Question 1021
A level-payment loan repays principal:
A. Only at maturity
B. Gradually over time
C. Never
D. Only when interest is paid
Check answer
Select an option first.
Correct answer: B — Gradually over time
Explanation: ✔ Why correct: Each payment includes principal.
Question 1022
The PV of a future cash flow increases when:
A. r increases
B. t increases
C. r decreases
D. Cash flow decreases
Check answer
Select an option first.
Correct answer: C — r decreases
Explanation: ✔ Why correct: Lower discount rate → higher PV.
Question 1023
The FV of a present cash flow increases when:
A. r increases
B. t decreases
C. PV decreases
D. r decreases
Check answer
Select an option first.
Correct answer: A — r increases
Explanation: ✔ Why correct: Higher interest → higher FV.
Question 1024
A stock with constant dividends is valued as:
A. D/r
B. D/(r − g)
C. D × (1 + r)^t
D. D × (1 − g)
Check answer
Select an option first.
Correct answer: A — D/r
Explanation: ✔ Why correct: Zero-growth perpetuity.
Question 1025
A stock with dividends growing at g forever is valued as:
A. D/r
B. D/(r − g)
C. D × (1 + g)^t
D. D × (1 − g)
Check answer
Select an option first.
Correct answer: B — D/(r − g)
Explanation: ✔ Why correct: Gordon growth model.
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Question 1026
A multi-stage dividend model is needed when:
A. Growth is constant
B. Growth changes over time
C. Dividends are zero
D. Dividends are fixed
Check answer
Select an option first.
Correct answer: B — Growth changes over time
Explanation: ✔ Why correct: Multi-stage captures changing growth.
Question 1027
The implied growth rate from P/E analysis is useful because:
A. It predicts inflation
B. It shows whether price is justified by growth
C. It measures dividends
D. It measures risk
Check answer
Select an option first.
Correct answer: B — It shows whether price is justified by growth
Explanation: ✔ Why correct: Compare implied growth to expected growth.
Question 1028
If implied growth > analyst growth estimate, the stock is likely:
A. Undervalued
B. Overvalued
C. Fairly valued
D. Risk-free
Check answer
Select an option first.
Correct answer: B — Overvalued
Explanation: ✔ Why correct: Market expects more growth than fundamentals justify.
Question 1029
The forward P/E uses:
A. Current earnings
B. Next period’s expected earnings
C. Past earnings
D. Dividend payout
Check answer
Select an option first.
Correct answer: B — Next period’s expected earnings
Explanation: ✔ Why correct: Forward P/E = Price / E(t+1).
Question 1030
Cash flow additivity applies when cash flows are:
A. At different times
B. At the same point in time
C. Negative only
D. Positive only
Check answer
Select an option first.
Correct answer: B — At the same point in time
Explanation: ✔ Why correct: PVs must be at same time to add.
Question 1031
No-arbitrage pricing requires:
A. PVs are additive
B. Cash flows are random
C. Prices are constant
D. Growth is zero
Check answer
Select an option first.
Correct answer: A — PVs are additive
Explanation: ✔ Why correct: Additivity ensures consistent pricing.
Question 1032
A bond’s YTM is the rate that:
A. Discounts coupons only
B. Equates PV of cash flows to price
C. Equals coupon rate
D. Equals market return
Check answer
Select an option first.
Correct answer: B — Equates PV of cash flows to price
Explanation: ✔ Why correct: YTM solves PV = Price.
Question 1033
A higher discount rate implies:
A. Higher PV
B. Lower PV
C. No change
D. Negative PV
Check answer
Select an option first.
Correct answer: B — Lower PV
Explanation: ✔ Why correct: Higher r → lower PV.
Question 1034
A lower discount rate implies:
A. Higher PV
B. Lower PV
C. No change
D. Zero PV
Check answer
Select an option first.
Correct answer: A — Higher PV
Explanation: ✔ Why correct: Lower r → higher PV.
Question 1035
A perpetuity requires:
A. Finite cash flows
B. Infinite cash flows
C. Zero cash flows
D. Growing cash flows only
Check answer
Select an option first.
Correct answer: B — Infinite cash flows
Explanation: ✔ Why correct: Perpetuity lasts forever.
Question 1036
A stock with no dividends and no expected growth is valued using:
A. Dividend discount model
B. Free cash flow model
C. Perpetuity model
D. Bond model
Check answer
Select an option first.
Correct answer: B — Free cash flow model
Explanation: ✔ Why correct: Use cash flows or earnings.
