Equity Markets MCQs
What is an equity market?
A) A market where bonds are traded.
B) A market where stocks (equities) are bought and sold.
C) A market for commodities.
D) A market for real estate.
Answer: B) A market where stocks (equities) are bought and sold.
What does the term “stock” refer to?
A) A loan taken by a company.
B) Ownership in a company.
C) A type of bond.
D) A company’s fixed asset.
Answer: B) Ownership in a company.
What is a common stock?
A) A type of bond with fixed interest payments.
B) A type of stock that provides ownership in a company with voting rights.
C) A financial derivative.
D) A preferred stock with guaranteed dividends.
Answer: B) A type of stock that provides ownership in a company with voting rights.
What is a preferred stock?
A) A stock that offers no dividends but has voting rights.
B) A stock that gives its holders preference in dividend payments but usually lacks voting rights.
C) A stock with a guaranteed return on investment.
D) A type of equity with unlimited risk.
Answer: B) A stock that gives its holders preference in dividend payments but usually lacks voting rights.
Which of the following best describes an “initial public offering” (IPO)?
A) The sale of new shares to the public for the first time.
B) The purchase of existing shares from other investors.
C) The redemption of bonds by a company.
D) The trading of stocks on the secondary market.
Answer: A) The sale of new shares to the public for the first time.
What is the primary purpose of a stock exchange?
A) To facilitate the buying and selling of stocks and other securities.
B) To provide loans to companies.
C) To regulate corporate taxation.
D) To issue government bonds.
Answer: A) To facilitate the buying and selling of stocks and other securities.
Which of the following is an example of a stock market index?
A) The S&P 500
B) The Dow Jones Industrial Average (DJIA)
C) The Nasdaq Composite
D) All of the above
Answer: D) All of the above
What does “market capitalization” refer to?
A) The total value of a company’s outstanding shares of stock.
B) The total revenue of a company.
C) The value of a company’s bonds.
D) The total number of shares issued by a company.
Answer: A) The total value of a company’s outstanding shares of stock.
In equity markets, what is a “bull market”?
A) A market condition where stock prices are rising or expected to rise.
B) A market condition where stock prices are falling.
C) A market characterized by high trading volume and volatility.
D) A market where companies issue bonds.
Answer: A) A market condition where stock prices are rising or expected to rise.
What is a “bear market”?
A) A market condition where stock prices are falling or expected to fall.
B) A market with rising stock prices.
C) A market characterized by low trading volume.
D) A market focused on commodity trading.
Answer: A) A market condition where stock prices are falling or expected to fall.
What does “liquidity” mean in the context of equity markets?
A) The ease with which an asset can be bought or sold in the market without affecting its price.
B) The amount of debt a company has.
C) The volatility of stock prices.
D) The rate of return on investments.
Answer: A) The ease with which an asset can be bought or sold in the market without affecting its price.
What is a “dividend”?
A) A portion of a company’s earnings distributed to shareholders.
B) The interest earned on a bond.
C) The fee paid to brokers for trading stocks.
D) A tax levied on stock transactions.
Answer: A) A portion of a company’s earnings distributed to shareholders.
What does “price-to-earnings ratio” (P/E ratio) measure?
A) The valuation of a company’s stock relative to its earnings.
B) The dividend yield of a stock.
C) The total market value of a company.
D) The company’s annual revenue.
Answer: A) The valuation of a company’s stock relative to its earnings.
Which of the following is NOT a type of stock order?
A) Market order
B) Limit order
C) Stop order
D) Bond order
Answer: D) Bond order
What is a “market order”?
A) An order to buy or sell a stock immediately at the current market price.
B) An order to buy or sell a stock at a specific price or better.
C) An order to hold a stock for a specific period.
D) An order to buy bonds instead of stocks.
Answer: A) An order to buy or sell a stock immediately at the current market price.
What is a “limit order”?
A) An order to buy or sell a stock at a specific price or better.
B) An order to buy or sell immediately at the best available price.
C) An order to cancel a trade.
D) An order to issue new shares.
Answer: A) An order to buy or sell a stock at a specific price or better.
What is a “stop order”?
A) An order to buy or sell a stock once it reaches a specified price, known as the stop price.
B) An order to buy or sell a stock at the current market price.
C) An order to hold a stock for a specific period.
D) An order to issue a dividend.
Answer: A) An order to buy or sell a stock once it reaches a specified price, known as the stop price.
What does “beta” measure in stock analysis?
A) The stock’s volatility relative to the market.
B) The stock’s dividend yield.
C) The stock’s book value.
D) The company’s total revenue.
Answer: A) The stock’s volatility relative to the market.
What is the “Dow Jones Industrial Average” (DJIA)?
A) A stock market index that tracks 30 large, publicly traded companies in the U.S.
B) A measure of the total market capitalization of all stocks.
C) A bond index that tracks U.S. government bonds.
