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- Stock Market 101 Quiz For Seasoned Investors
Stock market 101: Quiz for seasoned investors
1. What is the meaning of a blue-chip stock?
Correct option is D - The stocks of any well-established company with a financially sound background and a history of dependable performance are known as blue chip stocks.
2. What’s the difference between small, mid, and large-cap stocks?
Correct option is D - According to a company’s market capitalisation or market cap, they are divided into small-cap, mid-cap, and large-cap categories. Market capitalisation is calculated by multiplying the total outstanding shares of a company with its share price. Typically, large-cap companies are well-established and stable. Mid-cap companies come with moderate risk and reward. Small-cap companies can be new or niche with a higher growth potential but increased volatility. This classification is used to understand the risk and returns associated with a specific stock.
3. What is the importance of Price to Earning (P/E) ratio?
Correct option is A - The Price to Earnings (P/E) ratio is an essential performance and valuation metric that suggests how much investors are willing to pay for each rupee of a company’s earnings. If the P/E ratio is high, it might mean the market expects high growth in the future. Conversely, if this ratio is low, it might be an indication of potential undervaluation of future prospects. This ratio can be used to compare the performance of companies within the same sector or industry.
4. What is the Price-to-Book (P/B) ratio used for?
Correct option is B - The Price-to-Book (P/B) ratio is a basic metric used to compare the stock’s market price to its book value. This metric can be used to determine whether a specific stock is undervalued or not. Usually, a low P/B ratio might mean undervalued stock or that the market’s expectations from it are low.
5. What does beta of a stock mean?
Correct option is C - Beta is a key concept that’s used to measure the stock’s sensitivity to the market’s movements. It is commonly used by investors to assess the risk of a particular stock and for portfolio management. If the beta is less than 1, it means the stock is less volatile than the market. It means, the stock will usually experience smaller price swings when compared to the market movements. If it is more than one, it means the stock is more volatile than the market. If the beta is one, then it means the stock is moving in sync with the market.
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This content is intended solely for informational purposes. The views expressed in this content are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this content.
