100 VALUATION EXAM MCQS FOR SFA FOR PRACTICE

100 VALUATION EXAMINATION MCQS FOR SECURITIES OR FINANCIAL ASSETS WITH ANSWERS FOR PRACTICE

Practice MCQs for Security or Financial Assets

What type of financial asset represents ownership in a company?
- A) Bond
- B) Stock
- C) Derivative
- D) Mutual fund
- Answer: B) Stock
Which financial instrument is known for fixed periodic payments?
- A) Equity
- B) Option
- C) Bond
- D) Futures
- Answer: C) Bond
What is the main risk associated with investing in stocks?
- A) Credit risk
- B) Market risk
- C) Interest rate risk
- D) Inflation risk
- Answer: B) Market risk
What does the term ‘diversification’ mean in finance?
- A) Investing in a single asset
- B) Spreading investments across different assets
- C) Increasing exposure to a single sector
- D) Reducing the number of investments
- Answer: B) Spreading investments across different assets
Which of the following is a type of derivative?
- A) Stock
- B) Bond
- C) Futures contract
- D) Real estate
- Answer: C) Futures contract
What does ‘liquidity’ refer to in financial markets?
- A) The potential for high returns
- B) The ability to convert an asset to cash quickly
- C) The risk of loss
- D) The rate of return on investment
- Answer: B) The ability to convert an asset to cash quickly
Which financial asset typically provides a fixed return?
- A) Equity
- B) Commodity
- C) Bond
- D) Currency
- Answer: C) Bond
What is the ‘net asset value’ (NAV) of a mutual fund?
- A) Total liabilities divided by total shares
- B) Total assets minus total liabilities
- C) Market price of a share
- D) Total revenue of the fund
- Answer: B) Total assets minus total liabilities
What does a high ‘beta’ indicate about a stock?
- A) It is less volatile than the market
- B) It is more volatile than the market
- C) It has no correlation with market movements
- D) It is a risk-free asset
- Answer: B) It is more volatile than the market
Which of the following is a primary market activity?
- A) Trading of existing stocks
- B) Initial public offerings (IPOs)
- C) Buying and selling derivatives
- D) Short selling
- Answer: B) Initial public offerings (IPOs)
The ‘coupon rate’ of a bond is:
- A) The market price of the bond
- B) The interest payment made to bondholders
- C) The total return on investment
- D) The yield to maturity
- Answer: B) The interest payment made to bondholders
What type of order is executed at the market price?
- A) Limit order
- B) Stop order
- C) Market order
- D) Good-till-cancelled order
- Answer: C) Market order
Which metric assesses an investment’s performance relative to its risk?
- A) Return on investment
- B) Sharpe ratio
- C) Alpha
- D) Price-to-earnings ratio
- Answer: B) Sharpe ratio
What is the primary goal of asset allocation?
- A) To maximize returns on individual assets
- B) To spread risk across various asset classes
- C) To focus solely on equities
- D) To minimize liquidity
- Answer: B) To spread risk across various asset classes
A ‘bull market’ indicates:
- A) Falling stock prices
- B) Rising stock prices
- C) Stable stock prices
- D) Increased volatility
- Answer: B) Rising stock prices
What is a characteristic of preferred stock?
- A) It has voting rights
- B) It pays dividends before common stock
- C) It is riskier than common stock
- D) It has a fixed maturity date
- Answer: B) It pays dividends before common stock
Which of the following best describes a hedge fund?
- A) A fund that only invests in equities
- B) A pooled investment vehicle that employs various strategies
- C) A government-sponsored investment program
- D) A fund that only invests in bonds
- Answer: B) A pooled investment vehicle that employs various strategies
The term ‘capital gain’ refers to:
- A) Income received from dividends
- B) The profit from selling an asset at a higher price than purchased
- C) The interest earned on bonds
- D) The depreciation of asset value
- Answer: B) The profit from selling an asset at a higher price than purchased
Which of the following is a feature of convertible bonds?
- A) They have a fixed interest rate
- B) They can be converted into equity shares
- C) They are risk-free
- D) They have no maturity date
- Answer: B) They can be converted into equity shares
What does the term ‘arbitrage’ refer to?
- A) The practice of holding multiple assets
- B) The simultaneous purchase and sale of an asset to profit from price differences
- C) The strategy of investing in high-risk assets
- D) The process of diversifying investments
- Answer: B) The simultaneous purchase and sale of an asset to profit from price differences

Additional Questions

Which of the following is an advantage of investing in index funds?