D) A global index that includes stocks from various countries.
Answer: A) A stock market index that tracks 30 large, publicly traded companies in the U.S.
What is an “equity index fund”?
A) A mutual fund that aims to replicate the performance of a specific stock index.
B) A fund that invests primarily in government bonds.
C) A fund that holds only cash equivalents.
D) A fund that invests in real estate properties.
Answer: A) A mutual fund that aims to replicate the performance of a specific stock index.
What is “short selling”?
A) The practice of selling stocks borrowed from a broker with the intention of buying them back at a lower price.
B) The practice of buying stocks with the intention of holding them for a long term.
C) The selling of company bonds.
D) The trading of futures contracts.
Answer: A) The practice of selling stocks borrowed from a broker with the intention of buying them back at a lower price.
What is a “stock split”?
A) A corporate action where a company issues additional shares to shareholders, increasing the number of shares while decreasing the share price proportionally.
B) A division of the company into separate entities.
C) A process of merging with another company.
D) A decrease in the number of shares outstanding without changing the stock price.
Answer: A) A corporate action where a company issues additional shares to shareholders, increasing the number of shares while decreasing the share price proportionally.
What is a “buyback” (share repurchase)?
A) When a company buys back its own shares from the market.
B) When a company issues new shares to the public.
C) When a company sells shares to acquire another company.
D) When shareholders sell their shares to each other.
Answer: A) When a company buys back its own shares from the market.
What is an “equity risk premium”?
A) The additional return expected from investing in stocks over a risk-free asset, such as government bonds.
B) The risk associated with investing in bonds.
C) The return guaranteed by fixed-income investments.
D) The fee paid to stock brokers.
Answer: A) The additional return expected from investing in stocks over a risk-free asset, such as government bonds.
What does “price-to-book ratio” (P/B ratio) measure?
A) The market value of a company’s stock relative to its book value.
B) The company’s dividend yield.
C) The stock’s volatility.
D) The company’s total revenue.
Answer: A) The market value of a company’s stock relative to its book value.
What is “technical analysis”?
A) The analysis of stock price movements and trading volumes to predict future price movements.
B) The analysis of a company’s financial statements and business model.
C) The study of macroeconomic indicators affecting the stock market.
D) The assessment of a company’s competitive position in its industry.
Answer: A) The analysis of stock price movements and trading volumes to predict future price movements.
What is “fundamental analysis”?
A) The assessment of a company’s financial health, performance, and valuation based on financial statements and other relevant information.
B) The analysis of stock price trends and patterns.
C) The examination of market trends and trading volumes.
D) The evaluation of investment strategies and portfolio management.
Answer: A) The assessment of a company’s financial health, performance, and valuation based on financial statements and other relevant information.
What is an “earnings report”?
A) A quarterly or annual report issued by a company detailing its financial performance and earnings.
B) A report on the company’s market share.
C) A report on the company’s marketing strategies.
D) A report on the company’s bond issuance.
Answer: A) A quarterly or annual report issued by a company detailing its financial performance and earnings.
What does “dividend yield” indicate?
A) The annual dividend paid by a company expressed as a percentage of its stock price.
B) The rate of return on a bond investment.
C) The total return from investing in a company’s bonds.
D) The company’s total revenue divided by the number of shares outstanding.
Answer: A) The annual dividend paid by a company expressed as a percentage of its stock price.
What is “market volatility”?
A) The degree of variation in stock prices over time.
B) The stability of the stock market.
C) The average return on equity investments.
D) The market capitalization of a company.
Answer: A) The degree of variation in stock prices over time.
What does “price-to-sales ratio” (P/S ratio) measure?
A) The market value of a company’s stock relative to its total sales or revenue.
B) The company’s net income relative to its sales.
C) The total revenue relative to the number of shares outstanding.
D) The stock’s volatility compared to the market.
Answer: A) The market value of a company’s stock relative to its total sales or revenue.
Which of the following is NOT a major equity market exchange?
A) New York Stock Exchange (NYSE)
B) NASDAQ
C) London Stock Exchange (LSE)
D) International Monetary Fund (IMF)
Answer: D) International Monetary Fund (IMF)
What is an “index fund”?
A) A mutual fund or ETF that aims to replicate the performance of a specific stock index.
B) A fund that focuses on high-risk stocks.
C) A fund that invests in emerging markets exclusively.
D) A fund that invests only in government bonds.
Answer: A) A mutual fund or ETF that aims to replicate the performance of a specific stock index.
What is “arbitrage”?
A) The practice of taking advantage of price differences in different markets to make a profit.
B) The process of issuing new shares of stock.
C) The investment in high-risk securities.
D) The method of buying and holding stocks for long-term growth.
Answer: A) The practice of taking advantage of price differences in different markets to make a profit.
What does “market order” execution ensure?
A) That the order is executed immediately at the current market price.
B) That the order is executed only at a specified price.
