changes → misleading for cash‑intensive firms. A: True but not the biggest weakness. C: Actually an advantage. D: Also true but less critical.
Question 311
P/S ratio is least useful when:
Select an option first.
Correct answer: A — Profit margins vary widely across firms
Explanation: Why correct: P/S ignores profitability → margin differences distort valuation. B/C/D: P/S works better when margins, growth, risk are similar.
Question 312
P/E = 24 and expected growth = 12%. PEG = ?
Select an option first.
Correct answer: B — 1
Explanation: Why correct: PEG = 24 ÷ 12 = 2.0? Wait—growth must be in whole percent → 12 → PEG = 24/12 = 2.0 → Option C. A/B/D: Incorrect math.
Question 313
PEG is least reliable when:
Select an option first.
Correct answer: B — Growth is uncertain
Explanation: Why correct: PEG relies heavily on accurate growth forecasts. A/C/D: PEG works fine.
Question 314
Cross‑Country Multiples Comparing P/E ratios across countries is difficult primarily because:
Select an option first.
Correct answer: B — Accounting standards differ
Explanation: Why correct: Different accounting rules → different earnings → distorted P/E. A/C/D: True but secondary.
Question 315
Enterprise vs Equity Multiples EV/EBITDA is preferred over P/E when:
Select an option first.
Correct answer: A — Firms have different leverage
Explanation: Why correct: EV/EBITDA neutralizes leverage differences. B/C/D: Do not require EV multiples.
Question 316
P/E equals:
Select an option first.
Correct answer: B — payout / (r − g)
Explanation: Why correct: Forward P/E = payout / (r − g). A: Missing payout. C: ROE not part of P/E formula. D: Inverted.
Question 317
P/E – Inflation Impact High inflation tends to:
Select an option first.
Correct answer: B — Decrease P/E
Explanation: Why correct: Inflation → higher discount rates → lower P/E. A: Opposite. C: Inflation always affects valuation. D: Only negative earnings make P/E negative.
Question 318
EV/EBITDA is least appropriate for:
Select an option first.
Correct answer: B — Utility firms
Explanation: Why correct: Utilities have large depreciation and capex → EBITDA overstates cash flow. A/C/D: Low capex → EBITDA more reliable.
Question 319
P/CF is preferred over P/E because:
Select an option first.
Correct answer: A — Cash flow is harder to manipulate
Explanation: Why correct: Cash flow less subject to accounting manipulation. B: Not true. C/D: Incorrect definitions.
Question 320
P/S is most useful when:
Select an option first.
Correct answer: A — Earnings are negative
Explanation: Why correct: Sales remain positive even when earnings negative. B: Margin differences distort P/S. C/D: Not directly relevant.
Question 321
EV/EBITDA is useful across countries because:
Select an option first.
Correct answer: A — It ignores taxes
Explanation: Why correct: EBITDA is pre‑tax → avoids cross‑country tax distortions. B/C/D: Not the main reason.
Question 322
P/E – Cyclicality P/E is least reliable for:
Select an option first.
Correct answer: A — Cyclical firms
Explanation: Why correct: Earnings fluctuate → P/E misleading. B/C/D: More stable earnings.
Question 323
PEG – Cross‑Firm Comparison PEG is most comparable across firms when:
Select an option first.
Correct answer: A — Growth estimates are consistent
Explanation: Why correct: PEG depends heavily on growth accuracy. B: PEG unusable. C/D: Distort P/E.
Question 324
EV/EBITDA is distorted when:
Select an option first.
Correct answer: A — Working capital swings are large
Explanation: Why correct: EBITDA ignores WC → cash flow overstated. B/C/D: Less distortion.
Question 325
P/E – Required Return If required return increases, P/E:
Select an option first.
Correct answer: B — Decreases
Explanation: Why correct: Higher r → lower justified P/E. A: Opposite. C: Only if r unchanged. D: P/E negative only with negative earnings.
Question 326
EV/EBITDA is leverage‑neutral because:
Select an option first.
Correct answer: A — EV includes debt
Explanation: Why correct: EV = equity + debt − cash → neutralizes leverage. B/C: EBITDA excludes both. D: EV includes equity.
Question 327
P/E – Earnings Quality Low earnings quality tends to:
Select an option first.
Correct answer: B — Decrease P/E
Explanation: Why correct: Low quality → higher risk → lower P/E. A: Opposite. C: Always affects valuation. D: Only negative earnings.
Question 328
P/S – Growth Firms P/S is often used for early‑stage firms because:
Select an option first.
Correct answer: A — Sales are more stable than earnings
Explanation: Why correct: Sales remain positive even when earnings volatile. B/C/D: Incorrect relationships.
Question 329
EV/EBITDA – Cross‑Industry EV/EBITDA is least comparable across industries when:
Select an option first.
Correct answer: A — Capital intensity differs
Explanation: Why correct: EBITDA ignores capex → capital‑intensive industries distort comparisons. B/C/D: Secondary issues.
Question 330
P/E – Growth vs Risk A firm’s P/E increases when:
Select an option first.
Correct answer: A — Growth increases and risk decreases
Explanation: Why correct: Higher g and lower r → higher P/E. B: Both negative. C: Effects offset. D: Lower g reduces P/E.
More free CFA topics
Economics2,066
Quantitative Methods1,213
Portfolio Management1,079
Fixed Income908
Financial Statement Analysis904
Corporate Issuers884
Portfolio Construction605
Alternative Investments540
Specialized Pathway - Private Markets500
Asset Allocation499
Derivatives498
Performance Measurement295
Specialized Pathway - Portfolio Management253
Derivatives and Risk Management131
Ten questions in
- The ones you miss are saved as a drill you can repeat
- Your place is kept, on this device and any other
- A streak, if that is the thing that gets you back tomorrow
Every question on this page stays free and open either way.