Stock Market Essentials Quiz

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Questions and Answers

What is one of the key factors to consider when executing a stock trade?

Margin of safety

Average worldwide equity return

Time horizon (correct)

Competitive edge

What type of order allows a stock trader to buy or sell at the current bid ask price?

Stop buy order

Stop sell order

Market order (correct)

Limit buy/sell order

Which investment advice emphasizes the importance of having a durable advantage?

Always be competing

Find your passion

Model success on idol/mentor

Have competitive edge, durable advantage (correct)

What type of order is used to sell stock when its price drops, allowing for loss minimization or locking in profit?

Stop sell order Signup and view all the answers

What is one of the key factors to consider when determining overall portfolio management strategy?

Risk tolerance Signup and view all the answers

What type of order allows a stock trader to buy stock above the current market price to get in on increased price momentum?

Stop buy order Signup and view all the answers

What is the average worldwide equity return even after inflation, and what characteristic makes it risky?

5%, high standard deviation Signup and view all the answers

What is the maximum willingness to pay for the stock in the given scenario?

$49.12 Signup and view all the answers

What is the percentage underpricing for the IPO of eBay?

149.33% Signup and view all the answers

What does the money left on the table (MLOT) suggest about the efficiency of the IPO process?

Firms leave money on the table, indicating inefficiency Signup and view all the answers

What is the current market price of the company's share using the Gordon Model?

$22.50 Signup and view all the answers

What is the current stock price of the growing firm that isn't expected to pay dividends for the first 5 years and then expects an annual dividend of $1 per share with no growth?

$6.19 Signup and view all the answers

What is the change in the value of the index from time 0 to time 1 using a value-weighted arithmetic model?

Calculation not provided Signup and view all the answers

What is the primary difference between the Order Driven System and the Quote Driven System?

The Order Driven System is transparent and displays all outstanding trades and orders, while the Quote Driven System offers less transparency but is more liquid Signup and view all the answers

Which valuation model assumes constant dividend growth at a lower rate than the cost of equity?

Gordon Growth Model Signup and view all the answers

What does the Price Earnings Valuation Model use to set the price of stock in relation to earnings?

PE ratio Signup and view all the answers

What is the primary focus when valuing common stock?

Determining future cash flows and discounting them to present at an appropriate rate Signup and view all the answers

Which investment example demonstrates potential bias and uncertainty?

Heineken stock has a high PE ratio, historical evidence shows P/E ratios vary, and analysts' expected price may have bias and uncertainty Signup and view all the answers

What is the main factor in determining stock prices according to the market?

Perceived risk, discount rates, and capital asset pricing model Signup and view all the answers

What has replaced specific trading locations in stock exchanges?

Organized exchanges like NYSE and computer systems like ECNs Signup and view all the answers

What is the primary mission of the Securities Act of 1933/34 enforced by the SEC?

To disclose truthful information about businesses and treat investors fairly Signup and view all the answers

What is the average forecast error of stock analysts during the financial crisis of 2007-2009?

60% Signup and view all the answers

What do ETFs stand for?

Exchange Traded Funds Signup and view all the answers

What is the simplest approach to investing involving regularly buying two types of ETFs?

Global stocks and global bonds, split according to your age Signup and view all the answers

What can impact stock prices and influence bets?

Major changes in a company's business model Signup and view all the answers

What is the purpose of stock market indices such as the Dow Jones Industrial Average?

To monitor the behavior of broad groups of stocks and as benchmarks for mutual funds Signup and view all the answers

What is the impact of the 2007-2009 financial crisis on the Gordon growth model's input parameters?

Led to a significant drop in stock prices Signup and view all the answers

Study Notes

Investing and Stock Market Essentials

Simplest approach to investing involves regularly buying two types of ETFs: global stocks and global bonds, split according to your age, to spread risk
Currency risk and fees should be closely monitored when investing
Valuation errors can occur due to issues estimating growth, risk, and forecasting dividends in pricing models
Major changes in a company's business model can impact stock prices and influence bets
Stock analysts are not always accurate, with an average forecast error of 60% during the financial crisis of 2007-2009
The 2007-2009 financial crisis led to a significant drop in stock prices, impacting the Gordon growth model's input parameters
Events such as 9/11 and the Enron scandal in 2001 lowered growth rates in the Gordon growth model, driving down stock prices
Margin trading involves opening a leveraged account with a broker, using positions in the trading portfolio as collateral
Stock market indices, such as the Dow Jones Industrial Average, are used to monitor the behavior of broad groups of stocks and as benchmarks for mutual funds
ETFs, or Exchange Traded Funds, are a recent innovation to help keep transaction costs down while offering diversification
Buying foreign stocks can be complex, but American Depository Receipts (ADRs) allow US investors to purchase shares of foreign firms
The Securities Act of 1933/34, enforced by the SEC, requires firms to disclose truthful information about their businesses and treats investors fairly, with the primary mission of protecting investors and maintaining the integrity of the securities market

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Description

Test your knowledge of investing and stock market essentials with this quiz. Explore topics such as ETFs, valuation errors, stock analysts' accuracy, events impacting stock prices, margin trading, stock market indices, ETF innovations, buying foreign stocks, and securities regulations.