Question 1037
The discount rate for equity includes:
A. Only time value
B. Only risk
C. Time value + risk
D. Only inflation
Check answer
Select an option first.
Correct answer: C — Time value + risk
Explanation: ✔ Why correct: Required return = time value + risk premium.
Question 1038
A higher required return leads to:
A. Higher stock price
B. Lower stock price
C. No change
D. Higher dividends
Check answer
Select an option first.
Correct answer: B — Lower stock price
Explanation: ✔ Why correct: Higher r → lower PV.
Question 1039
A higher dividend payout ratio leads to:
A. Higher P/E
B. Lower P/E
C. No change
D. Negative P/E
Check answer
Select an option first.
Correct answer: A — Higher P/E
Explanation: ✔ Why correct: Higher payout → higher dividends → higher valuation.
Question 1040
A lower payout ratio leads to:
A. Higher growth
B. Lower growth
C. No change
D. Negative growth
Check answer
Select an option first.
Correct answer: A — Higher growth
Explanation: ✔ Why correct: Retained earnings fund growth.
Question 1041
Cash flow additivity allows valuation of:
A. Only single cash flows
B. Any combination of cash flows discounted to the same time
C. Only dividends
D. Only interest payments
Check answer
Select an option first.
Correct answer: B — Any combination of cash flows discounted to the same time
Explanation: ✔ Why correct: PVs at same time can be added.
Question 1042
The arithmetic mean is most appropriate when an analyst wants to measure:
A. The middle value of a dataset
B. The most frequent value
C. A simple average of all observations
D. The variability of observations
Check answer
Select an option first.
Correct answer: C — A simple average of all observations
Explanation: ✔ Why correct: The arithmetic mean is the sum of all observations divided by the number of observations—i.e., the simple average.
Question 1043
The sample mean differs from the population mean because it:
A. Uses all values in the population
B. Uses only a subset of the population
C. Is always larger
D. Is always smaller
Check answer
Select an option first.
Correct answer: B — Uses only a subset of the population
Explanation: ✔ Why correct: The sample mean is computed from a sample, which is a subset of the population.
Question 1044
The median is preferred over the mean when:
A. The dataset has no variability
B. The dataset contains extreme outliers
C. The dataset is perfectly symmetric
D. The dataset has multiple modes
Check answer
Select an option first.
Correct answer: B — The dataset contains extreme outliers
Explanation: ✔ Why correct: The median is robust to extreme values and is not pulled by outliers like the mean.
Question 1045
In an even-numbered dataset, the median is computed as:
A. The middle value
B. The average of the two middle values
C. The most frequent value
D. The value with the smallest deviation
Check answer
Select an option first.
Correct answer: B — The average of the two middle values
Explanation: ✔ Why correct: For an even number of observations, the median is the average of the two central values.
Question 1046
The mode is defined as:
A. The average of all values
B. The middle value
C. The most frequently occurring value
D. The value with the largest deviation
Check answer
Select an option first.
Correct answer: C — The most frequently occurring value
Explanation: ✔ Why correct: The mode is the value that appears most often in the dataset.
Question 1047
A dataset with two modes is described as:
A. Unimodal
B. Bimodal
C. Trimodal
D. Multimodal
Check answer
Select an option first.
Correct answer: B — Bimodal
Explanation: ✔ Why correct: “Bimodal” means the distribution has two distinct modes.
Question 1048
A dataset with no repeated values has:
A. No mode
B. One mode
C. Two modes
D. Infinite modes
Check answer
Select an option first.
Correct answer: A — No mode
Explanation: ✔ Why correct: If no value repeats, no value occurs more frequently than others, so there is no mode.
Question 1049
A trimmed mean is computed by:
A. Removing a percentage of extreme values
B. Replacing extreme values
C. Using only the median
D. Using only the highest values
Check answer
Select an option first.
Correct answer: A — Removing a percentage of extreme values
Explanation: ✔ Why correct: A trimmed mean excludes a specified percentage of the lowest and highest values before averaging.
Question 1050
A winsorized mean is computed by:
A. Removing extreme values
B. Replacing extreme values with nearest remaining values
C. Using only the middle 50% of data
D. Using only the lowest values
Check answer
Select an option first.
Correct answer: B — Replacing extreme values with nearest remaining values
Explanation: ✔ Why correct: Winsorizing replaces extreme values with less extreme values (e.g., nearest non-outlier) before computing the mean.
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