- A) Higher fees compared to actively managed funds
- B) Potential for higher returns than the market
- C) Lower management fees and diversification
- D) Exclusive focus on small-cap stocks
- Answer: C) Lower management fees and diversification
What does a high dividend yield indicate?
- A) A company is not reinvesting profits
- B) A stock is likely to decrease in value
- C) A stock is overpriced
- D) A company is financially stable
- Answer: A) A company is not reinvesting profits
Which of the following is a primary concern for bond investors?
- A) Inflation risk
- B) Market risk
- C) Liquidity risk
- D) Operational risk
- Answer: A) Inflation risk
What is a ‘bear market’?
- A) A market characterized by falling prices
- B) A market characterized by rising prices
- C) A stable market with no significant price movements
- D) A market with high volatility
- Answer: A) A market characterized by falling prices
Which of the following financial instruments represents a claim on future cash flows?
- A) Equity
- B) Derivative
- C) Bond
- D) Real estate
- Answer: C) Bond
Which regulatory body oversees the securities industry in the U.S.?
- A) Federal Reserve
- B) Securities and Exchange Commission (SEC)
- C) Department of the Treasury
- D) Financial Industry Regulatory Authority (FINRA)
- Answer: B) Securities and Exchange Commission (SEC)
What is the primary purpose of a financial intermediary?
- A) To facilitate direct investment between investors
- B) To provide loans to consumers
- C) To match savers with borrowers
- D) To manage investment portfolios
- Answer: C) To match savers with borrowers
Which term describes the risk that an investment will lose value due to market movements?
- A) Interest rate risk
- B) Default risk
- C) Systematic risk
- D) Idiosyncratic risk
- Answer: C) Systematic risk
What is ‘asset allocation’?
- A) The process of selecting specific securities
- B) The strategy of diversifying across different asset classes
- C) The practice of timing the market
- D) The method of evaluating financial statements
- Answer: B) The strategy of diversifying across different asset classes
Which of the following is NOT a form of equity?
- A) Common stock
- B) Preferred stock
- C) Convertible bond
- D) Share warrants
- Answer: C) Convertible bond
What does ‘insider trading’ refer to?
- A) Trading based on publicly available information
- B) Trading based on non-public, material information
- C) Trading in foreign markets
- D) Trading without a broker
- Answer: B) Trading based on non-public, material information
Which of the following investment vehicles typically has the highest management fees?
- A) Index fund
- B) Exchange-traded fund (ETF)
- C) Actively managed mutual fund
- D) Closed-end fund
- Answer: C) Actively managed mutual fund
What is the term for the process of combining different financial assets to reduce overall risk?
- A) Speculation
- B) Diversification
- C) Hedging
- D) Liquidation
- Answer: B) Diversification
Which of the following best describes ‘blue-chip stocks’?
- A) Stocks of companies with high growth potential
- B) Stocks of well-established companies with a history of stable earnings
- C) Stocks with low market capitalization
- D) Stocks that pay no dividends
- Answer: B) Stocks of well-established companies with a history of stable earnings
What is the role of the primary market?
- A) To facilitate trading of existing securities
- B) To issue new securities to investors
- C) To provide liquidity to the market
- D) To regulate the stock exchange
- Answer: B) To issue new securities to investors
Which of the following is a characteristic of a municipal bond?
- A) It is issued by corporations
- B) Interest income is often tax-exempt
- C) It has a higher risk of default than corporate bonds
- D) It is considered a high-risk investment
- Answer: B) Interest income is often tax-exempt
What does ‘default risk’ refer to?
- A) The risk of losing money in a market downturn
- B) The risk that a borrower will fail to meet obligations
- C) The risk associated with interest rate fluctuations
- D) The risk of inflation affecting returns
- Answer: B) The risk that a borrower will fail to meet obligations
Which of the following best defines ‘inflation risk’?
- A) The risk of a company going bankrupt
- B) The risk that inflation will erode investment returns
- C) The risk of losing principal investment
- D) The risk associated with foreign investments
- Answer: B) The risk that inflation will erode investment returns
What is a ‘value stock’?
- A) A stock that has a high price-to-earnings ratio
- B) A stock that is undervalued compared to its fundamentals
- C) A stock that consistently pays dividends
- D) A stock in a growth industry
- Answer: B) A stock that is undervalued compared to its fundamentals
What is the main function of the Securities Exchange Board of India (SEBI)?
