Deck 14: Investing in Stocks

Question 1

A defensive stock is a stock that typically sells for less than $1.

Answer 1

False

Question 2

If a corporation's earnings decline,the stock's value usually increases.

Answer 2

False

Question 3

Because of the need for secrecy,most corporations do not supply financial information about the company on their Web sites.

Answer 3

False

Question 4

If an investor owns cumulative preferred stock,missed or omitted dividends accumulate and must be paid before any cash dividend is paid to common stockholders.

Question 5

A blue-chip stock is too speculative for most investors.

Question 6

The P/E ratio is the price of a share of stock divided by the corporation's earnings per share.

Question 7

By using the Internet,it is possible to find market price quotations,but more detailed financial information about a corporation is unavailable to the average investor.

Question 8

The record date is the date that the actual dividend payment is made to stockholders.

Question 9

A stock split is a procedure in which a stockholder's common stock is exchanged for preferred stock.

Question 10

A stock that pays higher than average dividends is called an income stock.

Question 11

A large cap stock is a stock issued by a company that has capitalization of $10 billion or more.

Question 12

Many investors and analysts believe that a corporation's ability or inability to generate earnings in the future may be one of the most significant factors that account for an increase or decrease in the value of a stock.

Question 13

Convertible preferred stock may be exchanged,at the corporation's option,for a specified number of shares of common stock.

Question 14

An increase in a corporation's earnings per share is a healthy sign.

Question 15

It is common for professional advisory services like Morningstar,Standard & Poor's,and Value Line to charge for more detailed financial information than provided on other Internet Web sites.

Question 16

A proxy is a legal form that lists the issues to be decided at a stockholders' meeting and requests that stockholders transfer their voting rights to some individual or individuals.

Question 17

A cyclical stock is a stock that follows the business cycle of advances and declines in the economy.

Question 18

Since 1926,stocks as measured by the Standard & Poor's 500 Index have returned on average about 10 percent a year.

Question 19

Preferred stock is often referred to as a middle investment as it has features similar to both common stock and corporate bonds.

Question 20

Earnings per share is a corporation's after-tax earnings divided by the number of stockholders.

Question 21

A market order is a request that a stock be purchased or sold at the current market price.

Question 22

Dollar cost averaging helps investors avoid the problem of buying high and selling low.

Question 23

Christopher Pratt just bought shares of common stock.Which one of the following is he entitled to based on his ownership of these shares?

A)semi-annual interest payments
B)guaranteed annual dividends
C)right to vote on major corporate issues
D)right to declare a stock split
E)right to declare future dividends

Question 24

A securities exchange is a marketplace where member brokers who are representing investors meet to buy and sell securities.

Question 25

From an investor's standpoint,an increase in estimates of earnings per share is a good sign.

Question 26

Jeff Goldblum has just purchased a security which has no maturity date and no promised payments.He can recoup his investment by either selling the security to another individual or to the issuer,if the issuer ever makes an offer to buy it.What type of security did Jeff purchase?

A)stock option
B)corporate bond
C)government bond
D)preferred stock
E)common stock

Question 27

Amy Farmer just received a legal form in the mail from a firm in which she owns stock.This form lists the issues to be decided at the annual stockholders' meeting and asks her to give written permission for someone else to vote for her if she cannot attend.What form has she received in the mail?

A)equity
B)proxy
C)voting rights
D)dividends
E)call option

Question 28

The Beta is a measure that compares the volatility associated with a specific stock issue with the volatility of the Standard & Poor's 500 Index.

Question 29

The minimum commission charged by most brokerage firms for buying or selling stock is between $7 and $35.

Question 30

Stocks issued by large corporations in mature industries often have high PE ratios.

Question 31

A limit order allows investors to specify the price at which a security will be bought or sold.

Question 32

The total return on a stock is equal to the current market value of the stock minus the investor's purchase price.

Question 33

Most speculators use a buy and hold technique.

Question 34

The annualized holding period yield calculation takes into account the time the investment is held.

Question 35

The fundamental theory is based on the assumption that a stock's intrinsic or real value is determined by the future earnings of the company.

Question 36

The dividend yield for a stock investment is calculated by dividing the annual dividend by the stock's current market value.

Question 37

The book value for a share of stock is determined by deducting all liabilities from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock.

Question 38

When investors purchase stock on margin,they borrow stock from a stockbroker or brokerage firm.

Question 39

An investment bank is a financial institution that assists corporations with issuing new shares of stock.

Question 40

A call option gives the purchaser the right to sell 100 shares of a stock at a guaranteed price before a definite expiration date.

Question 41

James Brewer purchased 100 shares of stock for $72 a share.James also paid $55 commission.What was the total purchase price for this transaction?

A)$55.00
B)$127.00
C)$7,237.50
D)$7,255.00
E)$7,347.50

Question 42

Orlando Blodgett is buying stock in the Getaway Caribbean Cruise Company today.He had thought about buying the stock yesterday and if he had,he would have received this quarter's dividend.However,since he waited until today,he will not receive that dividend payment.Given this information,which one of the following dates applies to this stock today?