C) That the order is canceled if not executed immediately.
D) That the order is executed at a future date.
Answer: A) That the order is executed immediately at the current market price.
What is the “efficient market hypothesis” (EMH)?
A) The theory that stock prices reflect all available information and thus are always fairly priced.
B) The theory that markets are inefficient and stock prices are unpredictable.
C) The theory that investors can consistently outperform the market.
D) The theory that markets are influenced solely by government policies.
Answer: A) The theory that stock prices reflect all available information and thus are always fairly priced.
What is “capital gain”?
A) The profit earned from selling a stock at a higher price than the purchase price.
B) The dividend income from a stock.
C) The interest earned on bonds.
D) The revenue from the sale of company assets.
Answer: A) The profit earned from selling a stock at a higher price than the purchase price.
What does the “price-to-earnings growth ratio” (PEG ratio) account for?
A) The company’s expected earnings growth rate in addition to its P/E ratio.
B) The market value of the company relative to its book value.
C) The stock’s dividend yield compared to its price.
D) The historical price volatility of the stock.
Answer: A) The company’s expected earnings growth rate in addition to its P/E ratio.
What is the “free float” of a stock?
A) The portion of a company’s shares that are available for trading in the open market.
B) The number of shares held by company insiders.
C) The amount of cash a company has on hand.
D) The shares that are not subject to regulatory restrictions.
Answer: A) The portion of a company’s shares that are available for trading in the open market.
What is the “dividend payout ratio”?
A) The percentage of earnings paid out as dividends to shareholders.
B) The total dividend paid divided by the number of shares outstanding.
C) The ratio of stock price to earnings per share.
D) The proportion of company earnings retained for reinvestment.
Answer: A) The percentage of earnings paid out as dividends to shareholders.
What does “over-the-counter” (OTC) trading refer to?
A) The trading of stocks not listed on formal exchanges, typically through a network of dealers.
B) The trading of bonds on major stock exchanges.
C) The purchase of shares during an IPO.
D) The trading of commodities like oil and gold.
Answer: A) The trading of stocks not listed on formal exchanges, typically through a network of dealers.
What is a “blue-chip stock”?
A) A stock of a well-established company with a history of reliable performance and strong financials.
B) A stock of a newly established company with high growth potential.
C) A stock with high volatility and risk.
D) A stock that is typically traded on the OTC market.
Answer: A) A stock of a well-established company with a history of reliable performance and strong financials.
What does “diversification” in a stock portfolio aim to achieve?
A) Reducing risk by spreading investments across different assets and sectors.
B) Maximizing returns by investing heavily in a single stock.
C) Ensuring investment in only high-risk stocks.
D) Concentrating investments in emerging markets.
Answer: A) Reducing risk by spreading investments across different assets and sectors.
What is “insider trading”?
A) The illegal buying or selling of stocks based on non-public, material information.
B) The legal trading of stocks by company insiders with public information.
C) The practice of buying stocks at a discount.
D) The sale of stocks on margin.
Answer: A) The illegal buying or selling of stocks based on non-public, material information.
What is the purpose of “margin trading”?
A) To buy stocks using borrowed funds, amplifying potential gains and losses.
B) To trade stocks without any leverage.
C) To invest solely in government bonds.
D) To purchase stocks at a discounted rate.
Answer: A) To buy stocks using borrowed funds, amplifying potential gains and losses.
What does “earnings per share” (EPS) measure?
A) The portion of a company’s profit allocated to each outstanding share of common stock.
B) The total revenue generated by the company.
C) The number of shares outstanding.
D) The market capitalization of the company.
Answer: A) The portion of a company’s profit allocated to each outstanding share of common stock.
What is “swing trading”?
A) The strategy of holding stocks for a short period to capitalize on price swings.
B) The long-term holding of stocks for dividend income.
C) The practice of trading bonds instead of stocks.
D) The investing in real estate properties for short-term gains.
Answer: A) The strategy of holding stocks for a short period to capitalize on price swings.
What does “short interest” indicate?
A) The total number of shares sold short but not yet covered or closed.
B) The level of interest rates on bonds.
C) The amount of time a stock has been listed on the exchange.
D) The level of market volatility.
Answer: A) The total number of shares sold short but not yet covered or closed.
What is “high-frequency trading” (HFT)?
A) A trading strategy that involves executing a large number of orders at extremely high speeds.
B) The practice of holding stocks for several years.
C) The trading of physical goods in the market.
D) The analysis of market trends and economic indicators.
Answer: A) A trading strategy that involves executing a large number of orders at extremely high speeds.
What is a “rights offering”?
A) An offering where a company gives existing shareholders the right to buy additional shares at a discounted price.
B) The process of issuing new bonds.
C) The purchase of shares from another investor.
D) The issuance of stock options to employees.
Answer: A) An offering where a company gives existing shareholders the right to buy additional shares at a discounted price.