Question 1

All of the following are the problems associated to the Dividend Discount Model, EXCEPT:

Accepted Answer

The Dividend Discount Model does not require constant earnings per share, but rather a consistent dividend payout.

Question 2

Long term directs in Dow Theory is depicted through:

Accepted Answer

Long term directs in Dow Theory is depicted through tides. Tides refer to the long-term trends in the market, which can last for months or years. The Dow Theory suggests that these trends can be identified by analyzing the movements of the Dow Jones Industrial Average and the Dow Jones Transportation Average. When both averages are moving in the same direction, it indicates a tide in that direction. Thus, option D is the correct answer.

Question 3

Which one of the following is correct formula for calculating operating margin?

Accepted Answer

Operating margin is calculated by dividing the operating income by the net sales, which gives the percentage of profit a company earned from its revenue, before deducting interest and taxes. Therefore, the correct formula for calculating operating margin is Operating income/Net Sales.

Option A (Net Profit/Net Sales) represents net profit margin, which indicates the percentage of profit a company earned from its sales after all expenses, including interest and taxes, have been deducted.

Option B (Net income/Net Sales) is the same as the net profit margin.

Option D (Operating income/credit sales) is incorrect as it excludes cash sales and does not represent the total revenue earned by the company.

Question 4

Which of the following ratios are of more concern for the shareholders?

Accepted Answer

Shareholders are typically more concerned with the profitability of the company and its level of leverage, as these measures directly impact their returns and the company's ability to pay dividends. While liquidity is important for financial stability, it is not as vital of a concern for shareholders. Activity ratios, while useful for analyzing operational efficiency, do not have as direct of an impact on shareholder returns as profitability and leverage ratios.

Question 5

Which of the following depicts a bullish trend in stock market?

Accepted Answer

The answer of Which of the following depicts a bullish...

Question 6

The industries that are least affected by recessions and economic adversity are referred as which of the following?

Accepted Answer

Defensive industries are those that provide goods and services that are necessary regardless of the state of the economy. These industries typically see consistent demand and steady growth, even during periods of economic hardship. Examples of defensive industries include healthcare, utilities, and consumer staples.

Question 7

On Balance Volume one of technical indicator use _____ as base.

Accepted Answer

On Balance Volume (OBV) is a technical indicator that uses volume as its base to predict changes in stock price.

Question 8

Which of the following statements hold TRUE for ask price?

Accepted Answer

Ask price is the price at which a broker is willing to sell a certain security.

Question 9

Which one of the following is correct formula for calculating gross margin?

Accepted Answer

Gross margin is calculated as the percentage of sales revenue that exceeds the cost of goods sold (COGS). Gross profit is the amount of revenue that exceeds COGS, so dividing gross profit by net sales gives us the gross margin. Therefore, the correct formula is Gross Profit/Net Sales.

Question 10

An account that permits an investor to borrow part of the cost of investment firm a brokerage firm.

Accepted Answer

A margin account allows an investor to borrow funds from a brokerage firm to increase their buying power and potentially increase their return on investment. This also comes with higher risks as losses can also be amplified.

Question 11

Which of the following is the reason stock prices behave the way they do at resistance lines?

Accepted Answer

Resistance lines indicate a level where many investors want to sell, causing a high supply of stocks at that price. As a result, the demand decreases, and the price tends to stagnate or decline.

Question 12

All of the following are characteristics of stop orders EXCEPT:

Accepted Answer

Rapid execution is not a characteristic of stop orders. Stop orders are designed to be executed at a specific price, which may not be the current market price. Therefore, they may not be executed immediately.

Question 13

In which of the following charts days do not matter?

Accepted Answer

Point and figure charts do not show specific dates, but instead focus on price movements over time. The other charts listed all use time as a factor in displaying data.

Question 14

In bottom-up approach of fundamental analysis, investors begin their analysis with:

Accepted Answer

In bottom-up approach, investors begin their analysis with analyzing the company's financial statements, performance, management, growth potential, etc. Therefore, the best choice is D) Company.

Question 15

More investors are using technical analysis now than in earlier periods because:

Accepted Answer

The answer of More investors are using technical analysis now...

Question 16

_____ do not change the collective wealth of shareholders.

Accepted Answer

Stock splits, bonus shares, and right shares do not change the collective wealth of shareholders because they only change the number of shares outstanding without affecting the total value of the company.

Question 17

The circuit breaker that is applied where stock prices in the market are dropping is known as which of the following?

Accepted Answer

The circuit breaker that is applied when stock prices in the market are dropping is known as the "floor" circuit breaker. This is because it sets a threshold for how much a stock can drop in a certain amount of time before trading is halted in order to prevent further losses.

Question 18

Which of the following is the ratio of a company's total market value (price times number of shares) divided by sales?

Accepted Answer

The ratio of a company's total market value (price times number of shares) divided by sales is known as the price to sales ratio. This ratio helps investors to assess the company's stock price relative to its revenue.

Question 19

In which of the following accounts the trading charges are high?

Accepted Answer

Trading charges are usually associated with buying and selling of securities. Cash accounts are typically associated with higher trading charges as compared to other types of accounts. This is because cash accounts usually do not offer margin facilities or other features that can help reduce the impact of trading charges on the overall returns.

Question 20

In which of the following the investors look at the historical perspective?

Accepted Answer

In value investment, investors look at historical data and financial statements to determine if a company is undervalued based on its past performance. This approach focuses on traditional metrics such as price-to-earnings ratio, price-to-book ratio, and dividend yield to determine a company's intrinsic value, making it a historically-based perspective.

Exam 2: Certified Trust and Financial Advisor