A)record date
B)ex-dividend date
C)payment date
D)stock split date
E)stock repurchase date

Question 43

Arnell Johnson bought 200 shares of Black Petroleum Company for $95 per share and paid a commission of $60.He sold the stock five years later for $120 per share and paid $75 commission.While he held the stock,it paid a dividend of $5.50 per share.What was Arnell's total dollar return on this stock?

A)$5,000
B)$4,865
C)$1,100
D)$6,100
E)$5,965

Question 44

Equity financing is a popular choice to provide long-term financing for a corporation because:

A)a lender is always available to provide this type of financing.
B)it does not have to be repaid.
C)repayment doesn't have to be made for ten years or more.
D)only interest must be paid for the first five years.
E)it does not cost anything to sell in the primary market.

Question 45

To raise capital,many corporate financial managers prefer selling common stock because:

A)it doesn't have to be repaid until 10 to 15 years after it has been issued.
B)interest payments to stockholders are lower than interest paid to a bank.
C)common shareholders have no voting rights.
D)interest paid to stockholders is tax deductible.
E)the money obtained from stockholders does not have to be repaid.

Question 46

Dividends remain with the stock until:

A)two business days before the date of record.
B)two business days after the date of record.
C)three days before the date of record.
D)three days after the date of recorD.
E)three days before the actual payment datE.

Question 47

Patsy Banz owns 220 shares of a stock.For the last calendar quarter,the company paid a dividend of $0.47 a share.What is the total amount she received in her dividend check for this quarter?

A)$0.47
B)$47.00
C)$94.20
D)$103.40
E)$25.85

Question 48

Beverly Frickel purchased 100 shares of Gleason Systems stock for $42.50 per share.Her commission for this purchase was $35.She sold the stock two years later for $55 per share and a commission of $50.While she held the stock it paid a dividend of $1.50 per share.What was Beverly's total dollar return on this stock?

A)$1,250
B)$1,165
C)$1,500
D)$1,315
E)$1,400

Question 49

The federal government requires corporations selling new issues of securities to disclose information about itself in a prospectus.Which of the following must be disclosed?

A)corporate earnings
B)assets and liabilities
C)products or services
D)qualifications of top management
E)all of the items listed in the other answers

Question 50

Which one of the following statements is true?

A)Corporations are required by law to report all activities to their stockholders each month.
B)Stockholders must approve major changes to corporate policies.
C)Stockholders must approve the sale of all goods and services by the company.
D)Corporations are required by law to have two stockholder meetings each year.
E)Stockholders may vote only by proxy.

Question 51

If the board of directors approves a two-for-one stock split,an investor who owns 150 shares before the split will own ____________ shares after the split.

A)75
B)150
C)225
D)300
E)450

Question 52

ABC Corporation holds its annual meeting in April.Maxine Star,who owns stock in the company,cannot attend the meeting.She can vote by:

A)voluntary certificate.
B)preemptive right.
C)proxy.
D)cumulative certificate.
E)participatory certificatE.

Question 53

Common stock dividends are paid out of profits and:

A)must be approved by the firm's board of directors.
B)are guaranteed to be paid quarterly.
C)are paid prior to the firm's taxes.
D)usually paid semi-annually.
E)equal 100 percent of the firm's annual earnings.

Question 54

James Green just bought a security which he expects will provide him with a quarterly cash payment,although that payment is not guaranteed.In fact,he expects the amount of the payment to vary over time.What type of payment is he expecting to receive?

A)option premium
B)interest
C)capital gain
D)dividend
E)rebate

Question 55

Gaby Williams is thinking about buying some stock but wants some protection should the issuer miss paying a dividend payment.Which one of the following features would help provide this protection?

A)convertible
B)callable
C)cumulative
D)cancellable
E)common

Question 56

Sean Rouse owns shares of common stock in Stowaway Transportation Company.The company is getting ready to pay a dividend.Sean knows he must be registered on the corporation's books on the date in order to receive the dividend.

A)record
B)ex-dividend
C)payment date
D)declaration
E)stockholders' meeting

Question 57

Valerie Kilmer owns stock in the Williams Widget Company.She was just advised that in the near future she will be receiving two shares for every one share she owns today.What has the company declared that will cause this change to her shares?

A)extra dividend
B)capital gains distribution
C)stock split
D)stock repurchase
E)stock conversion

Question 58

Jo Bower purchased 150 shares of stock for $24 a share and sold it for $30 a share.The commissions required to buy and sell her stock totaled $120.Assuming she received no dividends during the time she owned the stock,what is her total return on this investment?

A)$600
B)$780
C)$900
D)$2,400
E)$3,000

Question 59

Which one of the following statements is true?

A)Board members are appointed by a company's CEO.
B)Stockholders do not pay taxes on stock dividends.
C)Intelligent investors should be concerned about future after-tax corporate profits when investing.
D)If a cash dividend is declared by the board of directors,each stockholder will receive a different dollar amount depending on the length of time they have owned their shares.
E)Corporate dividends are always paid in cash.