- A) To issue government bonds
- B) To regulate the securities market
- C) To manage foreign exchange reserves
- D) To oversee commercial banks
- Answer: B) To regulate the securities market
Which of the following is NOT typically a component of a bond’s price?
- A) Face value
- B) Interest rate
- C) Issuer’s credit rating
- D) Dividend payout
- Answer: D) Dividend payout
What does a company’s earnings per share (EPS) indicate?
- A) The total revenue generated by the company
- B) The company’s profitability on a per-share basis
- C) The market price of the stock
- D) The total assets of the company
- Answer: B) The company’s profitability on a per-share basis
What is a common way for investors to assess a company’s valuation?
- A) Dividend yield
- B) Price-to-earnings (P/E) ratio
- C) Market capitalization
- D) Interest coverage ratio
- Answer: B) Price-to-earnings (P/E) ratio
Which of the following describes ‘investing’?
- A) The act of buying assets to sell them quickly
- B) The allocation of resources to generate returns over time
- C) The process of speculating on market trends
- D) The purchase of collectibles
- Answer: B) The allocation of resources to generate returns over time
Which term describes the situation when a company’s expenses exceed its revenues?
- A) Profitability
- B) Insolvency
- C) Loss
- D) Liquidation
- Answer: C) Loss
What does the term ‘asset bubble’ refer to?
- A) A rapid increase in asset prices followed by a crash
- B) A stable increase in asset values
- C) A decrease in asset values over time
- D) A constant market value
- Answer: A) A rapid increase in asset prices followed by a crash
Which of the following is a characteristic of common stock?
- A) Fixed dividends
- B) Voting rights
- C) Guaranteed returns
- D) Higher claim on assets than debt holders
- Answer: B) Voting rights
What is a common metric for evaluating mutual fund performance?
- A) Net asset value (NAV)
- B) Market capitalization
- C) Price-to-book ratio
- D) Dividend yield
- Answer: A) Net asset value (NAV)
Which of the following is a common financial ratio used to measure liquidity?
- A) Return on equity (ROE)
- B) Current ratio
- C) Debt-to-equity ratio
- D) Price-to-earnings ratio
- Answer: B) Current ratio
What does ‘credit risk’ involve?
- A) The risk of a company’s stock price dropping
- B) The risk that a borrower will not repay their debt
- C) The risk associated with fluctuating interest rates
- D) The risk of market volatility
- Answer: B) The risk that a borrower will not repay their debt
What is the primary goal of portfolio management?
- A) To invest in high-risk assets
- B) To maximize returns while minimizing risk
- C) To focus solely on dividends
- D) To engage in frequent trading
- Answer: B) To maximize returns while minimizing risk
Which of the following is an example of a fixed-income security?
- A) Common stock
- B) Convertible bond
- C) Real estate investment trust (REIT)
- D) Treasury bond
- Answer: D) Treasury bond
What is the main difference between a traditional IRA and a Roth IRA?
- A) Contribution limits
- B) Tax treatment of withdrawals
- C) Investment options available
- D) Eligibility requirements
- Answer: B) Tax treatment of withdrawals
What is a primary concern when investing in foreign markets?
- A) Interest rate fluctuations
- B) Currency risk
- C) Liquidity issues
- D) Market saturation
- Answer: B) Currency risk
Which of the following is a tax-advantaged retirement account in the U.S.?
- A) 401(k)
- B) Brokerage account
- C) Savings account
- D) Money market account
- Answer: A) 401(k)
What does ‘systematic risk’ refer to?
- A) Risk that is specific to a particular company or industry
- B) Risk that affects the entire market
- C) Risk associated with interest rate changes
- D) Risk of losing principal investment
- Answer: B) Risk that affects the entire market
Which investment strategy involves selecting stocks expected to outperform the market?
- A) Value investing
- B) Growth investing
- C) Income investing
- D) Passive investing
- Answer: B) Growth investing
What does the term ‘liquidation’ refer to?
- A) Selling off assets to pay creditors
- B) The process of acquiring assets
- C) The evaluation of company performance
- D) The issuing of new shares
- Answer: A) Selling off assets to pay creditors
What is the significance of a company’s credit rating?
- A) It indicates the stock’s market price
- B) It assesses the likelihood of default on debt obligations
- C) It determines the dividend payout
- D) It measures market volatility
- Answer: B) It assesses the likelihood of default on debt obligations
Which of the following describes ‘inflation’?
- A) A decrease in the general price level
- B) An increase in the general price level of goods and services
- C) A stable price level
- D) A decline in purchasing power
- Answer: B) An increase in the general price level of goods and services
Which investment type usually has the potential for the highest returns?
