FIN351
Investment Fundamentals & Security
Analysis
Comprehensive Test Review (Qns & Ans)
2025
1. Which of the following best describes the concept of
diversification in investment?
- A) Investing in a single asset to maximize returns
- B) Spreading investments across multiple assets to reduce risk
- C) Focusing on high-risk, high-reward investments
- D) Investing only in government securities
- ANS: B) Spreading investments across multiple assets to
reduce risk
©/2025
, - Rationale: Diversification involves spreading investments
across multiple assets to reduce risk and minimize the impact of
poor performance in any single investment.
2. What is the primary purpose of fundamental analysis in
security analysis?
- A) To predict short-term price movements
- B) To analyze past market trends
- C) To evaluate a company's intrinsic value
- D) To determine investor sentiment
- ANS: C) To evaluate a company's intrinsic value
- Rationale: Fundamental analysis aims to evaluate a
company's intrinsic value by analyzing financial statements,
industry conditions, and economic factors.
3. Which of the following ratios is used to measure a company's
ability to meet its short-term financial obligations?
- A) Debt-to-equity ratio
- B) Price-to-earnings ratio
- C) Current ratio
- D) Return on equity
- ANS: C) Current ratio
©/2025
, - Rationale: The current ratio measures a company's ability to
meet its short-term financial obligations by comparing its current
assets to its current liabilities.
Fill-in-the-Blank Questions
4. The __________ model is used to determine the expected
return on an investment based on its risk relative to the market.
- ANS: Capital Asset Pricing Model (CAPM)
- Rationale: The Capital Asset Pricing Model (CAPM) is
used to determine the expected return on an investment based on
its systematic risk relative to the market.
5. __________ analysis involves studying historical price and
volume data to predict future price movements of securities.
- ANS: Technical
- Rationale: Technical analysis involves studying historical
price and volume data to predict future price movements of
securities.
6. The __________ ratio is a measure of a company's
profitability and is calculated by dividing net income by total
revenue.
- ANS: Profit margin
©/2025
, - Rationale: The profit margin ratio measures a company's
profitability by dividing net income by total revenue, indicating
how much profit is generated from each dollar of revenue.
True/False Questions
7. True or False: A high price-to-earnings (P/E) ratio always
indicates that a stock is overvalued.
- ANS: False
- Rationale: A high P/E ratio does not always indicate that a
stock is overvalued. It may also suggest strong future growth
prospects or high investor confidence.
8. True or False: The Efficient Market Hypothesis (EMH)
asserts that all available information is fully reflected in stock
prices.
- ANS: True
- Rationale: The Efficient Market Hypothesis (EMH) asserts
that all available information is fully reflected in stock prices,
making it difficult to consistently achieve above-average returns.
9. True or False: Dividend yield is calculated by dividing the
annual dividend per share by the stock's price per share.
- ANS: True
©/2025
Investment Fundamentals & Security
Analysis
Comprehensive Test Review (Qns & Ans)
2025
1. Which of the following best describes the concept of
diversification in investment?
- A) Investing in a single asset to maximize returns
- B) Spreading investments across multiple assets to reduce risk
- C) Focusing on high-risk, high-reward investments
- D) Investing only in government securities
- ANS: B) Spreading investments across multiple assets to
reduce risk
©/2025
, - Rationale: Diversification involves spreading investments
across multiple assets to reduce risk and minimize the impact of
poor performance in any single investment.
2. What is the primary purpose of fundamental analysis in
security analysis?
- A) To predict short-term price movements
- B) To analyze past market trends
- C) To evaluate a company's intrinsic value
- D) To determine investor sentiment
- ANS: C) To evaluate a company's intrinsic value
- Rationale: Fundamental analysis aims to evaluate a
company's intrinsic value by analyzing financial statements,
industry conditions, and economic factors.
3. Which of the following ratios is used to measure a company's
ability to meet its short-term financial obligations?
- A) Debt-to-equity ratio
- B) Price-to-earnings ratio
- C) Current ratio
- D) Return on equity
- ANS: C) Current ratio
©/2025
, - Rationale: The current ratio measures a company's ability to
meet its short-term financial obligations by comparing its current
assets to its current liabilities.
Fill-in-the-Blank Questions
4. The __________ model is used to determine the expected
return on an investment based on its risk relative to the market.
- ANS: Capital Asset Pricing Model (CAPM)
- Rationale: The Capital Asset Pricing Model (CAPM) is
used to determine the expected return on an investment based on
its systematic risk relative to the market.
5. __________ analysis involves studying historical price and
volume data to predict future price movements of securities.
- ANS: Technical
- Rationale: Technical analysis involves studying historical
price and volume data to predict future price movements of
securities.
6. The __________ ratio is a measure of a company's
profitability and is calculated by dividing net income by total
revenue.
- ANS: Profit margin
©/2025
, - Rationale: The profit margin ratio measures a company's
profitability by dividing net income by total revenue, indicating
how much profit is generated from each dollar of revenue.
True/False Questions
7. True or False: A high price-to-earnings (P/E) ratio always
indicates that a stock is overvalued.
- ANS: False
- Rationale: A high P/E ratio does not always indicate that a
stock is overvalued. It may also suggest strong future growth
prospects or high investor confidence.
8. True or False: The Efficient Market Hypothesis (EMH)
asserts that all available information is fully reflected in stock
prices.
- ANS: True
- Rationale: The Efficient Market Hypothesis (EMH) asserts
that all available information is fully reflected in stock prices,
making it difficult to consistently achieve above-average returns.
9. True or False: Dividend yield is calculated by dividing the
annual dividend per share by the stock's price per share.
- ANS: True
©/2025