Question 60

Lindsey Holt owns stock in the Galloway Gems Company.She knows she will receive a $1.50 dividend each quarter.Given this,you know for sure that she purchased which type of stock?

A)preferred
B)common
C)blue chip
D)growth
E)penny

Question 61

A stock that pays higher than average dividends is called a(n)____________ stock.

A)defensive
B)cyclical
C)growth
D)income
E)blue-chip

Question 62

Mellon Manufacturing has after-tax income of $3 million.It also has 2 million shares of stock outstanding.What is the firm's earnings per share?

A)$3.00
B)$2.00
C)$1.50
D)$0.67
E)$0.75

Question 63

A very safe investment that generally attracts conservative investors is called a(n)____________ stock.

A)penny
B)cyclical
C)growth
D)small cap
E)blue chip

Question 64

A stock issued by a corporation that has the potential of earning above-average profits when compared to other firms in the economy is called a(n)____________ stock.

A)defensive
B)cyclical
C)growth
D)income
E)blue-chip

Question 65

The type of stock in which stockholders are assured that omitted dividends will be paid to them before other dividends are paid is ____________ stock.

A)common
B)convertible preferred
C)participating preferred
D)cumulative preferred
E)callable preferred

Question 66

George Clancy wants to diversify his portfolio by adding a stock that has a value which moves in direct relation to the business cycle.What type of stock is George thinking about adding to his portfolio?

A)defensive stock
B)cyclical stock
C)small-cap stock
D)blue-chip stock
E)growth stock

Question 67

A stock that follows the business cycle of advances and declines in the economy is called a(n)____________ stock.

A)defensive
B)cyclical
C)growth
D)income
E)blue-chip

Question 68

A stock that remains stable during declines in the economy is called a(n)____________ stock.

A)defensive
B)cyclical
C)growth
D)income
E)blue-chip

Question 69

Kay Powers wants to diversify her portfolio by investing in a firm that has the potential to earn above average profits compared to other firms in the economy.What type of stock is Kay thinking about adding to her portfolio?

A)defensive stock
B)cyclical stock
C)small cap stock
D)blue chip stock
E)growth stock

Question 70

A stock that sells for less than $1 per share is called a _____ stock.

A)fractional
B)penny
C)dollar
D)ten-dollar
E)coin

Question 71

The federal government requires that a corporation selling a new issue of securities must disclose information about the company and its finances in a(n):

A)annual report.
B)quarterly report.
C)accountant's audit report.
D)prospectus.
E)stock guidE.

Question 72

Which one of the following statements is true?

A)It is possible to obtain financial information about a corporation that issues stock by using the Internet.
B)While it is possible to obtain information about a company by accessing the Internet,the information is usually out of date.
C)You can use an Internet search engine to only access a company's price information.
D)Corporations have web pages but do not provide any financial information on them.
E)By using the Yahoo! Finance web site,investors can access financial information only about the economy as a wholE.

Question 73

Sean Barber wants to invest in a stock that is relatively safe,suitable for conservative investors,and less speculative than other stocks.What type of stock best fits Sean's requirements?

A)midcap stock
B)cyclical stock
C)small-cap stock
D)blue-chip stock
E)growth stock

Question 74

Which type of preferred stock can be exchanged for common stock at the stockholder's option?

A)none of the other answers
B)convertible
C)participating
D)cumulative
E)callable

Question 75

Barker Creek Clothing has after-tax income of $12.8 million.It also has 32 million shares of stock outstanding.What is the firm's earnings per share?

A)$4.48
B)$3.20
C)$1.28
D)$0.40
E)$0.80

Question 76

Which one of the following is a true statement?

A)When choosing a stock advisory service that charges fees for their investment advice,the quality of the information is always excellent.
B)Mergent's Investors Service only provides information about bonds.
C)Value Line provides information about bonds and mutual funds,but not common stocks.
D)The information provided by investors' services consists of simple alphabetical listings only.
E)Online computer services may be used to research companies and to obtain current stock prices.

Question 77

Which one of the following statements is false?

A)Numerical measures can help investors decide if it is time to buy or sell a stock.
B)Future earnings may be one of the most significant measures to examine when evaluating a stock.
C)Higher earnings generally equate to higher stock value.
D)Corporate earnings are reported in a firm's annual report.
E)To date,it is impossible to determine corporate earnings by using the Internet.

Question 78

By using the Yahoo! Finance website,an investor can find all of the following information on a stock except its:

A)historical prices.
B)stock symbol.
C)current market value.
D)most recent dividenD.
E)actual rate of return for the next year.

Question 79

Anthony Edwards wants to diversify his portfolio by adding a stock that maintains a stable value when the economy declines.What type of stock does Anthony want to add to his portfolio?

A)defensive stock
B)cyclical stock
C)small-cap stock
D)blue-chip stock
E)growth stock

Question 80

When a stock splits two-for-one,you should expect the price per share to:

A)decrease to half its pre-split price.
B)decrease in value by 75 percent or more.
C)remain unchanged.
D)increase to more than twice its pre-split price.
E)increase to twice its pre-split pricE.