- A) Bonds
- B) Treasury bills
- C) Real estate
- D) Stocks
- Answer: D) Stocks
What is the primary characteristic of a savings account?
- A) High returns
- B) Liquidity and safety of principal
- C) Exposure to market risk
- D) Long-term investment horizon
- Answer: B) Liquidity and safety of principal
Which term refers to the proportion of a company’s assets financed by debt?
- A) Debt ratio
- B) Equity ratio
- C) Return on assets
- D) Leverage ratio
- Answer: A) Debt ratio
What is ‘market capitalization’?
- A) The total market value of a company’s outstanding shares
- B) The book value of a company’s assets
- C) The total liabilities of a company
- D) The annual revenue of a company
- Answer: A) The total market value of a company’s outstanding shares
Which of the following is a potential disadvantage of investing in real estate?
- A) High liquidity
- B) Stable income stream
- C) Maintenance costs and illiquidity
- D) Tax benefits
- Answer: C) Maintenance costs and illiquidity
Which investment is typically considered the safest?
- A) Corporate bonds
- B) Government bonds
- C) Stocks
- D) Commodities
- Answer: B) Government bonds
What is the primary advantage of a diversified portfolio?
- A) Guaranteed returns
- B) Reduced overall risk
- C) Higher potential returns
- D) Easier to manage
- Answer: B) Reduced overall risk
What does the term ‘capital structure’ refer to?
- A) The total equity of a company
- B) The mixture of debt and equity used to finance a company’s assets
- C) The organization of a company’s assets
- D) The management of cash flows
- Answer: B) The mixture of debt and equity used to finance a company’s assets
What is the significance of a ‘benchmark’ in investment performance?
- A) It is a measure of risk
- B) It serves as a standard for comparison
- C) It represents total assets
- D) It indicates market volatility
- Answer: B) It serves as a standard for comparison
Which of the following is a characteristic of corporate bonds?
- A) Higher risk than government bonds
- B) Guaranteed interest payments
- C) No credit risk
- D) Fixed dividends
- Answer: A) Higher risk than government bonds
What does ‘portfolio rebalancing’ involve?
- A) Selling all assets and starting over
- B) Adjusting the proportions of different assets in a portfolio
- C) Buying only high-risk assets
- D) Maintaining a constant amount of cash
- Answer: B) Adjusting the proportions of different assets in a portfolio
What is the purpose of an earnings call?
- A) To announce new product launches
- B) To discuss a company’s financial performance with investors
- C) To provide an update on corporate governance
- D) To solicit new investors
- Answer: B) To discuss a company’s financial performance with investors
What does ‘leverage’ mean in finance?
- A) The use of borrowed funds to increase investment potential
- B) The amount of cash in a portfolio
- C) The diversification of assets
- D) The total value of assets owned
- Answer: A) The use of borrowed funds to increase investment potential
Which of the following is a primary goal of corporate finance?
- A) To maximize sales
- B) To minimize costs
- C) To maximize shareholder value
- D) To increase market share
- Answer: C) To maximize shareholder value
What does the term ‘float’ refer to in finance?
- A) The amount of cash available
- B) The total number of shares outstanding
- C) The time difference between issuing a security and receiving cash
- D) The level of market volatility
- Answer: C) The time difference between issuing a security and receiving cash
What is the main goal of behavioral finance?
- A) To predict stock prices using mathematical models
- B) To understand the psychological factors affecting investors’ decisions
- C) To create automated trading systems
- D) To evaluate financial statements
- Answer: B) To understand the psychological factors affecting investors’ decisions
Which of the following describes a ‘REIT’?
- A) A company that invests in real estate and pays dividends to shareholders
- B) A fund that invests only in stocks
- C) A type of bond issued by real estate companies
- D) A method of financing real estate purchases
- Answer: A) A company that invests in real estate and pays dividends to shareholders
What does ‘market efficiency’ imply?
- A) Markets always provide guaranteed returns
- B) All available information is reflected in asset prices
- C) Investors can easily predict future price movements
- D) There are no risks involved in investing
- Answer: B) All available information is reflected in asset prices
Which of the following is an example of a derivative?
- A) Stock
- B) Bond
- C) Option
- D) Real estate
- Answer: C) Option
What is a ‘stock split’? – A) When a company merges with another company – B) When a company divides its existing shares into multiple shares – C) When a company repurchases its own shares – D) When a company issues new shares to raise capital – Answer: B) When a company divides its existing shares into multiple shares